Two of the valuation industry’s top subject matter experts discuss the ongoing issues with Appraisal Independence. Frank Gregoire, appraiser and owner of Gregoire & Gregoire, Inc. and Joshua Walitt, Compliance Manager for Property Interlink have both been appraising for well over 25 years. They have been heavily involved in organizations for the betterment of the appraisal industry.
On April 30, 2019 Appraisal Buzz has arranged for these two subject matter experts to take an even deeper dive into valuation independence, regulatory issues, practical applications, and what is (and is not) allowed in client interactions with appraisers.
Buzz: There are many rules related to this concept of “independence”, what exactly are the rules designed to do?
Josh: If you read the various sets of rules, you find very quickly that they have many similarities between them, but they each have some unique aspects. For example, HUD Handbook 4000.1 includes a unique requirement related to providing written notice to an appraiser when he or she is removed from an institution’s list of FHA appraisers. Many items, though, are practically word-for-word from one of the rules to another.
The sets of valuation independence rules focus on communication and behavior with the party preparing the valuation and the party managing the valuation function, centering on what is prohibited, what is allowed, and what is expected to occur. As examples of these concepts, an appraiser may not be coerced, an appraiser may be asked to add additional support or clarification to a report, and the appraiser must be engaged by the lender or its AMC (but not by loan production), respectively.
Buzz: you have extensive experience related to state board actions – Can you explain how independence issues can put an appraiser in the crosshairs of the state?
Frank: Issues related to appraiser independence can result in scrutiny from state appraisal regulatory agencies in a number of different ways. Remember, the state regulators often receive a wealth of supporting documentation from lenders and appraisal management companies that may be parties to the complaint. Additionally, if the state regulates appraisal management companies, the state may be able to obtain their workfile or order file and all their communication with the appraiser. It’s not uncommon to find incriminating comments in the workfile or appraiser communications.
Buzz: What other common regulatory hot topics do you encounter?
Frank: Another area of regulatory concern is multiple versions of appraisal reports with varying assignment results, but the same effective date and report date. Just because the appraiser delivered what they believed to be the FINAL Appraisal Report, does not necessarily mean that the lender or AMC discarded the prior Appraisal Reports. Appraisers must pay attention to their obligation to not mislead the client and intended users, and correctly state the effective date and report date.
Buzz: What do you think is the number one appraiser misconception about Appraiser Independence Requirements?
Frank: Some appraisers tend to believe that any communication from an interested party (buyer, seller, agent, lender, appraisal management company) is an infringement on appraiser independence requirements or USPAP. What is prohibited are attempts to influence the appraiser. Interested parties providing information or expressing concern prior to the completion of the appraisal most likely does not meet the thresholds established in law or GSE Appraiser Independence Requirements. Requests from underwriters or appraisal management companies for clarification or explanation do not impair the independence of an appraiser. Neither does a request to fully comply with the terms of engagement, or to consider what may be a more appropriate comparable sale
Buzz: What do you think is the number one lender misconception about Appraiser Independence Requirements?
Frank: Lenders must understand the distinction between “instruction” and “request”. Some see no problem with instructing an appraiser to remove comparable sales from a completed appraisal report in favor of their own selection, or to remove comments referencing adverse physical condition or external influences. A request to consider additional comparable sales would be more appropriate, along with a request to provide additional explanation for the selection or exclusion of specific comparable sales.
Josh: There have been times where an underwriter strongly believes that an appraiser’s adjustments or choice of comps are “way off”. However, no one can simply ask the appraiser to remove a certain comp or to raise or lower an adjustment amount. I remember a file where the underwriter strongly believed that there were better comps that should have been used, so they wanted a second appraisal. I asked for more detail from the first appraiser on a few key elements of the appraisal, and the underwriter was able to understand the appraiser’s process and the lender used the appraisal for its lending decision.
Both lenders and AMCs must live up to federal and state expectations prohibiting instructing appraisers and “shopping” appraisals. Many times, a reviewer like myself can help to bridge the gap between lender and appraiser, by speaking each one’s language.
Buzz: This is great information. What other issues will you be covering in the upcoming webinar:
Josh: We will review a variety of the types of appraisal independence that can and do occur. We will discover where appraisers report suspected violations of valuation independence, and where appraisers can go to get additional information when and if an appraisal independence issue appears. the industry faces more and more obstacles and it is important to know how to effectively report problems. Discover real answers to the real questions in the upcoming webinar
Buzz: Thank you for being with us. We can’t wait to hear more at the upcoming webinar on April 30.