(Editor’s Note: This article originally appeared in the Spring 2017 issue of Appraisal Buzz Magazine)
If you are an appraiser, it is likely that at some point in your career you will receive notice that a complaint was filed against you. In one particular busy year in Texas, roughly one in six residential appraisers were filed against with the Texas Appraiser Licensing and Certification Board. When you run the number of complaints in one year against the number of appraisers, one can expect a complaint every eight to ten years.
First Things First
When you receive notice of a complaint, the clock begins and you have only a certain amount of time to answer the complaint and provide the workfile. In some states that time period may be twenty days or less. The following are suggestions of what you should do.
- Contact an attorney that is familiar with defending appraisers at the state board. This may seem unnecessary but after defending over 400 appraisers I have determined that being a good appraiser does not mean one can effectively defend the appraisal, especially when emotions are raw and when the setting is in unfamiliar territory such as a state board. Your insurance company may have a list of attorneys that can assist you.
- The same day you receive the notice of complaint, contact your insurance carrier. Most policies require that the appraiser contact the insurance company within 30 to 60 days. Mere notice of a complaint should not affect your insurance coverage and most insurers provide up to $2,500 for board enforcement defense. You should directly pay the attorney and receive reimbursement from the insurance company. If you don’t contact the insurance company in the required time, they will not reimburse the $2,500 and they will decline coverage in case of a lawsuit.
- Consider using a consultant to assist with the answer of the complaint. There are consultants, usually USPAP instructors, and in some cases previous investigation officers from appraisal boards, that provide consultation services for a fee. The insurance company will not pay for the consultant. You may ask your attorney to employ the consultant and pay them, then the cost can be within the $2,500 fee that most insurance companies pay. When I practiced in the defense of appraisers, I had two different consultants I used and paid them directly
- Consider asking for an extension of time to provide a detailed response. If you employ an attorney, the attorney can ask for the extension. Do this early in the process in case it is denied.
Who files complaints?
Complaints are filed by banks, borrowers, owners, agents, other appraisers and often are board-initiated. Early on, most complaints were filed by financial institutions. Now, the market is aware that appraiser boards exist and complaints are filed by virtually any stakeholder to a mortgage transaction. Because of current banking laws, banks are required to initiate complaints when they believe an appraisal does not comply with USPAP.
Once a complaint is filed, the board must look at the entire appraisal and report for USPAP compliance and not just for reasons listed by the complainant. An appraiser who receives a complaint must address the answer to all potential USPAP concerns and not only the basis of the complaint. This cannot be stressed enough but appraisers usually cannot get past the listed reasons the complaint was filed, or the circumstances behind the complaint, or the personalities of the parties involved in the complaint process. It is important to view all of that as “noise” and answer the complaint based upon (1) the reason given on the complaint for the filing and (2) defense of the appraisal report for all USPAP compliance. Often too much energy and time is spent on the appraiser answering the complaint or addressing why it should not have been filed.
Basics of an Appraisal in a Board Action
Do not confuse the appraisal with the report of the appraisal. Standard 1 governs the process of the appraisal and Standard 2 the report. The following are required in a report:
- It must be consistent with the intended use. This requirement brings in client requirements that are agreed upon in the assignment. This is the primary focus of a report and not the requirements of Standard 2-2(a) regarding Summary Reports.
- It must contain sufficient information to enable the intended users to understand it properly.
- It must show you complied with Standard 1 in your development.
- Once you have met the first three above, then you look to see if the report has the minimum requirements of Standard 2-2(a). You should carefully check the report to see the minimums are met and that the three requirements above are defensible. There are 12 subparts in SR 2-2(a). The following is a break-down of the requirements in SR 2-2(a).
a. Seven rules that begin with “state” (a certain statement must be made)
b. Four rules that begin with “summarize” (a certain summary must be provided)
c. One certification rule in accordance with Standards Rule 2-3
Be prepared to defend your exclusion of approaches to value, comparables selected, adjustments made, land value and cost approach if performed, summary of the analysis of highest & best use and summary of analysis of the sales and listing history of the subject and possibly the comparables. Check your report for any cloning errors that may have bled over from a previous assignment. Most reports show little analyses and canned reconciliations. Just because the report has limited writing does not mean the appraiser did not conduct the analysis. Defend this from your workfile.
Workfile
A workfile is a concept. It can include all digital information as well as paper files, etc. You should comprehensively accumulate all information you had available when you conducted the appraisal. This includes any information, data or documentation that you incorporated by reference. Although it is time consuming, you must prepare the workfile up-front in the process and not attempt to provide pieces as the process continues. The best chance of success is to spend the time necessary to get the best chance of a dismissal.
Summary
This summary of considerations should not be substituted for professional help. Seek assistance early in the process when you first receive your notice of complaint.
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