Managing your own business can be tough. You will have a lot of responsibilities, least of all ensuring you don’t step into a liability trap. Appraisers are all too familiar with this. Managing risk is an important part of running your business. Are you doing all you can to protect yourself? Today attorney, appraiser and teacher, Ted Whitmer, joins us to talk about liability.
Buzz: Ted thank you for joining us, firstly, tell us your history in this business.
Ted: I graduated in January 1982 with an MBA in finance from Texas A&M University. I enrolled in law school in 1983 and attended part-time until I graduated in 1988 and passed the Texas bar exam that same year. I was designated with the MAI in 1985. I started the Comprehensive Appraisal Workshop in 1988 to review candidates for the Comprehensive Examination. Currently, I have three lines of work. I still teach seminars and courses on appraising and litigation support. I work as an expert witness in appraisal related cases. Thirdly, I practice law, mainly defending appraisers who have a complaint with the Texas Appraiser Licensing and Certification Board.
Buzz: What are some notable cases you’ve worked on in the appraisal industry?
Ted: I am currently working on a condemnation case that went to the Texas Supreme Court and was remanded back for a new trial. This case is an important case in Texas eminent domain law. I have also worked on property tax cases, FHFA and FDIC cases. I’ve also served as an expert witness in a criminal fraud case and have testified in board enforcement cases.
Buzz: What would you say is the most interesting case you’ve worked on?
Ted: The current condemnation case that I’m working on (Enbridge) is interesting because it has so many novel legal issues.
Buzz: What’s something common that an appraiser might do to get themselves in trouble?
Ted: Oh there are a lot of things. I’m going to switch gears on this question. I answered the previous questions based on my expert witness experience. I will address this question from the perspective of my legal defense. Most of my cases involve residential appraisers.
Some common errors are:
- The neighborhood statistics are not supported from an objective MLS run
- The zoning is not exact
- There is no summary of the determination of highest & best use
- The cost approach is not supported (often the appraiser quotes Marshall but has never owned it and the land value has no support)
- Canned statements are used with no report or workfile backup (statements such as “the following land value is derived from either sales, or tax values or abstraction…” gets the appraiser in real trouble.)
- Certification related to inspections or significant professional appraisal assistance (often, inspection is defined by your agreement with the client as to the scope),
- Sales are not the best locationally, physically or functionally. This often happens because the appraiser believes they must “bracket” sales. An appraiser should never substitute a good sale for one to simply bracket. In fact, the appraiser should appraise the property first, then if they must use other sales to bracket, put them in a report and give those sales NO weight.
- Failing to show the results of the analyses of any history of the subject (the requirement is not to merely report the history but report the results of the analysis of the history.),
- Failing to make the report consistent with the intended use and intended users (A report must be consistent with the intended use and at a minimum meet the twelve reporting requirements in Standard 2.), and
- Failing to support adjustments.
Finally, strange properties should be red flags to appraisers. The house in the middle of a subdivision that is an average size and age of other houses and in an area with numerous sales is not the problem for appraisers. The out-of-the-ordinary house in a rural area, the largest house, the smallest house, the best house, the worst house, the log cabin, the one with many upgrades, etc., this is the house that will get an appraiser in trouble. When an appraiser gets this assignment, bells should go off in the appraiser’s head. That strange property will require more disclosure, more analysis than the typical appraisal. One cannot put the same amount of time in this because the fee is the same for the common house. Either an appraiser should:
- Charge a higher fee
- Refuse the assignment
- Complete it properly no matter the fee and time requirement.
Buzz: How about cautionary measures an appraiser can take to make sure they don’t find themselves in legal trouble?
Ted: I suggest everyone spend a little money and have a USPAP instructor audit some typical appraisal reports. This should be done periodically.
Buzz: Ted could you speak on E&O insurance?
Ted: Most E&O insurance companies pay $2,500 for board enforcement. The appraiser must notify the company of a complaint within 30-60 days of receiving the complaint. A solo residential appraiser usually pays around $850-900 for insurance unless they have a finding against them with a board. Then the insurance averages $2,500 with a larger deductible. E&O is necessary to function as an appraiser in the current market.
Buzz: Again Ted, thank you so much for speaking with us, is there any other advice you’d like to give to a professional in the appraisal field?
Ted: The business has seen tremendous change in the past 5 years. The number of appraisers has decreased by about 20% and the average age is around 60. The outlook for business is very good. The profession, though, has to provide ethical appraisals. This means upsetting some of your clients. As one of my mentors told me when I was training, “If everyone is upset with you when you complete your appraisal, you probably did a pretty good job.”
Buzz: Thank you Ted for your insight. For more information on the services provided by Ted Whitmer, click here to visit his website.
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