Risk Management for the Appraiser

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.

Have any comments or would you like to submit content of your own? Email comments@appraisalbuzz.com.


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Appraisal Buzz Staff
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  1. Avatar

    Ted, I’m not
    sure if you live in the real world as with implementation of TRID and the zero
    tolerance as it relates to appraisal fees is now in effect. You say that “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” but lenders do not recognize complexities now (flat appraisal fee
    determined in advance) and there is no option for higher fees. Here’s an
    example. I just received an appraisal order where the property is
    a $615,000 purchase and the characteristics are as follows. There is a pool, a
    separate pool cabana, a noted studio by the agent that may or may not be
    permitted, is on an acre, has a bulging retaining wall (per agent), has a
    beneficial view, has an adverse location (major road), is reportedly recently
    remodeled, requires an operating income statement, requires a rental survey,
    has variances in GLA, bed and bath counts as it relates to public record files.
    As any single one of these issues would make the appraisal assignment complex,
    so how in the world was this sent out at a regular fee? The answer is of course
    no one cares about the fee as long as a single appraiser (the 5th, 10th or
    15th) takes the assignment at the standard fee. How can you say “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”. No one is entering the field, the numbers
    are declining and in the next 2 to 5 years most will be of retiring age. The
    industry is in terrible position and if anyone listened to us (the grunts in
    the field) then may be something could still be done. No one cares about low
    fees, higher liability, increased scope of work, rising entry levels, signed
    petitions, separation of fees to the borrower, etc…………

    • Avatar
      David A Hasselbring

      As an appraiser with 31 years experience in residential appraising, Bill Johnson hits the mark squarely between the eyes. During my career, I have always dealt directly with lenders and not AMC’s. Due to cost factors and regulations, several of my better clients have gone to AMC’s and now that I am dealing with them, I find it is all about turn around time and the fee and not the quality of the appraisal.

    • Avatar

      Bill, absolutely right on. That appraisal as explained by you, should be $1500 if you
      were to charge for all the complexities and most importantly, have all the regression analysis necessary to justify all you adjustments. You would be lucky to get $450.

  2. Avatar

    “Spend a little money and have a USPAP instructor to audit some typical appraisal reports.” That statement in itself leads the reader to assume every appraiser and every appraisal is a failure on some level. I would like to know where we can obtain the education suitable to become equal to a USPAP auditor, so I can properly audit my own reports and be 100% compliant with USPAP. I took a class (don’t recall the title) from Champion Real Estate School in Austin. The instructor was Bill Nutt, and it was the most informative, educational, and useful experience I’ve had in appraisal education, but that’s one class. This is my 18th year as an appraiser. I’m confident in my reports, I know I can explain and justify what I’ve done, but I want to be more confident and I’m regularly looking forward to taking another class like the one Mr. Nutt taught, but they are few and far between. All the while, more lender requirements come out every year, feels like multiple times a year, with each new requirement pushing the appraiser farther over the appraiser/inspector line. I must have an entire page of disclaimers that the appraiser is not a home inspector, explained to get through to even the most uneducated reader. These new requirements make it feel that the audience I am writing the report for is completely inept as to what an appraisal is, USPAP, or ethics that we are governed by. I know for a fact the wonderfully implemented 3rd party firewall people ordering, receiving, and asking for revisions couldn’t spell appraisal on a good day, and has no idea what USPAP is, much less the content of our bible. That doesn’t feel like the profession is in a good place, seems like there is more separation from accurately communicating appraisal results via “requirements” than ever before. Placing multiple comps to meet requirements is time consuming and like spray painting a logo on a completed art piece, maybe not a work of art, but art none the less, blended with science. I found the article informative, but fear invoking at the same time, maybe that was the point. Either way, recommendations for good-excellent quality courses, instructors, and educational providers is greatly appreciated.

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