Guest Post: Charles R. (Chuck) Dettling is a Certified Residential Real Property Appraiser licensed in Alabama and Florida. Chuck and his son, Seth, also a Certified Residential Real Property Appraiser, operate a small firm, Dettling & Associates, covering seven counties in Southwest Alabama and the Florida panhandle. Their practice includes single family, small commercial, condo, and land, with a specialization in REO assignments. Email: firstname.lastname@example.org
As most appraisers and mortgage market participants are aware, the Board of Governors of the Federal Reserve published an Interim Final Rule in the Federal Register on October 28 2010, Volume 75, Number 208, Pages 66554 through 66587, that implements Section 129E of the Truth in Lending Act (TILA) U.S.C. 1601, which was enacted on July 21, 2010 as Section 1472 of the Dodd-Frank Wall Street Reform and Consumer Protection Act. The Rule is to take full effect on April 1, 2011, and among other things, intends to establish new requirements for appraiser independence, and better consumer protection in all finance transactions that involve their principal residence.
As appraisers, we generally applaud the efforts of Congress and the Federal Reserve to implement rules and procedures that enhance appraiser independence, help to protect the integrity of our profession and increase public trust in the appraisal process. From the appraisers’ point of view, some of the more popular provisions of the Rule include the elimination of the HVCC, and mandated payment of “reasonable and customary compensation” to the appraiser. Other provisions attempt to strengthen already existing ethics rules and regulations. As with many extremely complex federal regulations, there are often unintended consequences. In this appraiser’s view, the mandate that “… parties involved in the transaction report appraiser misconduct to state appraiser licensing authorities” could lead to a new breed of pressure on appraisers, i.e., the threat of a board complaint. Most of us would agree there are unethical and poorly trained appraisers out there competing with the rest of us, and those should be reported when warranted. But, what unintended consequences could result from enactment this provision?
Over the course of the past several years, I have found the relationships between appraisers and real estate brokers, agents and sales staff to be increasingly strained. One need only recall the visceral reaction by the real estate sales profession after the implementation of HVCC. The national news media was filled with so-called ‘horror stories” of appraisers “low-balling” appraisals in order to avoid liability in what was (and is) clearly a tragically devastated real estate market. Agents complained bitterly that they could not get their deals done because those naughty appraisers were intentionally valuing their pending sales too low. One of the more obnoxious examples was a report on Fox Business News wherein David Asman interviewed Dolly Lentz, the Real Estate Vice Chairman of Prudential Douglas Elliman. Asman asked Lenz what needed to be done to “fix the problem” and incredibly she replied, “…I think for one, they should have to provide comparable sales.” Earth to Dolly!!
Section 226.42 42(g) Mandatory Reporting “TILA Section 129E(e) requires certain persons to report an appraiser to the applicable state appraiser certifying and licensing agency if the person has a reasonable basis to believe the appraiser is failing to comply with USPAP, is violating applicable laws, or is otherwise engaging in unethical or unprofessional conduct. 15 U.S.C. 1639e(e). This provision applies to creditors, mortgage brokers, real estate brokers, appraisal management companies, and any other persons providing a service for a covered transaction.”
By the way, notice how the new law is strangely silent on the responsibilities and professional conduct of real estate sales professionals. Could it be that the massive National Association of Realtors lobby was able to convince congress that everything was just hunky-dory on their end. Just fix the appraisers and everything will be just fine.
So, now we have several million people described in the above code section who are required by law to report appraisers when they “have a reasonable basis to believe that an appraiser has not complied with USPAP or ethical or professional requirements…” Unfortunately, the Fed forgot to define “reasonable.” Question. With (hopefully) the exception of licensed or certified appraisers, who in this group knows squat about USPAP, really? When is the last time you heard Jane Q. Public espouse the many virtues and complexities of USPAP? I had a dream the other night. I was talking to a homeowner about the appraisal process and that rascal looked over his bifocals, leaned toward me, smiled (exposing all six of his teeth), and said: “So, doesn’t the Scope of Work Rule in USPAP require you to include the research and analyses that are necessary to develop credible assignment results?”
A couple of years ago I had a property owner file a complaint against me. The complaint letter stated rather adamantly that I had refused to consider “comparable sales” that she had provided. Those “comparables” were in another state and were so superior that it was ridiculous. I expected the case to be dismissed immediately. But according to the Board they are required by the Appraisal Standards Board to conduct a full investigation into every aspect of the appraisal assignment. Six months later and with ten years of my life eliminated, I was completely exonerated, with not even a private warning.
Armed with this new “weapon” it is easy to imagine a huge surge in complaints by irate real estate agents, unhappy property owners, and others to the state boards. What is going to happen to E&O insurance rates when over-zealous state boards launch World War III against the appraisers to protect the public (oh, yes, and raise some much-needed revenue)? Will appraisers quickly discover that simply “tweaking” the numbers to accommodate real estate sales contracts or consumers’ wishes will minimize or eliminate the risk of complaints? Will too many appraisers end up with frivolous complaints that result in fines and reprimands, tainting the valuable reputations of our colleagues, and driving the best of our lot from this profession? In short, will this codified mandate to report appraisers become the new threat to appraiser independence?
About The Author: Charles R. (Chuck) Dettling is a Certified Residential Real Property Appraiser licensed in Alabama and Florida. Chuck and his son, Seth, also a Certified Residential Real Property Appraiser, operate a small firm, Dettling & Associates, covering seven counties in Southwest Alabama and the Florida panhandle. Their practice includes single family, small commercial, condo, and land, with a specialization in REO assignments. Email: email@example.com