In a move that sent tremors throughout the appraisal community, the Appraisal Institute withdrew its sponsorship of The Appraisal Foundation on September 7. (See my September 16, 2010 entry).

The Appraisal Foundation has now posted a “Q&A” on its website regarding this important issue. That post can be found at: www.graphicmail.com/new/viewnewsletter2.aspx

According to the Appraisal Foundation,

“the Appraisal Institute once again failed to communicate with the Foundation regarding a matter directly related to our organization. In this case, without the Foundation’s knowledge or approval, the Appraisal Institute approached three other organizations with the following proposed revision to the federal law (FIRREA) which grants authority to The Appraisal Foundation:

“to maintain the independence of the Appraisal Standards and Appraiser Qualifications Boards and to avoid potential conflicts of interest, The Appraisal Foundation shall not directly or indirectly offer or sponsor any qualifying or continuing education courses for certified or licensed real estate appraisers beyond the National Uniform Standards of Professional Appraisal Practice course specifically required for licensure and certification.”

According, to the Appraisal Foundation, this was not the first time the Appraisal Institute allegedly violated similar Foundation rules.

The Foundation also stated that “under the right circumstances, there will always be a door open for the Appraisal Institute to return to The Appraisal Foundation.” However, the Foundation expressly stated, “we are always willing to talk with their representatives. We hope and believe the opportunities associated with a change in their leadership in a few months may be constructive.”

Once again, I truly hope these important organizations resolve their differences.
 

The United States Tax Court recently found that an appraisal does not necessarily need to comply with the Uniform Standards of Professional Appraisal Practice – commonly known as USPAP – to be admissible or reliable. In Whitehouse Hotel Limited Partnership v. Commissioner of Internal Revenue – filed October 30, 2008 – the IRS’ appraiser submitted an appraisal that did not fully comply with USPAP. The taxpayer argued that the appraiser’s report was per se unreliable since it is not in conformance with USPAP. It further argued that it should not be received into evidence.

The Tax Court rejected that argument and admitted the appraisal into evidence. It offered the following explanation for its holding:

“USPAP is widely-recognized and accepted as containing standards applicable to the appraisal profession. Adherence to those standards is evidence that the appraiser is applying methods that are generally accepted within the appraisal profession. Therefore, at a minimum, compliance with USPAP is an indication that the appraiser’s valuation report is reliable. However, a noncompliant valuation report is not per se unreliable. Full compliance with professional standards is not the sole measure of an expert’s reliability. Petitioner essentially asks the Court to supplant its responsibility to assess an expert’s reliability with a rigid standard of reliability. Sole reliance on USPAP is a far more inflexible definition of reliability than the definition (depending on "reliable principles and methods") incorporated into Rule 702 of the Federal Rules of Evidence. Therefore, we decline to adopt USPAP as the sole standard for reliability of an expert appraiser.”

 

One concern I hear consistently expressed by appraisers is that there are times when they are pressured to reach a certain number when appraising properties.  Congress is considering legislation that prohibits all parties involved in a real estate transaction from improperly influencing an appraiser.  The legislation is part of an amendment to pending foreclosure prevention legislation known as the Federal Housing Administration Housing Stabilization and Homeowner Retention Act (H.R. 5830).  On April 24, the U.S. House Financial Services Committee agreed by voice vote to add the amendment to H.R. 5830.

The goal of the amendment is to ensure an independent and competently performed appraisal process.  It has been backed by the Appraisal Institute and has bipartisan support in Congress. However, the future of H.R. 5830 is uncertain.  It authorizes the FHA to guarantee billions of dollars worth of refinanced loans if lenders reduce loan amounts to reflect reduced home values.  The measure would require banks to make less money on the loans but it would also reduce their credit exposure, while helping families stay in their homes.  According to the Appraisal Institute, discussions are underway in the Senate on companion legislation to H.R. 5830, where several other questions will likely be addressed at the committee level, including what property standards (FHA or conventional) will be applied to the appraisals and who will actually order the appraisal.

It would be naive to think that this legislation would eliminate all improper behavior.  However, it is a step in the right direction even if it serves to draw attention to this serious problem.