Friday, December 8, 2023 | The Latest Buzz for the Appraisal Industry

Maintain that Workfile

Real property appraisers have had quite a bit dumped on them in the past couple of years. The uncertainty, turmoil, and government interest in oversight and intervention caused by allegations of racial and ethnic bias in real property appraisal is cause for concern. Adoption of the Square Footage-Method for Calculating, American National Standards Institute (ANSI) Z765-2021 upended the long-standing routine and methodology for thousands of appraisers. Appraiser Quality Monitoring by Fannie Mae and Freddie Mac is an issue, as is the Fannie Mae Tips method of initiating complaints and alerting state appraisal regulatory boards about appraisals which may be non-compliant. Requests for revisions, requests to examine and consider additional data, and requests for reconsideration eat away at productivity and profitability. All the talk and attention given to appraisal modernization, appraisal waivers, desktop and hybrid appraisals contributes to anxiety. Borrowers, sellers, and real estate agents are seeking to lay blame for failed real estate transactions and often target the appraiser as the villain. Being on the receiving end of a complaint seems to be more likely, regardless of how long you have been in the appraisal profession.

There is a bright spot, however. Within the standards of practice used by plaintiffs and state regulatory agencies to craft allegations of improper conduct and lawsuits of doom against appraisers is a requirement that the appraiser maintain evidence to defend their actions, opinions, and conclusions. Specifically, the obligation is the Record Keeping Rule of the Uniform Standards of Professional Appraisal Practice (USPAP), and the stated requirement to prepare and maintain a workfile. In addition to demonstrating compliance with record keeping requirements, the workfile forms the basis for your defense.

After receipt of a consumer or lender complaint (and often a Fannie Mae “tip”) against an appraiser licensee, among the first items requested by the regulatory agency or investigator is the appraiser’s workfile. If the complaint is a lawsuit, in many situations, a copy of the workfile must be turned over to the plaintiff or their counsel as part of the discovery process. When that complaint or lawsuit is filed against you, are you able to reconstruct what you did, how you did it, based on the contents of the workfile? All the appraisal experience in the world and assertions your opinions and conclusions are correct and accurate cannot help if you did not prepare and did not maintain that workfile.

Unfortunately, for many appraisers, preparation, and maintenance of the workfile is viewed as an inconvenient burden rather than a means of protection. Some mistakenly believe a copy of the appraisal report or review, along with a single data sheet for each of the comparable sales included in the report is adequate. Please examine the full text of the Record Keeping Rule for the minimum requirements. For certain, the attorneys handling the license complaint or civil suit against you have a copy and know what they expect. Wouldn’t it make sense to throw them off their game by maintaining a workfile with much more information, data, and support than they expect to see?

For your protection, and to be useful in your defense, the workfile must have enough information to support and justify the work completed as well as your opinions and conclusions. You should also have enough additional information to revive your memory about the assignment. If you have taken steps towards maintaining paperless workfiles, make sure your hand-written notes, phone notes and call slips are scanned and available. It is imperative the entire file is saved and maintained in a format certain to be reproducible and readable for as much as 5 – 10 years from the date of the assignment. This is particularly important in the case of photographs. The extra photographs you included in the workfile to document the good condition and exceptional craftsmanship of the improvements, recent repairs, or placement of custom, built in appliances don’t provide much help if the file is corrupted. Computers, hard drives, and some cloud-based storage solutions do not last forever. Your high tech, electronic workfile is of no use in your defense if it was stored on the computer you recycled 4 years ago, stored on defective media, or can only be read by a long obsolete program.

Information provided to you by others is particularly important. This might include  assignment conditions, contracts, leases, income and expense data, subject property descriptions, and builder’s cost information. Maintain, in your workfile, the information necessary to support your scope of work decision. It’s not unusual for alterations to be made to plans during construction, or for the improvement to be built at variance to the specifications due to decisions made on the fly. For your protection, when the valuation assignment involves an opinion of value made subject to construction of an improvement or addition, make sure the workfile includes the plans and specifications for the improvement. Either insist the client provide a copy for your workfile or make copies at your expense.

The 5-year record keeping requirement is a USPAP minimum. In jurisdictions without a statute of limitations, complaints and suits against appraisers are often filed years after the assignment is completed. To ensure their clients can mount a defense, some errors and omissions insurers and defense specialists recommend extending your records retention 3 – 5 years beyond the USPAP minimum. It might be time to consult your attorney or insurance provider for some advice about time periods for records retention. Additionally, assure your workfile includes records created contemporaneous to the development of the appraisal and writing of the appraisal report. State investigators and regulators raise legitimate questions about the appraiser’s compliance with standards and rules when records have printed dates indicating they were created subsequent to the date of the complaint. Protect yourself by creating the workfile record when you develop the appraisal. It’s too much to trust that the source of your data and information will be available 3 – 10 years after your assignment has been completed.

The world is a dangerous place for appraisers. Many view us as easy, defenseless targets. Prepare for that inevitable complaint or suit. The content and appearance of your workfile may demonstrate your competence and professionalism and may be the evidence to tilt the table in your favor.

Mark Buhler

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