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

“Naked, Unarmed, and Alone?”

Question: “My state board recently charged me with authoring a misleading report. I got the client to write a letter to the state indicating my report did not mislead them, yet the state sanctioned me for it anyway! If my client says I did not mislead them, how can the state board say I did?!”

Answer: The answer to this question is one with numerous and subtle twists-and-turns. Really, you can’t go into a contest with your state appraisal board naked, unarmed, and alone. Why would you want to? Obviously, you need legal counsel, but you may also need USPAP counsel as well. So, your first step is to get proper counsel, who can then give you proper advice.





Please understand it is your state’s appraisal board, not your client, that determines if an appraisal is credible and/or an appraisal report is misleading[1]. USPAP is the only metric by which both the client and the state board measure the credibility of the appraisal and whether the report is misleading. However, your client is biased in favor of itself, and it wants an appraisal that supports the purchase & sale agreement, closes a deal, and gets everybody paid. It cares little that you formed your value conclusion credibly, or reported it in a persuasive, non-misleading manner. Therefore, your client’s opinion as to whether you mislead anybody is both irrelevant and baseless because of the client’s inherent bias favoring itself.

On the other hand, the state appraisal board has no bias (you hope!) since (1) it has no dog in the hunt and (2) it is the only arbiter of what a credible appraisal and a misleading appraisal report are. In practice, the state board measures the credibility of your appraisal against USPAP’s Standard 1, and the manner in which you report it against Standard 2. To do these, the state has trained investigators (not necessarily trained appraisers) whose job it is to ask the questions necessary to determine if you did or did not follow these standards (but they typically do not make that decision). Then your state board and its legal counsel (usually the state’s Attorney General or an assistant AG), decide (1) if there was a violation(s) of USPAP and/or state law and, if there was a violation, (2) what penalty(ies) the board should impose.

Then the state board gives you (and, ideally, your counsel) the opportunity to tell your side of the story. Once you have done this, the state, as part of the sanctioning process, will do anything from drop the charges (not likely) to revoke your certification (also not likely). Once the state has imposed a penalty, there is no appeal[2] from it other than to a court of law (which is the subject of another question and answer – not to mention expensive and time-consuming [two facts the state board knows]).

Now for something you probably did not know. When you sign the Certification in an appraisal report, here (somewhat edited) is what you are certifying (among other things). This is right out of USPAP, SR2-3:

“I certify that, to the best of my knowledge and belief…the statements of fact contained in this report are true and correct…[and]…my analyses, opinions, and conclusions were developed, and this report has been prepared, in conformity with [USPAP]” (ibid; lines 690-719).

What does this have to do with misleading? All the state must do is find one instance in which you did not follow Standard 1 or Standard 2. Then, because you certified you did develop and report your appraisal congruent with those Standards, despite the fact you did not, that failure, coupled with your signed Certification, constitutes misleading the client, etc. (definition here by reference).

Therefore, even though the client concludes you did nothing to mislead it, the client’s conclusion is not part of the state’s decision criteria, due to the client’s own biases. Did you follow Standard 1 in developing your value opinion, and did you follow Standard 2 in reporting it? Because, when you signed the Certification, you certified that you did follow them, if the state concluded that indeed you did not, then you misled the client by misrepresenting the scope and credibility of your actions. The client’s opinion has nothing to do with either the question(s) or the answer(s). USPAP is the only metric by which anyone can measure an appraisal. The state, not the client, is the final arbiter.

In addition, if the final arbiter calls you to account for one (or more) of your appraisals, there is no plausible reason to fight that battle alone. You are likely going to need counsel – legal counsel, USPAP counsel, and E&O counsel. This defense is not free, and a $3,000 to $5,000 bill (plus any lost time & income) is not extraordinary. However, depending on the extent of your E&O coverage, your E&O provider will ultimately reimburse most of these costs. But they cannot reimburse any damage to your professional reputation or your business.

A state’s appraisal board carries the sword and shield of legal counsel. Why should you enter that arena naked, unarmed, and alone? [3]

  1. Only the report can be misleading. The appraisal itself (i.e., your value conclusion) is either formed credibly or it is not. In reality, though, we refer to a “misleading appraisal” even though that term is technically incorrect.
  2. The State of Texas has a formal appeals process prior to taking the matter to a circuit court. As of this writing Texas is the only state with this option. However, other states are considering it. Note that, depending on state law, an appraiser can choose to have an Administrative Law Judge (ALJ) hear the case, rather than the State Board itself. However, the ALJ’s decision is not binding on the State Board.
  3. It was not the purpose of this essay to raise the issue of a killer workfile as part of the appraiser’s defense. Nevertheless, the workfile is the appraiser’s best defense against an incompetent reviewer, a state board, or a plaintiff. Therefore, it is likely the workfile, as well as the data, analyses, iterations, and so forth that are in it, will save the appraiser. On the other hand, their absence will damn the appraiser.
Mark Buhler

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