It will come as no surprise to anyone reading that the number of appraisals being ordered dropped off precipitously during the 2022 calendar year. Article after article has bemoaned the fall off in, first, refinance work due to rising interest rates and eventually the purchase transactions began to suffer the same fate. More recently, the news had brought numerous stories of workforce reductions at AMCs and appraisal firms as a reaction to the slowdown in originations. This piece is not about that, though they are tied together.
Much of my practice involves counseling appraisers and other licensed professionals through lawsuits and license complaints after something has already happened. We spend time looking in the rearview mirror, trying to determine where it all went wrong and what can be done about it after the fact. For license complaints in particular, where a mistake has been made, there is much work to be done to show the regulators that the mistake won’t be repeated. But, as Matthew Broderick and his computer sidekick taught us back in 1983, the only winning move is not to play. Mitigating the risk of lawsuits and license complaints is worth its weight in gold and now is a prime opportunity for some of that mitigation to occur.
A much lesser amount of my practice is spent counseling clients in reducing risk of liability. Though there are certainly some lofty approaches to “bulletproofing” one’s appraisal and/or workfile and there are all sorts of tips or hacks or whatever anyone wants to call their advice (and there certainly are, this is not to make light of those products or services – they’re worth checking out), much of the work to reduce risk is plain and boring. There’s nothing bold or flashy about putting in the mundane work of reviewing your reports and your workfile for flaws. There is very little exciting about reading your contracts (read: insurance policies, master service agreements, engagement letters, etc.) to fully understand your rights and responsibilities and then adjusting your actions accordingly.
Ask yourself when you last read through the boilerplate language in your report template. I mean really read it, line by line, word by word. The answer might surprise you. Well, I can tell you based on the reports that come across my desk that the answer won’t have been recent. I’m writing this in the year 2023 but still receiving reports invoking the departure rule. Dated boilerplate language is everywhere I turn. Inconsistent and contradicting language abounds. Addenda attesting to the validity and acceptability of digital signatures is still prevalent. And if you understand a semi-competent attorney can start to pick and prod at those kinds of inconsistencies to make the listener question your competency, wait until I tell you what they can do with a zoning classification that hasn’t been used in 15 or more years, or competing statements about the intended use of the appraisal. The language that exists in your own report is probably the first place you should turn to tighten up your practice and reduce your risk.
Once you’ve had a chance to clean up the language in your report, make sure you’ve also considered how you organize and maintain your workfile. There is nothing worse than trying to rebuild a workfile after the claim or complaint has come in. Wait. Actually, there is something worse. Not having a workfile at all is worse. So get your workfile in order before you need it. Sometimes, often, you will not be able to do so after you’re already in the hot seat.
Review your contracts. Take a look at your engagement letters to be sure you understand what you are supposed to be providing to your clients. Then make sure your work product is actually meeting those requirements. Plenty of opportunity to reduce risk exists in simply fulfilling the contract terms of each order. More than just meeting the requirements of USPAP, the engagement letters set out the expectations of the client and so limit the expectations of any intended user that comes along as well. Simply fulfilling the contract alleviates a lot of concerns.
And finally, for those times when you cannot reduce your risk any further and a claim arises, be sure you understand how your various lawyers of insurance coverage work so that your defense team can help you succeed. Take a look at each policy regularly so that you understand what your obligations and rights are. Make sure you know who you need to notify of claims or potential claims and what circumstances trigger that obligation. Be certain what types of assignments are covered under a policy and what types of assignments may not be covered. If you have doubts or questions, speak with your broker and have them guide you through the process and ensure you have the coverages that are right for you.
As the proverb reminds us, the best time to plant a tree was 20 years ago. The second best time is now. While you’re waiting for the phone to ring or wondering when the next assignment is going to come in, take this opportunity to tighten up your practice so you can hit the ground running when the pipeline opens up again. That time is coming, so now is a great opportunity to position yourself to succeed.
