This action might not be possible to undo. Are you sure you want to continue?
a bit dumped on them in the past couple of years. We endured the destruction of long-standing business relationships as a result of the imposition of the Home Valuation Code of Conduct. We’re in the middle of the implementation of the Uniform Appraisal Dataset, not the most intuitive solution to comprehension ever devised. Although there was a surge of optimism among some appraisers with language in the Dodd-Frank Act ensuring appraiser independence and customary and reasonable fees, hopes were dashed with the release of the Interim Final Rule by the Federal Reserve. Increasingly, large, well known lenders and their more obscure contemporaries are actively forwarding allegations of non-compliance to state regulatory agencies. In some instances, those same lenders, along with mortgage insurers, are initiating civil action against appraisers and their firms. The Federal Deposit Insurance Corporation (FDIC) has sent hundreds of demand letters to appraisers demanding money for alleged inflation of appraisals in connection with loans held by failed banks and has followed up some of them with lawsuits. 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 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 section of the Ethics Rule in 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 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 most cases, 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 can’t 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 will fill the bill. Please examine the full text of the Record Keeping Section of the Ethics 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, particularly if trainees or contract appraisers provided assistance and are no longer in your employ. If you have taken steps towards maintaining paperless workfiles, make sure your hand-written notes, phone notes and call slips have been 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 compact disks 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, was 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 elements, assignment conditions, contracts, leases, income and expense data 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. Because of the housing bubble and associated financial failures by individuals and institutions, 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. After you are confident the workfile includes what is necessary to support your decision making, opinions and conclusions, give some thought to the appearance of your records. Is the workfile a disorganized, hodgepodge of disconnected data, implying you are disorganized and amateurish? Wouldn’t it make a much better tool in support of your defense if the workfile is neat, organized, and logical, just as the means by which you reached your opinions and conclusions, and conveyed them in your appraisal report? 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.
Francois (Frank) K. Gregoire, IFA, RAA, is a former member and Chairman of the Florida Real Estate Appraisal Board and the current Chairman of the NAR Appraisal Committee. He provides valuation, expert witness and consulting services for a wide variety of local and national clients. Articles by Francois Gregoire have been published in the REALTOR® Magazine and the Journal of Property Economics. In his quest to improve the profession and keep folks informed, Frank authors Appraiser Active, an appraisal themed blog.