Appraising Arizona : Board of Appraisal newsletter

              BOARD OF APPRAISAL NEWSLETTER
Volume 6 Issue 6
******************************* The Appraisal Standards Board's communication of December 1999 directly addresses "property flipping". The phrase "property flipping" or "a flip" is commonly used to describe the transfer of property where fraud is used to obtain inflated prices and loans. JUNE 21 AND 22 BOARD MEETING It is important to note that "property flipping" is distinctly different than the usual activity of buying and selling property at a profit. The market for real estate is imperfect. Knowledgeable and honest parties seek opportunities to acquire a given property at a favorable price with the objective of reselling that property at a profit. Such activity does not constitute flipping as there is no intent to mislead or defraud. USPAP does not describe property flipping itself, but it does prohibit appraisers from communicating assignment results in a fraudulent or misleading manner. The ETHICS RULES is explicit about any kind of activity designed to mislead or defraud - as specified in the Conduct Section of the ETHICS RULES: An appraiser must perform assignments ethically and competently in accordance with these standards, and must not engage in criminal conduct. An appraiser must not communicate assignment results in a misleading or fraudulent manner. An appraiser must not use or communicate a misleading or fraudulent report or knowingly permit an employee or other person to communicate a misleading or fraudulent report.

APPRAISING ARIZONA

JULY 2000
To avoid being entangled inadvertently in such schemes, Standards Rule 1-5 requires that appraisers analyze any current Agreement of Sale, option or listing of the property, when such information is available. Many lenders require that Agreements of Sale be provided to the appraiser for their review and analysis. Sometimes the second or third leg of a flip can be discovered when the seller in the sale agreement is not the owner of record. Verification of the terms of sale with brokers may also reveal multiple transactions on the same property. Experienced appraisers can recognize anomalies in the market and will avoid relying on sales that do not reflect the prevailing market. If an appraiser is asked to value a property in an area that is unfamiliar to them, they should become familiar with the area and the market for the subject property. Standards Rule 1-4 requires the appraiser to collect, verify and analyze information applicable to the appraisal problem. Knowing the conditions of sale, financing and motivations of the buyer helps the appraiser to adjust sales to the market and avoid the affects of inflated prices. Standards Rule 1-2(e) requires that the appraiser identify the characteristics of the property that are relevant to the purpose and intended use of the appraisal including the location and physical, legal, and economic attributes. Knowledge of these attributes plays a critical role in the valuation process. Appraisers should exercise care in identifying these attributes noting any adverse conditions which could impact the property's value. - ASB USPAP Q&A Vol.1, No. 12
December 1999

The Board had a very informative meeting by way of a visit from the Arizona Banking Department. John J. Coyle, Deputy Superintendent and Robert D. Charlton, Division Manager, Financial Services Division attended the meeting. The Board informed Mr. Coyle and Mr. Charlton of their concerns regarding the predetermined valuations, "property flipping" and pressuring of appraisers by mortgage lenders. The public was allowed to speak about their personal involvement with these particular issues. The Banking Department is more than willing to assist the Board as well as appraisers in trying to overcome these major problems. The Banking Department would like to hear your complaints and they accept anonymous complaints. You can contact their Consumer Affairs Division at (602)255-4421 or you can go to their web site for a form at: azbanking.com. The Board of Appraisal is still interested in receiving any information concerning predetermined valuations and "property flipping".

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ARIZONA BOARD OF APPRAISAL
USPAP REQUIREMENT FOR RENEWAL The new requirement of 14 hours of USPAP every four years will take effect on October 1, 2000. Applicants who expire on October 31, 2000 will be exempt from this new rule if renewal applications are filed by Friday, September 29, 2000. Any renewal applications filed after this date will be required to show 14 hours of USPAP in the previous four years.

JULY 2000
THE DANGER OF EX PARTE COMMUNICATIONS Ex parte communications, which include instances of individual appraisers contacting members of the Arizona Board of Appraisal to get information about a pending or denied application; to discuss a pending complaint; supervisory audit or disciplinary action; or to attempt to influence a board decision; are improper and may be detrimental to the individual appraiser.

The Arizona Board of Appraisal Newsletter is published by the Arizona Board of Appraisal, 1400 West Washington, Suite 360, Phoenix, Arizona 85007 (602)542-1539. Editor: Linda Schutzenhofer
web site www.appraisal.state.az.us

BOARD OF APPRAISAL MEMBERS Melvin Young, Chairpman Appraiser Micahel Naifeh, Vice Chairman Property Tax Agent Lee Ann Elliott Public Member Sonny Solot Appraiser Keith Maio Public Member Ella Makula Public Member Audrey Gay Appraiser Lezlie Benham Public Member C. Marie Meahl Appraiser BOARD OF APPRAISAL STAFF Ed Logan Executive Director Linda Schutzenhofer Deputy Director Debb Pearson
Regulatory Compliance Administrator

Applications cannot be postmarked on the September 29 date. They must be in our Ex parte communications are any oral or written communications received by the office on September 29 by 5:00 p.m. ABA members or the administrative law All applicants whose license/certificate judge, when all parties are not present. expires on November 30, 2000 and thereafter, will fall under the new Such communications could cause a board requirement. The four year period is member who may have voted in the calculated from the November 30 individual's favor to recuse him or herself expiration date. In this case, the period from voting on the application or goes back to November 1996. All disciplinary action in question when it subsequent renewals will follow this comes before the ABA. procedure. - Linda Riddell, Administrator Applicants may use the 14 hours of USPAP Oregon Appraiser Board as continuing education for this renewal if taken within their current two-year ********************************** license/certification term.

********************************** REMINDER

BOARD MEETING DATES August 16 9:00 a.m. 9:00 a.m. 9:00 a.m. 9:00 a.m.

To avoid complications and September 20 misunderstandings, please make certain that the signature on your renewal October 18 application, upgrade, etc. is the same name that is reflected on your license/certificate. November 15

9:00 a.m. There has been confusion in the past over December 20 nicknames and other names used by applicants. If you are known and sign by ARIZONA APPRAISERS a different name than what you have put on your initial application, the Board must LICENSED 363 have this information. Also, when you submit a change of address to the Board, please indicate which address you want to use as your mailing address. And please remember to give us your phone number(s) if applicable. CERT. RESIDENTIAL CERT. GENERAL NONRESIDENT TEMP 668 637 58

Katherine Gass Administrative Secretary

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JULY 2000
On May 11, 2000, Ed Logan, and Michelle An appraiser must retain the workfile for Wood presented an investigator training a period of at least five (5) years after seminar for the contract investigators. preparation or at least two (2) years after final disposition of any judicial Diane Mihalsky, Anthony Halas and George proceeding in which testimony was A. Schade, Jr., Administrative Law Judges given, whichever period expired last, from the Office of Administrative Hearings, and have custody of his or her workfile, gave an overview of formal hearings, or make appropriate workfile retention, investigations and testimonies by access, and retrieval arrangements with investigators. Their information was the party having custody of the workfile. extremely interesting and helpful. A workfile preserves evidence of the Judy Hakalmazian, State Contract Officer appraiser's consideration of all from the State Procurement Office instructed applicable data and statements required the group on the investigator contracts. by USPAP and other information as may be required to support the findings and The contract investigators learned about the conclusions of the appraiser. disciplinary process, statutes and rules. They were instructed on the investigative A photocopy or an electronic copy of the report approaches: what it is and what it entire actual written appraisal, appraisal isn't, where the investigators fit in, content, review, or consulting report sent or length and style of the report and testifying. delivered to a client satisfies the requirement of a true copy. At the end of the session the investigators gave feedback on their major concerns, Care should be exercised in the selection experiences and they gave suggestions for of the form, style, and type of medium improving the process. for written records, which may be handwritten and informal, to ensure they The session was successful and was an are retrievable by the appraiser opportunity for all concerned to gain vital throughout the prescribed record information from everyone who participated. retention period.
**************************************** A workfile must be in existence prior to

DISCIPLINARY ACTIONS

The Board has reviewed many cases since the March Board meeting. We have also received 23 new appraiser complaints and a new inquiry form for tax agents has been developed and the Board will soon be accepting complaints against tax agents. Debb Pearson and the contract investigators are always busy and manage to keep the Board up to date on complaints. Since the March 2000 Board meeting there have been: 12 Due Diligence letters sent 13 appraisers are currently on probation - 8 of the appraisers on probation have numerous cases 2 appraisers have been suspended and one of the appraisers had two cases 2 Orders of Censure 6 cases are pending formal hearings 9 cases had informal hearings or have been set for informal hearings 13 cases have been dismissed 2 appraisers settled by means of a Consent Agreement 13 cases are presently with an investigator 21 cases are waiting to be sent for investigation

and contemporaneous with the issuance of a written or oral report. A summary of an oral report must be added to the According to USPAP 2000 Edition, an workfile within a reasonable time after appraiser must prepare a workfile for each the issuance of the oral report. appraisal assignment. The workfile must include the name of the client and identity, by A workfile must be made available by name or type, and any other intended users; the appraiser when required by state true copies of any written reports, enforcement agencies or due process of documented on any type of media; summaries law. In addition, a workfile in support of any oral reports or testimony, or a of a Restricted Use Appraisal Report transcript of testimony, including the must be available for inspection by the appraiser's signed and dated certification; all client in accordance with the other data, information, and documentation Comment to Standards Rule 2-2(c)(ix), necessary to support the appraiser's opinions 8-2(c)(ix) and 10-2(b)(ix). and conclusions and to show compliance with this rule and all other applicable Standards, or references to the location(s) of such other documentation. - The Appraisal Foundation WHAT GOES IN A WORKFILE
- USPAP 2000 Edition

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JULY 2000

QUESTIONS AND ANSWERS

QUESTION: When I am deciding whether departure is appropriate in a real property appraisal assignment, how do I figure out what my "peers' actions would be in performing the same or a similar assignment", as required by the Departure Rule? ANSWER: Although the Definition section of USPAP does not contain a definition of the term "peers", a good description of one's peers is provided in Statement 7: "Appraiser's peers" are other competent, qualified appraisers who have expertise in similar types of assignments involving similar types of properties. When confronted by the question, "what would my peers' actions be", an appraiser can research it himself, ask experts or refer to educational materials. However, the most direct way to find an answer is to develop and maintain relationships with competent appraisers, and to discuss with them what their actions would be in a similar assignment. QUESTION: Is it okay for me to say in my appraisal report that I've done a Limited Appraisal, even though I didn't invoke the Departure Rule? ANSWER: USPAP defines "Limited Appraisal" as: the act or process of developing an opinion of value or an opinion of value developed and resulting from invoking the Departure Rule. By definition, then, if the Departure Rule is not invoked, an appraisal is not a Limited Appraisal. Further, all USPAP's reporting standards require that in reporting a Limited Appraisal, an appraiser must "state and explain any permitted departures from applicable specific requirements." A report of a Limited Appraisal that lacks these required disclosures would violate USPAP; a report that disclosed departures that weren't actually taken would be misleading and so would also violate USPAP. -ASB State Advisory Bulletin - The Appraisal Foundation