When it comes to appraisal non-compliance with USPAP, certain violations are, unfortunately, somewhat common. In this article, I outline several examples of violations of USPAP standards for appraisal development (STANDARD 1) and reporting (STANDARD 2). Some of these are relatively minor in nature, while others are significant. I have compiled this list based on many years of personal experience as a reviewer and a state regulator, as well as feedback I have received from other states’ enforcement agencies. Once you’re aware of these common missteps, you should be able to avoid them more easily.
8 Common USPAP violations
1. Use of inappropriate sales
One of the most serious issues is the use of inappropriate sales in a sales comparison approach. Sometimes the sales used by the appraiser are dissimilar in physical characteristics, e.g., they are all larger, better quality, or in better condition than the subject, and are not properly adjusted.
In some cases, the appraiser goes some distance away to find sales, but other sales are available in close proximity to the subject. An appraiser should always explain the search parameters and why the comparable sales were chosen. Generic, boilerplate statements such as, “The best and most similar sales were selected and utilized,” should not be used.
2. Use of unsupported site value
Using an unsupported site value in the cost approach may be either minor or major, depending on its relevance to the appraisal problem. It is common for an appraiser to state in the appraisal report that the sales comparison, extraction, or allocation methods were used to estimate site value, but when the appraiser’s workfile is examined, there is no evidence that the cited method was used.
3. Failure to analyze sales history
Most appraisers include information about prior sales and transfers of the subject property in their reports. Omitting this information is never a good idea; after all, it is easy for an underwriter or reviewer to check this information right from their desk. However, merely disclosing the date and sale price of a prior sale or transfer is not sufficient to meet USPAP requirements. The appraiser must also analyze the prior sale or transfer and provide a summary of their analysis in the report.
4. Failure to analyze the purchase agreement
In addition to a three-year sales and transfer history, an appraiser must analyze any current agreements of sale, listings, or options on the subject property. Many appraisers merely report the list price or pending sale price and fail to provide a summary of their analysis of this listing or sale in their appraisal report. Advisory Opinion 1 in the USPAP Guidance and Reference Manual provides samples of language that might be used in an appraisal report to summarize this information.
5. Failure to summarize the reconciliation process
Standards Rule 2-2(a)(x)(5) requires that, in an Appraisal Report, an appraiser must summarize the information analyzed and the reasoning for the opinions and conclusions “including reconciliation of the data and approaches.” In many reports, the appraiser does not provide a summary of the reasoning as to how the indicated value conclusion of the sales comparison approach was derived.
For example, the adjusted sale prices of the comparable sales might be $200,000, $215,000, and $233,000, and the appraiser reconciles to $230,000 and states in the report, “All sales were considered in arriving at an indicated value.” This canned statement does not provide a summary of why and how the appraiser came to their value conclusion. Such a summary is essential for intended user understanding.
6. Failure to disclose appraisal assistance
This can be a USPAP violation and a violation of state law or regulation. States often discover this when a trainee or assistant applies to become a licensed or certified appraiser, and the applicant submits their appraisal log to be reviewed by the state agency. The state agency selects entries from the log and requires the applicant to submit copies of those appraisal reports so they can be looked over. In a surprising number of cases, the trainee/applicant is not mentioned in the reports as having provided significant real property appraisal assistance.
This is unfortunate for two reasons:
1) The trainee will not receive experience credit for those assignments in which he or she was not properly acknowledged
2) A disciplinary case may be opened against the supervisor for failure to disclose real property appraisal assistance as required by USPAP
7. Mischaracterization of the subject property
Another (unfortunately) common violation is mischaracterization or misrepresentation of the subject property. During my term as an appraisal board member in my state, I encountered several cases in which a mixed-use property or commercial property was appraised as a residential property so a borrower could obtain a residential mortgage.
There were also situations in which an appraiser failed to disclose the presence of another structure, such as a second house, an accessory dwelling unit, or a commercial-type garage, on the property. In a number of these cases, the appraiser improperly used a hypothetical condition, i.e., the appraiser valued the property under a condition that was contrary to what was known to exist by the appraiser, even though the client had requested an “as-is” appraisal.
8. Appraisal report does not meet USPAP requirements
The final violation on our list is the failure of the appraiser to ensure that the appraisal report content meets USPAP requirements. Standards Rule 2-2(a) sets forth the content requirements for an Appraisal Report, and Standards Rule 2-2(b) sets forth the requirements for a Restricted Appraisal Report. These requirements are minimums; an appraiser is always permitted to include more information than what USPAP requires but may not include less.
For example, in residential appraisal reports prepared for mortgage lending, appraisers often check the box on the report form indicating that the highest and best use is the present use, but they fail to provide a summary of the support and rationale for that conclusion, as required by Standards Rule 2-2(a)(xii).
One additional issue worthy of mention is the failure to include the appraiser’s certification number or license number and title with their signature. This is not a USPAP violation; however, it could be a violation of state law or regulation. An appraiser should be familiar with their state’s requirements for disclosure of their appraiser credential in an appraisal report and comply with them.
Take the next step: Appraisal CE courses
For further discussion of other types of USPAP violations, including examples of actual violations of the ETHICS RULE and COMPETENCY RULE, don’t miss my course, That’s a Violation.
We offer a host of other appraisal continuing education courses as well. Take a look if you need to renew your license or sharpen your skills!
