Common Appraisal Mistakes:  A Regulatory Perspective

I have spent over twenty years reviewing appraisals for a variety of reasons. But, my experience as a member of the New Jersey Board of Real Estate Appraisers was a real eye opener.

Many of the issues that come to our attention could easily be avoided. However, the appraiser in most cases has not taken the time to actually take a good look at the report he or she has finally written based on the appraisal and the assignment.

It should be noted, that the many of the complaints filed with our board do not require any action against the appraiser and are dismissed. With that said however, there are still several reports that warrant further explanation or discussion, because of failure to communicate the findings in a logical manner.

Residential appraisers are the most frequently targeted for complaints. The biggest reason, the "third" party access to their work product. Most complaints deal with financing appraisal assignments. Law requires lending institutes supply the applicant with a copy of your report. Here you are dealing with an "emotional" element.

Usually, your clients' client is someone refinancing or purchasing a home. If the appraisal isn't going to allow for the loan to be processed, the ultimate blame is readily assigned to the appraisers' failure to make the value. The fact the average homeowner is not savvy with regard to all the aspects of your appraisal process only compounds the problem.

I have created a list of what I have observed as the 10 most common mistakes the appraiser makes with regard to their work.

10. Misunderstanding the clients' needs

9. Relying on the clients' interpretation of USPAP

8. Failure to create the proper "scope of work"

7. Not notifying the client of limited expertise or lack of it for an assignment

6. Incomplete research of the subject property

5. Reliance on only one data collection source for comparables

4. Inability to properly explain adjustments and/or final reconciliation

3. Failure to identify zoning/ highest and best use issues

2. Incomplete work files/ unsigned certifications

1. Lack of Geographical Competency

Although, I could speak on any or all of these issues, I am going to focus on the #1 issue from my list. From my participation over the years in our regulatory process, the fact appraisers continue to accept assignments where they have little or no experience is astonishing.

This is not a recent problem, this is a re-occurring theme. Especially, since maintaining any good data base requires time and expense. I find it more and more disturbing that appraisers believe they can drive into an area and understand the nuances of its surroundings within moments of completing an on site inspection. This one fact in many cases, contributes to additional USPAP violations. It is often just the foundation for a series of misrepresentations that will become apparent throughout the report. It leads to omission or commission of pertinent information with regard to location and neighborhood influences and collection of inaccurate or misleading comparables.

Sometimes, issues readily visible in photographs are not even mentioned in the report. It makes you wonder if the appraiser actually was on the site and if he or she bothered to pay attention to their surroundings. What this creates is an open invitation to explain yourself before a peer review group, most notably your licensing board. It is very disheartening when appraisers come forward and admit it was the first time they were in the area. Excuses, such as "residential is residential" or "I wasn't paid to spend a lot of time on the assignment", are not acceptable or viable reasons for consideration.

The one reality most appraisers miss is that board members are practicing appraisers. It is more than likely someone on the panel is well versed in the area you knew little or nothing about. With just a few well structured questions, an appraisers' lack of knowledge of the area will become all too apparent. This of course can lead to serious issues regarding your license and ultimately your livelihood.

This doesn't mean an appraiser cannot expand their boundaries to gain assignments. It just means more time and effort will need to be applied to these assignments. It may also be necessary to get assistance from someone better acquainted with the area. The true professional will readily accept the fact they need help.

Remember this is something that will have to be discussed with your client prior to actually accepting and completing the assignment.

Investing in yourself with regard to expanding your education will keep you a viable member within this profession. It will also help keep you off the invited guest list of your local licensing board.