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OAH Docket No. 11-1005-20851-2 |
STATE
OF
OFFICE OF ADMINISTRATIVE HEARINGS
FOR THE COMMISSIONER OF COMMERCE
|
In the Matter of the Real Estate Appraiser License of Janna Aho |
FINDINGS
OF FACT, CONCLUSIONS
AND RECOMMENDATION |
The above-entitled matter came on for
hearing before Administrative Law Judge Barbara L. Neilson on
Michael J. Tostengard, Assistant Attorney General,
Jack E. Pierce, Attorney at Law,
STATEMENT OF ISSUES
1. Did the Respondent violate
standards of professional practice, fail to exercise reasonable diligence in
developing, preparing, or communicating an appraisal; or engage in negligence
or incompetence in developing, preparing, or communicating an appraisal in
violation of Minn. Stat. § 82B.20, subd. 2(6) and (7)[1];
Minn.
R. 2808.6000, subps. 1, 2J, and 3A(1) (2), (3), (4) and (5);[2] Uniform
Standards of Professional Appraisal Practice (USPAP)[3] Ethics
Rules relating to Conduct, Record Keeping, and Competency; USPAP SR 1-1(a) and (c), 1-4, 1-5(a), 2-2(b)(viii),
2-3; or USPAP Supplemental Standards Rule – Fannie Mae, by failing to report previous appraisals performed
within three years on the same property; failing to analyze an agreement for
sale; failing to at least drive by comparable sales; failing to maintain work
file data; failing to comment on negative factors with respect to property that
is the subject of an appraisal; failing to
inspect a subject property for an appraisal; failing to research and analyze
active comparables; using data that did not exist as of the appraised date;
failing to accurately report rental amounts; accepting information from a party
to a transaction without verification; including inaccurate or misleading
information in an appraisal; failing to analyze that the sale price of a
comparable reflected only the house and not the lot; failing to analyze
physical and location differences between the subject property and comparables;
selecting and using comparable sales that are not physically or by location the
most similar to a subject property; or inaccurately reporting subject property
information?
2. If
so, is the Respondent properly subject to discipline by the Commissioner?
Based upon all of the files, records
and proceedings herein, the Administrative Law Judge makes the following:
FINDINGS OF
FACT
1.
There are four basic levels of licensure for individuals
performing appraisals in
2.
The Respondent worked in her father’s appraisal business
from the time she was a teenager. She registered
in 1993, has been licensed as a certified residential real property appraiser
since 1997, and currently operates an appraisal business in
3.
The Respondent grew up in Brainerd and, between 1997 and
2007, performed approximately 90% of her appraisal work in the Brainerd
area. Because sales in the Brainerd area
are not as plentiful as in the Twin Cities metropolitan area, appraisers who
are appraising homes in the Brainerd area often need to expand their search to
a wider geographical area to locate properties that are comparable in age,
square footage, and location.[7]
4.
During the time relevant to this case, the Respondent used
the Uniform Residential Appraisal Report form (Freddie Mac Form 70 March 2005)
for her appraisals. The Appraiser’s
Certifications set forth in that form include the following:
*
* *
2. I performed a complete visual inspection
of the interior and exterior areas of the subject property. I reported the condition of the improvements
in factual, specific terms. I identified
and reported the physical deficiencies that could affect the livability,
soundness, or structural integrity of the property.
3. I performed this appraisal in accordance
with the requirements of the Uniform Standards of Professional Appraisal
Practice that were adopted and promulgated by the Appraisal Standards Board of
The Appraisal Foundation and that were in place at the time this appraisal
report was prepared.
* * *
7. I selected and used comparable sales that
are locationally, physically, and functionally the most similar to the subject
property.
* * *
10. I verified, from a disinterested source,
all information in this report that was provided by parties who have a
financial interest in the sale or financing of the subject property. . . .
5.
The performance of real property appraisals is somewhat
subjective, but rules, statutes, and guidelines exist to guide appraisers. The three methods generally used are the
sales, cost, and income methods. Under
the sales approach, the appraiser looks at comparable sales that occurred
within a particular period of time. In
order to use a property as a comparable sale, the property must in fact have
been sold. Properties that have not sold
but are active can be used as support for what is occurring in the market if
they are reported as “actives.” In
selecting comparable sales, it is generally preferable for appraisers to look
for properties that are similar in style, square footage, amenities, and
location. The closer in time a sale
occurred to the date of the appraisal, the better. Under the cost approach, the appraiser takes
into account the cost to replace a property (typically used for new
construction) or reproduce a property (typically used for older homes). Under the income approach, the appraiser
looks at expenses that might be incurred and comparable rentals in the area.[8]
6.
The Department commenced an investigation of the Respondent
in December of 2007, after one appraisal she had performed was examined as part
of a separate investigation of a mortgage and real estate fraud complaint. Thomas Hack, Senior Investigator for the
Market Assurance Division of the Department, was assigned to investigate the
complaint. Mr. Hack is also a licensed
appraiser. He examined several of the
Respondent’s appraisals to determine compliance with applicable statutes,
rules, and standards but did not perform review appraisals.[9]
7.
Based on its investigation, the Department concluded that
the Respondent failed to comply with certain state laws and rules as well as
USPAP rules in connection with her appraisals of five residential properties during
the time period of October 2006 to May 2007.
All five residences were newly constructed and offered for sale by the
builder.[10] Each of these properties is discussed
below. In each of the appraisals at
issue, the Respondent used the comparable sales approach and noted that the
income approach was not applicable.[11]
8.
The Respondent issued a Uniform Residential Appraisal Report
as of
9.
The Respondent obtains copies of the purchase agreement in
connection with her appraisals whenever possible. Typically the entity ordering an appraisal
provides a copy of the purchase agreement at the time it places the order or
shortly thereafter. Occasionally,
purchase agreements are not provided to the Respondent. In such instances, the Respondent discloses
that fact in her appraisal.[16]
10.
Respondent’s May 2007 appraisal of the
11.
The March 2007 appraisal reported that the driveway surface
of the
12.
In conducting the May 2007 appraisal, the Respondent found
out that kitchen appliances had been added since the first appraisal was
performed but no other changes had been made in the subject property since that
time. She did not re-inspect the subject
property before issuing the May 2007 appraisal.
The Respondent also ascertained that there had been no new sales of
split level or multi-level homes in southwest
13.
In both the March 2007 and the May 2007 appraisals, the
Respondent reported that Comparable Sale No. 4 sold on
14.
The Respondent obtained photographs of the comparable sales
on the Multiple Listing Service (MLS) and incorporated those pictures in her
appraisal report. In her opinion, MLS
photographs are most reflective of the condition of those properties when they
sold.[26]
15.
The Respondent’s work file relating to the March 2007
appraisal included copies of the MLS listings for the properties noted as
Comparable Sales Numbers One through Four; six pages of handwritten notes
pertaining to the comparables and the layout, materials and features of the
subject property; and a copy of the purchase agreement for the subject property.[27] The
Respondent’s work file relating to the May 2007 appraisal was limited in nature
and included only a copy of the Request for Appraisal and two pages of
handwritten notes pertaining to the subject property.[28] There was no market analysis information in
either work file showing that research had been conducted regarding the
condition of the market and whether it was increasing, decreasing, or stable.
16.
The Respondent issued a Uniform Residential Appraisal Report
as of
17.
The Respondent had previously received a Request for
Appraisal relating to the same property but a different lender and buyer in
late October 2006.[32] However, requests for appraisals are sometimes
cancelled, and there is no convincing evidence that the Respondent actually
conducted an appraisal of the property at that time.[33]
18.
Although the Respondent’s appraisal reflected the property’s
market value as of
19.
The Respondent originally used four comparable sales in connection
with her November 2006 appraisal. These
sales closed on
20.
Comparable Sale Number Two was erroneously identified in the
appraisal as a multi-level home.[37] However, the MLS listing pertaining to that
property indicates that it was, in fact, a split-entry home like the subject
property.[38]
21.
The November 2006 appraisal included the following summary
of the sales comparison approach:
The distance
between the subject and the sales is common in this market, and is not an
adverse factor due to the limited number of sales available. Comps 2 & 3 are 17-19 miles away from
subject, although were included in this sales analysis due to the lack of sales
in the subject’s immediate neighborhood/city; these sales reflect the subject’s
style, quality of construction, age, interior finishing and GLA; site
adjustment were [sic] taken for these sales as their site value is determined
to be $10,000 higher in overall value compared to the subject’s site due to
location, although similar in size.
Sales of varying style have been utilized in the sales comparison
analysis; a combination of split entry and multi level sales were used, as
these sales are the best available to reflect the subject’s GLA, room count and
amenities.[39]
After Comparables
Numbers 5 and 6 were added in February 2007, the appraisal was revised to
include the following comment:
Sales #5 &
#6 [both in Kimball] are supplied to support market value expressed on original
appraisal report. Adjustments for
quality of construction are taken for sales #1 & #6 [also in Kimball] as
these sales are determined to be inferior to the subject’s many upgrades such
as flooring, cabinetry, stone accent siding, and insulated, drywalled and
heated garage.
22.
There were some differences between the subject property and
the comparable sales selected by the Respondent. For example, two of the comparables (Comparable
Sales Numbers Two and Three) were located in St. Joseph and Sauk Rapids rather
than Kimball; two comparables (Comparable Sales Numbers Four and Six) were
one-story homes and not split entries like the subject property and the other
comparables; and one of the comparables (Comparable Sale Number Four) was significantly
larger than the subject property.[41]
23.
The Respondent used
24.
The MLS information for Comparable Sale Number Four noted
that the lot was owned by the buyer and the sale price reflected the house only.[43] This was not disclosed or analyzed in the
appraisal report.[44] The Respondent acknowledged that this was an
error, and indicated that an upward adjustment properly should have been made
to that sale for the buyer-owned lot.
Because the value of the subject property was not based on just one
sale, it is likely that the error had little effect on the appraisal.[45]
25.
Based on MLS listings, the Department identified two split
level homes in Kimball with unfinished basements that were active at the time
of the November 2006 appraisal and were listed at that time for $179,900 (
26.
The Department also identified five split-entry homes that
were sold in Kimball between February 24, 2006, and September 22, 2006, for
prices of $154,550 (256 Publishers Drive N.E.), $163,500 (241 Chatter Circle N.E.),[50] $156,600
(251 Newspaper Run N.E.),[51] $158,000
(261 Newspaper Run N.E.),[52] and
$169,700 (210 Newspaper Run N.E.).[53] None of these properties were discussed in the
November 2006 appraisal or mentioned in the Respondent’s work file.
27.
The Kimball properties identified by the Department appear
to be similar to the newly-constructed subject property in certain respects,
such as style of home (split entry), size, and location within the City of
28.
At the request of the lender, the Respondent later prepared an
Appraisal Update and/or Completion Report, an Operating Income Statement, and a
Single Family Comparable Rent Schedule relating to
29.
In the Single Family Comparable Rent Schedule issued by the
Respondent on
Rental data is
scarce in this market; appraiser researched local property management
companies, newpapers [sic] and .com resources and could not locate rental data
in the subject’s immediate neighborhood.
Builder provided all rental comps above, located in the same Greater
Lakes Market Area with similar neighborhood characteristics and distances are
not considered to be an adverse factor.[69]
30.
The Respondent indicated in the Schedule that the monthly
rent for each of the three comparables was $1,500. However, based upon the leases for these
properties, the monthly rent for
31.
The work file provided by the Respondent to the Department pertaining
to the November 2006 appraisal contained copies of MLS listings pertaining to
the subject property and Comparable Sales Numbers 1-4 and 6; and three pages of
handwritten notes relating to the date she inspected the subject property,
identifying numbers for photographs she took of the property, and the
property’s lay-out, features, and materials.
The listings pertaining to the comparables were printed on
32.
The Respondent’s work file did not contain the purchase
agreement or county tax data. It did not
include any information showing that the Respondent had researched and analyzed
other potential comparables. In
addition, the work file did not contain any information to show that research
was conducted regarding the condition of the market and whether it was
increasing, decreasing, or stable.[74]
33.
The Respondent also issued a Uniform Residential Appraisal
Report as of
34.
The appraisal report relating to
35.
Although the Respondent’s appraisal reflected the property’s
market value as of
36.
The Respondent used four comparable sales in connection with
the November 2006 appraisal. Two of the
comparable sales were located in Kimball, one was in
37.
The appraisal included the following summary of the sales
comparison approach:
The distance
between the subject and the sales is common in this market, and is not an
adverse factor due to the limited number of sales available. Sales of varying style have been utilized in
the sales comparison analysis; a combination of split entry and multi level
sales were used, as these sales are the best available to reflect the subject’s
GLA, room count and amenities.[86]
38.
As discussed above with respect to the similar property
located at
39.
In addition, for the same reasons discussed above,[89] there
were some differences between the subject property and the comparable sales
selected by the Respondent. Specifically,
two of the comparables (Comparable Sales Numbers Two and Three) were located in
40.
As discussed above,[91] the
Respondent used
41.
As discussed in Findings 25-27 above, based solely on MLS
listings, the Department identified two properties in Kimball that were active
listings at the time of the November 2006 appraisal and five split-entry homes
that were sold in Kimball between February 24, 2006, and September 22, 2006. None of these properties were discussed in
the November 2006 appraisal or mentioned in the Respondent’s work file. The active listings could not properly be
used as comparable sales because they had not been sold as of the date of the
appraisal.[93] In addition, one of the active listings had a
three-car garage and had been on the market for 282 days, well above the
109-day average in Brainerd and Kimball.[94] While the Kimball properties identified by
the Department appear to be similar to the newly-constructed subject property
in certain respects, such as style of home (split entry), size, and location
within the City of
42.
At the request of the lender, the Respondent later prepared
an Appraisal Update and/or Completion Report, an Operating Income Statement,
and a Single Family Comparable Rent Schedule relating to
43.
In the Single Family Comparable Rent Schedule issued by the
Respondent on March 18, 2007, the Respondent estimated the monthly market rent
of the subject property as of February 5, 2007, to be $1,475, based upon the
same three comparable rental properties located in Randall, Minnesota that she
had used in her updated appraisal of 836 Poplar (150 Boulder Place, 148 Boulder
Place, and 144 Boulder Place).[99] The Respondent included the following
comments:
Rental data is
scarce in this market; appraiser researched local property management
companies, newpapers [sic] and .com resources and could not locate rental data
in the subject’s immediate neighborhood.
Builder provided all rental comps above, located in the same Greater
Lakes Market Area with similar neighborhood characteristics and distances are
not considered to be an adverse factor.[100]
44.
The Respondent indicated in the Schedule that the monthly
rent for each of the three comparables was $1,500.[101] However, as noted in Finding 30 above, the
leases for these properties reflect actual monthly rents of $1,570, $1,200, and
$1,400.[102]
The Respondent thus did not accurately
report the rental amounts in the Schedule and merely relied on information
provided by the builder (who was a party to the transaction) without
verification from a neutral source.
45.
The Respondent’s work file relating to the October 27, 2006,
appraisal of 840 Poplar Drive contained a copy of the Request for Appraisal;
three pages of notes regarding the property and its layout, features, and
materials; a copy of the MLS listing for the subject property; a copy of a
County webpage relating to the property; and property tax records relating to
the property.[103] The Respondent’s work file relating to the
46.
The Respondent’s work file did not contain the purchase
agreement, rental comparable information, and market research data regarding
whether the market was increasing, decreasing, or stable.[105]
47.
The Respondent issued a Uniform Residential Appraisal Report
as of
48.
Although the Respondent’s appraisal reflected the property’s
market value as of
49.
Based upon photographs taken by the Respondent of 150
Boulder Place, it is apparent that the Respondent visited the property on at
least two separate occasions, most likely in connection with the October and
November appraisals.[113] Under the circumstances, the mere fact that
the Respondent may have used the same photograph of the house on the cover pages
of her October and November 2006 appraisals of the property[114] does
not warrant a conclusion that the Respondent failed to inspect the property for
the appraisal she performed on
50.
The Respondent used four comparable sales in connection with
the November 2006 appraisal. Three of
the comparable sales were located in Randall and one was located in Little
Falls (5 miles south/southeast of the subject property).[115]
51.
The appraisal included the following summary of the sales
comparison approach:
All sales are
less than six months old. Although the
subject property and comparable sales are located in an area featuring
increasing market values, no time adjustments have been taken, as it is
difficult to make accurate time adjustments for the seasonal market in which we
are located. Site adjustments taken are
based on the overall value of each site with consideration given to total area,
elevation, topography, vegetation and location.
The distance between the subject and the sales is common in this market,
and is not an adverse factor due to the limited number of sales available. Sales of varying style have been utilized in
the sales comparison analysis; a combination of 1 story and split entry sales
were used, as these sales are the best available to reflect the subject’s GLA,
room count and amenities.[116]
52.
In selecting comparable sales, the Respondent generally
looked for properties that were geographically close and reflected the size,
bedroom count, and age of the subject property to the extent possible.[117] Although Comparable Sale Number One was a
one-story home and was 24 years older than the subject property, it was located
in Randall only half a mile away from
53.
The Respondent’s November 2006 appraisal included an Operating Income Statement and a
Single Family Comparable Rent Schedule.[122] In the portion of the Operating Income
Statement relating to projected expenses during the next twelve months, the
Respondent did not include any estimate of costs associated with interior
paint/decorating, general repairs/maintenance, or supplies.[123] In the Replacement Reserve Schedule prepared
by the Respondent as part of the Operating Income Statement, the Respondent
once again uniformly estimated that the remaining life of several different
appliances (the stove/range, refrigerator, dishwasher, air conditioning unit,
washer and dryer, and furnace) was 25 years, which was not realistic or shown
to be supported by any authoritative source.
In addition, the Respondent did not take into consideration the need for
eventual carpet replacement.[124]
54.
In the Single Family Comparable Rent Schedule, the
Respondent estimated the monthly market rent of the subject property as of
Rental comps
#1 and #3 are located furthest from the subject. Rental data is scarce in this market; all
rental comps provided are from the same Greater Lakes Market Area and distances
are not considered to be an adverse factor.[125]
55.
The Respondent’s work file relating to the
56.
The Respondent issued a Uniform Residential Appraisal Report
as of
57.
Although the Respondent’s appraisal reflected the property’s
market value as of
58.
The Respondent noted in both the September 2006 and the
November 2006 appraisals that the subject property had a 3-car garage and a
paved driveway.[135] However, based on the floor plan included in
the appraisals, the handwritten notes in the work file, and the photographs of
the subject property, it is evident that the property had only a two-car garage
and did not have a paved driveway.[136] With this correction, it appears that
59.
The Respondent certified as part of her September 2006 and
November 2006 appraisals that she had conducted inspections of the subject property,
and there is no convincing evidence to the contrary.[137]
60.
The Respondent used the same four comparable sales (three
located in Randall and one located in Little Falls) in connection with her November
2006 appraisal of 144 Boulder as she used in her November 2006 appraisal of 150
Boulder (discussed in the preceding section of these Findings).[138] She also included the same summary of the
sales comparison approach:
All sales are
less than six months old. Although the
subject property and comparable sales are located in an area featuring
increasing market values, no time adjustments have been taken, as it is
difficult to make accurate time adjustments for the seasonal market in which we
are located. Site adjustments taken are
based on the overall value of each site with consideration given to total area,
elevation, topography, vegetation and location.
The distance between the subject and the sales is common in this market,
and is not an adverse factor due to the limited number of sales available. Sales of varying style have been utilized in
the sales comparison analysis; a combination of 1 story and split entry sales
were used, as these sales are the best available to reflect the subject’s GLA,
room count and amenities.[139]
61.
The comparable sales used by the Respondent differed from
the subject property in certain respects and were similar to the subject
property in other respects, for the same reasons set forth in Finding 52 above. The Department did not provide any evidence
of other, more comparable sales.
62.
The Respondent’s November 2006 appraisal of
63.
In the Single Family Comparable Rent Schedule, the
Respondent estimated the monthly market rent of the subject property as of
Rental comps
#1 and #3 are located furthest from the subject. Rental data is scarce in this market; all
rental comps provided are from the same Greater Lakes Market Area and distances
are not considered to be an adverse factor.[143]
64.
The Respondent’s work file relating to the September and
November 2006 appraisals of
Additional Findings
65.
The Respondent has no affiliation with any of the lenders
involved in the appraisals discussed above and did not receive any payment from
them other than her fee for conducting the appraisal. She was never asked to arrive at a particular
value in her appraisals, and never agreed to do so.[147]
66.
The Respondent was not aware that prior appraisals she
performed on a property should be disclosed in a later appraisal.[148] She also told the Department investigator
that she was not aware that an appraisal should note the need to install a
driveway.[149]
67.
The property located at
68.
There is no evidence that the Respondent intentionally made
any of the errors contained in the appraisals at issue in this case.
69.
The Department’s investigator did not perform a review
appraisal of any of the Respondent’s appraisals set forth above, and cannot
assess whether the appraisals were accurately reported or reached a reliable
result. He cannot say whether or not the
dollar amounts of the Respondent’s appraisals were correct or incorrect. In addition, the Department did not analyze
and does not contend that the prior appraisals performed by the Respondent affected
the market value she reached in the second appraisals.[151]
Based
upon the foregoing Findings of Fact, the Administrative Law Judge makes the
following:
CONCLUSIONS
1.
The Administrative Law Judge and the Commissioner of
Commerce are authorized to consider the charges against Respondent under Minn.
Stat. §§ 45.027, subd. 7, 82B.07, and 14.50 (2004).
2.
The Respondent received due, proper and timely notice of the
charges against her, and of the time and place of the hearing. This matter is, therefore, properly before
the Commissioner and the Administrative Law Judge.
3.
The Department has complied with all relevant procedural
requirements.
4.
The Department has the burden to prove by a preponderance of the
evidence that the Respondent violated applicable statutes, rules and uniform
standards as alleged in its Notice of and Order for Hearing, Order to Show
Cause, and Statement of Charges.[152]
5.
The Commissioner may
deny, revoke, or suspend the license of a real estate appraiser if the licensee
has violated any law, rule, or order
related to the duties and responsibilities
entrusted to the Commissioner, or has engaged in an act or practice which
demonstrates that the licensee is untrustworthy, financially irresponsible, or
otherwise incompetent or unqualified to act under the authority or license
granted by the Commissioner.[153]
6.
The license of a licensed real estate appraiser may be denied,
revoked, suspended, or otherwise disciplined if the licensee “fails or refuses
without good cause to exercise reasonable diligence in developing an appraisal,
preparing an appraisal report, or in communicating an appraisal” or “engages in
negligence or incompetence in developing an appraisal, in preparing an
appraisal report, or in communicating an appraisal.”[154]
7.
The Department’s rules require that an appraiser must prepare and
include in the final appraisal report a written disclosure of “any appraisal on the same property made by the
appraiser in the last three years.”[155]
8.
Pursuant to the Department’s rules, a licensed real estate
appraiser must not knowingly engage in any of the following
unacceptable appraisal practices:
(1) include inaccurate or misleading factual data about the subject neighborhood, site, improvements, or comparable sales;
(2) fail to comment on negative factors with respect to the subject neighborhood, subject property, or proximity of the subject property to adverse influences;
(3) unless otherwise disclosed in the appraisal report, use comparables in the valuation process that the appraiser has not at least personally inspected from the exterior by driving by them;
(4) select and use inappropriate comparable sales or fail to use comparables that are physically and by location the most similar to the subject property;
(5) use data, particularly comparable sales data, that was provided by parties who have a financial interest in the sale or financing of the subject property without the appraiser's verification of the information from a disinterested source. For example, it would be inappropriate for an appraiser to use comparable sales provided by the real estate broker who is handling the sale of the subject property, unless the appraiser verifies the accuracy of the data provided through another source and makes an independent investigation to determine that the comparables provided were the best ones available . . . .[156]
9.
Under the rules adopted by the Department, a licensed real
estate appraiser must act in accordance with both applicable statutes and the
Uniform Standards of Professional Appraisal
Practice (USPAP) adopted by the Appraisal Standards Board of The Appraisal
Foundation.[157]
10.
Under the USPAP Ethics Rule - Conduct, an appraiser must perform
appraisals "ethically and competently, in accordance with USPAP and any
supplemental standards agreed to by the appraiser in accepting the
assignment." That rule also requires that an appraiser “must not
communicate assignment results in a misleading or fraudulent manner."[158]
11.
Under the USPAP Ethics Rule - Record Keeping, an appraiser must
prepare a work file for each appraisal that includes the name of the client,
the identity of other intended users, true copies of any written reports,
summaries of any oral reports or testimony, and "all other data,
information, and documentation necessary to support the appraiser's opinions
and conclusions and to show compliance with this Rule and all other applicable
Standards, or references to the location(s) of such other documentation." An appraiser must retain the work file for a
period of at least five years after preparation or at least two years after
final disposition of any judicial proceeding in which the appraiser provided
testimony relating to the assignment, whichever period expires last.[159]
12.
Under the USPAP Competency Rule, before accepting an assignment,
an appraiser must properly identify the problem to be addressed and have the
knowledge and experience to complete the assignment competently; or, in the
alternative, the appraiser must disclose the lack of knowledge and/or
experience to the client before accepting the assignment, take all steps
necessary or appropriate to complete the assignment competently, and describe in
the report the lack of knowledge and/or experience and the steps taken to
complete the assignment competently. The
comment to the rule indicates that competency "applies to factors such as,
but not limited to, an appraiser's familiarity with a specific type of
property, a market, a geographic area, or an analytical method." The rule
goes on to state that, "[i]f such a factor is necessary for an appraiser
to develop credible assignment results, the appraiser is responsible for having
the competency to address that factor or for following the steps outlined above
. . . ."[160]
13.
The USPAP Supplemental Standards Rule states that the USPAP
provides the common basis for all appraisal practice, but acknowledges that
supplemental standards applicable to appraisals prepared for specific purposes
or property types may be issued by other agencies. The rule specifies that an appraiser and
client must ascertain whether any published supplemental standards in addition
to USPAP apply to the assignment being considered.[161]
14.
USPAP Supplemental Standards Rule 1-1(a) states that, in
developing a real property appraisal, an appraiser must "be aware of,
understand, and correctly employ those recognized methods and techniques that
are necessary to produce a credible appraisal." Rule 1-1 (c) specifies that an appraiser must
not “render appraisal services in a careless or negligent manner, such as by
making a series of errors that, although individually might not significantly
affect the results of an appraisal, in the aggregate affects the credibility of
those results."[162]
15.
USPAP Standards Rule 1-4 requires that an appraiser collect,
verify, and analyze all information necessary for credible assignment results
in developing a real property appraisal. In addition, USPAP Standards Rule
1-4(a) states that, “[w]hen a sales comparison approach is necessary for
credible assignment results, an appraiser must analyze such comparable sales
data as are available to indicate a value conclusion.”[163]
16.
USPAP Standards Rule 1-5 (a) requires that, “[w]hen the value
opinion to be developed is market value, an appraiser must, if such information
is available to the appraiser in the normal course of business: . . . analyze
all agreements of sale, options, and listings of the subject property current
as of the effective date of the appraisal . . . ."[164]
17.
USPAP Standards Rule 2-2(b)(viii) specifies that the content of
a Summary Appraisal Report must be consistent with the intended use of the
appraisal and, at a minimum, "summarize the information analyzed, the
appraisal methods and techniques employed, and the reasoning that supports the
analyses, opinions, and conclusions; exclusion of the sales comparison
approach, cost approach, or income approach must be
explained. . . ."[165]
18.
USPAP Standards Rule 2-3 requires that each written real
property appraisal report must contain a signed certification that is similar
in content to a form prescribed in the rules.[166]
19.
The USPAP Supplemental Standards Rule – Fannie Mae Selling Guide
states that appraisers are expected to analyze and report on the current
contract for sale in their appraisal report.[167] In addition, in selecting comparable sales,
appraisers are required to “research, analyze, and consider influences that may
affect value based on market evidence (such as closed sales, contract sales,
and properties for sale in the market area; market studies; etc.).”[168] The standard goes on to state:
If the property
is located in an area in which there is a shortage of truly comparable
sales--either because the nature of the property improvements or the relatively
low number of sales transactions in the neighborhood--the appraiser might need
to use as comparable sales properties that are not truly comparable to the
subject property or properties that are located in competing
neighborhoods. In some situations, sales
of properties that are not truly comparable or sales of properties that are
located in competing neighborhoods may simply be the best comparables available
and the most appropriate for the appraiser's analysis. The use of such comparables is acceptable as
long as the appraiser adequately documents his or her analysis and explains why
these comparable sales were used (including a discussion of how a competing
neighborhood is comparable to the subject neighborhood).[169]
20.
The USPAP Supplemental Standards Rule – Fannie Mae Selling Guide
further states that exhibits for appraisal reports based on interior and
exterior property inspections must include “[c]lear descriptive photographs
(either in black and white or color) that show the front of each comparable
sale and that are appropriately identified.”
The Guide indicates that photographs generally should be originals that
are produced by photography or electronic imaging, but notes that “copies of
photographs from a multiple listing service or from the appraiser’s files are
acceptable if they are clear and descriptive.”
However, the Guide indicates that photographs of comparable rentals and
listings are not required.[170]
21.
The USPAP Supplemental Standards Rule – Fannie Mae Selling Guide
lists the following examples of appraisal practices that are considered
unacceptable:
·
Misrepresentation of the physical characteristics of the subject
property, improvements, or comparable sales;
·
Failure to comment on negative factors with respect to the
subject neighborhood, subject property, or proximity of the subject property to
adverse influences;
·
Failure to adequately analyze and report any current contract of
sale, option, offering, or listing of the subject property and the prior sales
of the subject property and the comparable sales; . . .
·
Use of comparable sales in the valuation process even though the
appraiser has not personally inspected the exterior of the comparable
properties by, at least, driving by them; . . .
·
Use of data--particularly comparable sales data--that was
provided by parties who have a financial interest in the sale or financing of
the subject property without the appraiser's verification of the information
from a disinterested source (For example, it would be inappropriate for an
appraiser to use comparable sales provided by the real estate broker who is
handling the sale of the subject property, unless the appraiser verifies the
accuracy of the data provided with another source and makes an independent
investigation to determine that the comparable sales provided were the best
ones available.) . . . .
22.
The Department demonstrated by a preponderance of the evidence
that the Respondent made the following errors in connection with the
residential real estate appraisals at issue in this matter:
·
failed to disclose that she had previously appraised the same
property within the past three years in appraisal reports she prepared for
·
failed to analyze and report on the current agreement for sale
with respect to
·
failed to maintain work file data necessary to support her opinions
and conclusions in connection with her appraisals of the five properties
involved in this case, in violation of USPAP Ethics Rule – Recordkeeping and
Minn. R. 2808.6000, subp. 1.
·
failed to comment on negative factors with respect to a subject
property by failing to note that the driveways had not yet been completed in
her appraisals of
·
used rental data provided by a party who had a financial
interest in the transaction without verifying the accuracy of that information
with a disinterested source, and thereby made errors in reporting rental
amounts for comparable homes in connection with Single Family Comparable Rent
Schedules she prepared after she completed appraisals for 836 and 840 Poplar
Drive, Kimball, Minnesota, in violation of USPAP Supplemental Standards Rule –
Fannie Mae, and Minn. R. 2808.6000, subp. 3A(5).
·
included inaccurate information in her appraisals of the five
properties at issue here, including inaccurate projections of expenses and
replacement costs, in violation of Minn. R. 2808.6000, subp. 3A(1).
·
failed to analyze and report the fact that the sale price of a
comparable reflected only the house and not the lot in connection with her
appraisal of 836 Poplar Drive and 840 Poplar Drive, in violation of USPAP
Supplemental Standards Rule – Fannie Mae; and
·
acted negligently and failed to exercise reasonable
diligence in developing, preparing, or communicating appraisals, in violation
of Minn. Stat. § 82B.20, subd. 2(6) and (7).
23.
The Department failed to demonstrate by a preponderance of the
evidence that the Respondent failed to inspect properties that were the subject
of her appraisals; failed to at least drive by comparable sales;
inappropriately used data that did not exist as of the appraised date; improperly
used MLS photographs of comparable sales; failed to analyze physical and
location differences between the subject property and comparables; failed to
research and analyze active comparables; or selected and used comparable sales that
were inappropriate or not physically or by location the most similar to a
subject property.
16.
An Order imposing discipline is in the public interest.
17.
These Conclusions are reached for the reasons discussed in
the attached Memorandum, which is incorporated by reference in these
Conclusions.
Based upon the foregoing Conclusions, the Administrative Law Judge makes the following:
IT IS HEREBY
RECOMMENDED: that the Commissioner of
Commerce impose appropriate discipline against the Respondent’s Real Estate
Appraiser license.
Dated: July 23, 2010.
|
s/Barbara L. Neilson |
|
BARBARA L. NEILSON |
|
Administrative Law Judge |
Reported: Digitally recorded; no transcript prepared.
This Report is a recommendation, not
a final decision. The Commissioner of
Commerce will make the final decision after reviewing the record and may adopt,
reject or modify these Findings of Fact, Conclusions, and Recommendation. Under Minn. Stat. § 14.61, the Commissioner’s
decision shall not be made until this Report has been available to the parties
to the proceeding for at least ten (10) days.[171] An opportunity must be afforded to each party
adversely affected by this Report to file exceptions and present argument to
the Commissioner. Parties should contact
Emmanuel Munson-Regala,
If the Commissioner fails to issue a final decision within 90 days of the close of the record, this report will constitute the final agency decision under Minn. Stat. § 14.62, subd. 2a (2004). The record closes upon the filing of exceptions to the report and the presentation of argument to the Commissioner, or upon the expiration of the deadline for doing so. The Commissioner must notify the parties and the Administrative Law Judge of the date on which the record closes.
Under
Minn. Stat. § 14.62, subd.
1, the agency is required to serve its final decision upon each party and the
Administrative Law Judge by first class mail or as otherwise provided by law.
MEMORANDUM
The
Department bears the burden in this case to prove its allegations by a
preponderance of the evidence. The
Minnesota Supreme Court has observed that while the proper standard of proof in
professional licensing matters is a preponderance of the evidence, the agency’s
decision must be supported by evidence with “heft” or significance:
Even so these
proceedings brought on behalf of the state, attacking a person’s professional
and personal reputation and character and seeking to impose disciplinary
sanctions, are no ordinary proceedings.
We trust that in all professional disciplinary matters, the finder of
fact, bearing in mind the gravity of the decision to be made, will be persuaded
only by evidence with heft.[172]
As detailed in the Findings set forth
above, it is evident that the Respondent made a number of errors in the
appraisals at issue in this proceeding.
She did not disclose prior appraisals she had performed of four of the
five properties and admitted that she was unaware of any requirement to do
so. She erroneously indicated that one
of the subject properties (
In two of the five appraisals, she
erroneously identified one of the comparable sales as a “multi-level” home when
in fact it was a split-entry home like the subject properties, and she failed
to disclose that the sale price for another comparable sale reflected the house
only because the lot was owned by the buyer.
In preparing Operating Income Statements for four of the properties, she
did not take into consideration the need for eventual carpet replacement. She also uniformly estimated that the
remaining life of several different appliances was 25 years without providing
any testimony or documentation supporting this claim. In addition, in preparing Single Family
Comparable Rent Schedules after her appraisals for two of these properties, she
did
not accurately report the rental amounts of other comparables and merely relied
on information provided by the builder (who was a party to the transaction)
without verification from a neutral source.
After
a careful review of the record, the Administrative Law Judge is not convinced
that the Department has provided evidence with sufficient “heft” to support its
allegations that the Respondent committed certain other misconduct. For example, despite the Respondent’s certification that she “performed a complete
visual inspection of the interior and exterior areas of the subject property,”[173]
the
Department’s investigator testified that
he believed that the photograph used in the November 10, 2006, appraisal of 840
Poplar Drive was the same one used in her October 27, 2006, appraisal, and
concluded from this that the Respondent failed to inspect the property for the
November 2006 appraisal. But the Department did not offer a copy
of the photograph used in the October 2006 appraisal into evidence. And, even if the Respondent did use the same
photograph in both appraisal reports, that would not necessarily mean that she
failed to conduct an inspection for the second appraisal. The Department also alleged that the
Respondent failed to inspect
Similarly, the Department contended that
the Respondent failed to at least drive by comparable sales based merely on the
fact that she used photographs from the MLS listings for these
comparables. The Respondent explained
that she preferred to use MLS photographs because, in her opinion, MLS
photographs are most reflective of the condition of those properties when they
sold. Moreover, the USPAP Supplemental
Standards Rule – Fannie Mae permits the use of copies from MLS or the
appraiser’s files if they are “clear and descriptive.”
To support its allegation that the
Respondent selected and used comparable sales that were not physically or by
location the most similar to the Poplar Drive properties she appraised, the
Department merely produced MLS listings showing that five split-entry homes located
in Kimball had sold between February 24, 2006, and September 22, 2006. While those properties appeared to be similar
to the subject properties in style, size, and location within the City of
The Department’s evidence supporting its
allegation that the Respondent selected and used comparable sales that were not
physically or by location the most similar to the
The errors found to have been made by the
Respondent violated various statutes, rules and USPAP standards. But there is no evidence to suggest that the
errors were made intentionally or for personal gain. Also, there have been no other complaints or
disciplinary issues involving the Respondent during the thirteen years she has
been licensed. Because it appears that
the Respondent was careless in performing these appraisals and perhaps also
lacks proper training, some form of discipline is warranted. In light of the nature of the errors and the
Respondent’s unblemished past performance, license revocation would appear to
be excessive, especially since there is no allegation of fraud. Under the circumstances, the Administrative
Law Judge recommends that the Commissioner consider either suspending or making
the Respondent’s license conditional for a period of time and requiring that
the Respondent receive significant training on USPAP standards. In particular, it would appear that the
Respondent would benefit from additional training regarding the need to set
forth additional analysis in her written reports as well as the need to develop
and maintain work files that support her findings, opinions, and market
research. Of course, the Commissioner
may determine that other forms of discipline are more appropriate.
B. L. N.
[1] Unless otherwise specified, all references to the Minnesota Statutes are to the 2006 version that was in effect during the relevant time period.
[2] Unless otherwise specified, all references to the Minnesota Rules are to the 2007 version.
[3] Unless otherwise specified, all references to the USPAP are to the 2006 version.
[4]
Testimony (“Test.”) of Thomas Hack;
[5]
[6] Test. of Hack; Test. of Respondent.
[7] Test. of Respondent.
[8] Test. of Hack.
[9] Test. of Hack.
[10] Test. of Hack.
[11] Test. of Respondent; Exhibits (“Exs”). 1-4, 1-5, 3-4, 3-5, 7-4, 7-6, 19-4, 19-6, 24-4, 24-6, 29-4, 29-6.
[12] Ex. 3; Test. of Hack.
[13]
Ex. 1 (Appraisal as of
[14] Ex. 3; Test. of Hack.
[15] Exs. 1, 3.
[16] Testimony of Respondent.
[17] Ex. 3-3. The March 2007 appraisal of the same property indicates that the prior contract for sale was analyzed in connection with that appraisal. Ex. 1-3; Test. of Respondent.
[18] Testimony of Respondent.
[19] Ex. 1-3.
[20] Exs. 1-1, 6-1; Test. of Hack.
[21] Test. of Respondent.
[22] Test. of Respondent.
[23] Ex. 3-8.
[24] Exs. 1-9, 3-9.
[25] Test. of Hack.
[26] Test. of Respondent.
[27] Ex. 2.
[28] Ex. 4; Test. of Respondent.
[29] The precise square footage of the property is unclear. The first page of the appraisal (Ex. 7-3) indicated that the GLA and the basement area were each 928 square feet; the second and third pages of the appraisal (Ex. 7-4 and 7-5) stated that the GLA and below-grade areas were each 972 square feet.
[30]
Ex. 7-1 – 7-16. The Respondent issued
the remainder of Ex. 7, consisting of the Appraisal Update, additional
photographs, the Operating Income Statement, and the Single Family Comparable
Rent Schedule, on
[31] Ex. 7-3.
[32]
Ex. 8 (Request for Appraisal dated
[33] Test. of Respondent.
[34] Exs. 7, 12; Test. of Hack.
[35] Test. of Respondent.
[36] Ex. 7-4 – 7-5; Test. of Respondent.
[37] Ex. 7-4.
[38] Ex. 9-7.
[39] Ex. 7-4.
[40] Ex. 7-5; Test. of Respondent.
[41] Test. of Hack.
[42] Exs. 7-5, 14.
[43] Ex. 14-1; Test. of Hack.
[44] Test. of Hack; see Ex. 7.
[45] Test. of Respondent.
[46] Ex. 10-1.
[47]
Ex. 10-2; Test. of Hack. The initial listing for the property on
[48] Test. of Hack; Test. of Respondent.
[49]
Test. of Respondent. The
[50] Ex. 11-2.
[51] Ex. 11-3.
[52] Ex. 11-4.
[53] Ex. 11-5.
[54] Test. of Hack.
[55] Ex. 11-1
[56] Ex. 11-2.
[57] Ex. 11-3.
[58] Ex. 11-4.
[59] Ex. 11-5.
[60] See Exs. 10-1 and 10-2.
[61] See Ex. 11-5.
[62] Ex. 7-3, 7-4.
[63] Test. of Hack.
[64] Test. of Respondent.
[65]
[66] Ex. 11-4.
[67] Ex. 7-17 – 7-24; Testimony of Respondent.
[68] Ex. 7-22; Test. of Hack.
[69] Ex. 7-23; Test. of Respondent.
[70] Ex. 13-2.
[71] Ex. 13-5.
[72] Ex. 13-10.
[73] Ex. 9.
[74] Test. of Hack.
[75]
Ex. 19-1 – 19-16. The Respondent issued
the remainder of Ex. 19, consisting of the Appraisal Update, additional
photographs, the Operating Income Statement, and the Single Family Comparable
Rent Schedule, on
[76] Testimony of Respondent.
[77] Ex. 19-1 – 19-16; Testimony of Respondent.
[78] Ex. 19-3.
[79] Ex. 17.
[80] Ex. 19; Test. of Hack.
[81] Exs. 17, 19.
[82] Ex. 21-1.
[83] Ex. 19-9; Test. of Respondent.
[84] Ex. 19-4 – 19-5.
[85] Ex. 7-4 – 7-5.
[86] Ex. 19-4.
[87] See Findings 20 and 24.
[88] Test. of Respondent.
[89] See Finding 22.
[90] Test. of Hack.
[91] See Finding 23.
[92] Exs. 14, 19-5.
[93] Test. of Hack; Test. of Respondent.
[94]
Test. of Respondent. The
[95] Test. of Hack.
[96] Ex. 19-17 – 19-23; Testimony of Respondent.
[97] Ex. 19-17 – 19-23; Testimony of Respondent.
[98] Ex. 19-22; Test. of Hack.
[99] Ex. 19-20.
[100] Ex. 19-20. These comments were identical to those contained in the updated appraisal of 836 Poplar. See Ex. 7-23.
[101] Ex. 19-20.
[102] Exs. 13-2, 13-5, and 13-10.
[103] Ex. 18.
[104] Ex. 20.
[105] Test. of Hack; see Exs. 18, 20.
[106] Ex. 24; Test. of Hack.
[107] Ex. 24-3.
[108] Ex. 22.
[109] Ex. 24; Test. of Hack.
[110] Exs. 22, 24.
[111] Exs. 24-9, 25-1.
[112] Test. of Respondent.
[113] Exs. 35-40; Test. of Respondent.
[114] Compare Exs. 22 and 24.
[115] Ex. 24-4 – 24-5.
[116] Ex. 24-4.
[117] Test. of Respondent.
[118] Ex. 24-4; Test. of Respondent.
[119]
[120]
[121] Ex. 24-5; Test. of Respondent.
[122] Exs. 24-18 – 24-20.
[123] Ex. 24-18; Test. of Hack.
[124] Ex. 24--19; Test. of Hack.
[125] Ex. 24-20.
[126] Ex. 25.
[127] Test. of Hack; see Ex. 25.
[128]
Ex. 29; Test. of Hack. Based upon the
photographs and descriptions of the property, it was virtually identical to
[129] Ex. 29-3.
[130] Ex. 27.
[131] Ex. 29; Test. of Hack.
[132] Exs. 27, 29.
[133] Exs. 28-1, 29-9.
[134] Test. of Respondent.
[135] Exs. 27-3, 29-3.
[136] Exs. 27-3, 27-11, 28-4, 29-1, 29-3, 29-11; Test. of Hack.
[137] Exs. 27 and 29; Test. of Respondent.
[138]
Ex. 29-4 – 29-5. Apart from Comparable
Sale Number Two, the Respondent also used the same comparables in her September
2006 appraisal. At the time the November
2006 appraisal was performed, the lender asked her to replace one of the
comparables she had used earlier (
[139] Ex. 29-4.
[140] Ex. 29-17 – 29-19; Ex. 30.
[141] Ex. 29-17; Test. of Hack.
[142] Ex. 29-18; Test. of Hack.
[143] Ex. 29-19.
[144] Ex. 28.
[145]
As noted above, the Respondent’s work file relating to the
[146] Test. of Hack; see Ex. 28.
[147] Test. of Respondent.
[148] Test. of Respondent; Test. of Hack.
[149] Test. of Hack.
[150] Test. of Hack.
[151] Test. of Hack.
[152]
[153]
[154]
[155] Minn. R. 2808.6000, subp. 2(J).
[156] Minn. R. 2808.6000, subp. 3A(1) – (5).
[157]
[158] Excerpt from USPAP 2006 Edition at 7 (attached to Department’s initial post-hearing submission).
[159]
[160]
[161]
[162]
[163]
[164]
[165]
[166]
[167]
Fannie Mae Single Family (308761), 2006 Selling Guide, Part XI: Property and Appraisal Guidelines; XI,
Chapter 4: Reviewing the Appraisal
Report (
[168]
[169]
[170]
[171] Unless otherwise noted, all references to Minnesota Statutes are to the 2004 edition and all references to Minnesota Rules are to the 2005 edition.
[172]
In re Wang, 441 N.W.2d 489, 493-94 (
[173] Ex. 19-8.