The Issue Whether the Respondent, Andrew S. Meltzer, committed the violations alleged in the Administrative Complaint involving the standards for the development of or the communication of real estate appraisals and, if so, what penalty should be imposed.
Findings Of Fact The Petitioner (Department) is the state agency charged with the responsibility of regulating persons holding real estate appraisers' licenses in Florida. At all times material to the allegations of this matter the Respondent has been a State-certified residential real estate appraiser holding license number 3190. He is 38 years old and has been a real estate appraiser for approximately seventeen years. During that time, he has never been disciplined nor has he been removed from a bank's approved list of appraisers. On or about October 23, 2006, the Respondent prepared a Uniform Residential Appraisal Report for property located at 9900 Southwest 72nd Avenue, Pinecrest, Florida ("the subject property"), for the F S Lending Group. In September 2007, an investigator for the Department received a copy of an appraisal report (Report One) from a closing agent. The report showed that "Aida Martinez" was the name of the buyer. Based on his investigation and her admissions, the investigator found that Martinez was a "straw buyer" and was paid $10,000 for the use of her name and credit report. The person who is alleged to have paid her was not available to talk to investigators due to possible criminal proceedings, but the Department's investigator made it clear that he found no evidence of a connection between that person and the Respondent. A copy of the contract, also provided by the closing agent, showed a different name for the buyer, "Aida Barrero" or "Aida Barren," as best the handwriting and poor quality of the copy could be read. In addition, an addendum to the contract for a purchase price of $999,000, provided that "seller will contribute [provide concessions in the amount of] $173,000 at closing with (sic) to the buyer (for repair of subject property and buyer closing costs). The amount that seller will receive for the property will be $825,000 less seller (sic) closing costs and mortgage payoff if any." Report One has the Respondent's digital signature on it. A mortgage loan on the subject property is now in foreclosure, but no one from the Department contacted the lender to see what appraisal was the basis for making the loan. Based on the fact that the property was listed for sale, Report One has an incorrect "no" answer on page 1 to a question regarding a current or other sales listings in the last 12 months. Based on the provisions in the contract, it also has an incorrect "no" answer to whether there are seller's concessions. When an investigator showed Report One to him, the Respondent immediately retrieved what has been designated "Report Two" from his computer files. Report Two on page 1 named the buyer as "Barren" using only the last name as is customary for the Respondent, and using the same name that was on the appraisal order form sent to the Respondent. Report Two has what appears to be a signed transmittal page to F S Lending Group. It also has a correct "yes" answer on page 1 to the question regarding a current or sales listings in the last 12 months, unlike Report One. Like Report One, it erroneously has a "no" answer on page 1 regarding seller's concessions and is, in all other respects, the same as Report One. The witnesses agreed that the most likely explanation for Report One is that page 1 was altered fraudulently after Report Two was no longer within the Respondent's control. The Respondent's appraisal work file for the subject property included another report (Report Three) that also listed "Barren" as the buyer, but had no signature on it, and was an earlier draft of Report Two. Although the Department's expert said an oral communication of its contents could make Report Three an appraisal, he and the Department's investigator had no evidence of that and agreed that it was not an appraisal. A three-page excerpt of the contract in the Respondent's work file did not include and did not refer to the addendum to the contract with concessions that indicated work needed to be done on the house and that the purchase price was reduced. The three pages were clearly not the entire sales contract, based on missing page and item numbers on the standard form. The Respondent admitted that he only instructs clients to send the "first page, signature pages, addendum pages, and anything that would [a]ffect the purchase price." He said that he only asks for pertinent pages and he could not survive in the industry if he reviewed seventy or a hundred page construction contracts, although he checked the box on the appraisal from that says, "I did analyze the contract for sale of the subject property." The Department's expert prepared a One-Unit Residential Appraisal Field Report (field report) to evaluate Report One that is, except for the name of the buyer and the answer regarding the sales listing, applicable to Report Two. He cited numerous errors and omissions in Report One. He admitted, however, that his work was "sloppy" because he listed the incorrect property address as 12745 Southwest 72 Avenue, the address for the subject property, not 9900 Southwest 72nd Avenue. In his review, the Department's expert found that the Respondent incorrectly categorized the pool on the subject property as a structural improvement rather than a site improvement. Comparable one in Report Two was a superior property, so the Respondent used matched paired sales data that he keeps in his office among other reference material, including the Marshall and Swift publication on cost estimates. He made adjustments for square footage and room count accordingly. The Department's expert testified that USPAP required documentation for any adjustments, and, regarding where the records had to be kept, responded as follows: Q. Now, and again I'm referring to comp number, report number two, comp number one. What documentation does he need in his file to support his adjustment for the site square footage? A. Either -- I would say the best support would be a paired, p-a-i-r-e-d, sales analysis. Q. Does that have to be in the work file? A. Yes. No-no-no-no. It does not have to be in the work file. It could be somewhere in your office readily accessible . . . Adjustments to comparable two were reasonable based on the Respondent's observation that it was "a lot more superior," and his determination, after talking to the realtor that it was completely "renovated like new" which he wrote in his notes. The MLS listing also reported that the renovations were made in 2006. The Respondent received conflicting information from two different data sources concerning the square footage for comparable two, so he called the realtor and used the figure that the realtor verified in his analysis, as the Department's expert testified he should have done. No adjustment was made based on his note that the comparable was "similar in square footage" and less than a 100-square foot difference. The Department's expert differed with the selection and adjustment of comparables three and four due to lot sizes and bedroom/bathroom counts. The subject property is on a lot of 15,832 square feet, or less than half an acre, has four bedrooms and two and a-half baths, with 2,639 square feet of livable, air conditioned space. Comparable three has a lot size of 32,670 square feet, although the living area is similar, and it has only one half bath more than the subject. Although comparable three has a much larger site, the sales price was only $25,000 difference, because of its condition. So the Respondent reasonably made a consistent negative adjustment based on sales history. Comparable four is within a half mile of the subject property, in the Pinecrest area, but it has a lot size of 33,541 square feet, has five bedrooms and four full baths, and has 4,283 square feet of livable space. The Respondent agreed that, as a rule, comparables should have not more than a ten percent adjustment, and that, as the Department's expert noted, lenders require only three comparables. To provide as much information as possible, the Respondent included a fourth comparable with a greater adjustment down because it had a tar and gravel roof, and because the realtor told him "it needed updating." He made it the fourth comparable because it was the least desirable one, but he did not include the fact that it had a tennis court, as he should have. He failed to note that it was gated property, although the Department's expert agreed that whether a gate adds or does not add value to property is "a matter of professional opinion." He also agreed that the differences between a tar and gravel roof and a tile roof would not usually be documented in a work file. It was appropriate to make adjustments based on the condition of the property. As USPAP required, the Respondent inspected the comparables from the street. In reviewing the Respondent's work, the Department's expert observed only the subject property from the street, but not the comparables and testified as follows: Q. But you did not inspect each of the comparable sales at least from the street? A. Correct, correct. * * * Q. -- you testified that you did not inspect the comparables? A. I agree. * * * Q. Correct. And that goes to the whole point where you were earlier discussing that it's hard to verify what he did because you actually didn't go out and see the comparables? A. Correct. Q. Which is contrary to what you were supposed to do? A. Correct. The Respondent made a mathematical error in the calculation of the depreciation at 22% when it should have been 20%, resulting in an underestimate of $8,541. Although he correctly noted that the subject property was listed for sale for $999,000, the Respondent failed to include the Multiple Listing Service (MLS) history, including,". . . data source(s), offering price(s), and date(s)" of listings in the twelve months prior to the effective date of the appraisal. The sales prices for the subject property were listed as $885,000 in June 2006; reduced to $875,000 in July 2006, reduced again to $849,990 in August 2006; and increased to $999,000 on October 14, 2006. The Department's investigator testified that the listing broker said she raised the price based on an appraisal that was faxed to her, but he agreed that it could not have been based on the Respondent's appraisal since the price increase took effect on October 14, 2006, and the Respondent's appraisal report was dated October 23, 2006. Concerning the MLS listings, the Respondent said he called and asked the realtor why the listing price was increased. He accepted the realtor's explanation that improvements in the last six months, a new roof and a new garage door, would justify the increase in the sales price. In his notes, the Respondent wrote "property renovated" and "big realtor" because the realtor was well-known and he believed he could rely on her representations. He also saw the new roof himself, and it made sense to him that a million dollar house could have a 10% increase in value because of those improvements. While this may have been a logical explanation, the Respondent failed to document it in his work file despite the fact that the MLS fluctuations were a "red flag," possibly indicating fraud. The Department's expert found no support in the work files for the Respondent's allocation of 61% of the total value of $903,100, or $550,000 ($34.74), to the site value, but agreed that differences in value based on what buyers might pay for additional land is a matter of legitimate differences in "appraiser opinion." In summary, the Department's expert established that Report Two was inaccurate and misleading because it (1) did not include the terms of the entire contract that affected the price; (2) did not show the value of the pool in the appropriate category; (3) did not report the MLS listings history for the subject property for the past year; (4) had an incorrect value for depreciation; and (5) did not show the tennis court on comparable four. Based on the evidence, the Department did not show, as alleged in paragraph 7 (A) through (D) of the Administrative Complaint, that the Respondent made errors and omissions on Report One other than those carried over from Report Two, before it was altered. Report One was not alleged or proven to be the document communicated by the Respondent's client. Based on the evidence, Report Two is the only accurate representation of the Respondent's work appraising the subject property. Paragraph 8 (A) of the Administrative Complaint alleging that the name of the borrower was incorrect is not supported by the evidence. The Department's assertion in paragraph 8 (B) that the MLS listing history is incomplete is clearly and convincingly supported by the evidence. Paragraph 8 (C) of the Administrative Complaint, alleging that the Respondent failed to review all agreements for sale, and paragraph 8 (D), regarding the misstatement on seller's concessions, are clearly and convincingly established by the evidence. The Department's allegations in paragraphs 9 (A)-(D), related to Report Three, are not established by clear and convincing evidence based on the witnesses' agreement that Report Three was not an appraisal report. With regard to Report Two, the only appraisal report for the subject property that was shown to have been developed and communicated by the Respondent, the evidence is not clear and convincing that the Respondent made the following errors and omissions: as alleged in paragraph 10 (A) and (B), that adjustments for room count and square footage were not explained for comparable sales one and that discrepancies were not resolved for comparable sale two; in paragraph 10 (C), that room count and square footage adjustments for comparable three are not accurate and supported; and in paragraph 10 (D), that room count and square footage adjustments for comparable four are not accurate and supported. With regard to Report Two, the evidence is clear and convincing, as alleged, in paragraph 10 (E) and (F), that the Respondent omitted the tennis court on comparable four and showed no adjustment or reasonable explanation for not doing so. The evidence was not clear and convincing, as alleged in paragraph 10 (G), that different comparables should have been used. The evidence is clear and convincing that the Respondent made a mathematical error in determining the amount of depreciation in Report Two, as alleged in paragraph 11 (A). Depreciation of improvements, as alleged in paragraph 11 (b), is not clearly and convincingly shown to be erroneous. The comparisons of Reports One, Two, and Three in paragraph 12 are rejected as irrelevant, because Report One is altered except for the mistakes carried over from Report Two, and Report Three was a draft. Charges related to Report Three are also not proved for the same reason. Paragraph 13 is established by clear and convincing evidence because the entire sales contract is not in the working files for the subject property. 32. Paragraphs 14, 15, 16, 17, 18, 19, 20, 21, 22, 23, 24, 25 and 26, all related to the absence of documentation for comparable adjustments, the square footage price, value of improvements, and condition are not supported by clear and convincing evidence based on the testimony of Department's expert regarding the required documentation and his incomplete review of the comparables. Paragraph 27, alleging that Aida Martinez was a "straw buyer" is supported by the undisputed evidence presented by the Department.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that a final order be entered by the Florida Real Estate Appraisal Board: Finding the Respondent guilty on Counts I, II, III, IV, V, VI, VII, IX, X and XI. Recommending suspension of the Respondent's appraisal license for a period of 30 days, followed by probation for a period of six months. Requiring the Respondent to pay an administrative fine of $7,500; and Requiring the Respondent to pay the investigative costs of $1,501.50. DONE AND ENTERED this 17th day of March, 2009, in Tallahassee, Leon County, Florida. S ELEANOR M. HUNTER Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 17th day of March, 2009. COPIES FURNISHED: Robert Minarcin, Esquire Department of Business & Professional Regulation 400 West Robinson Street, N801 Orlando, Florida 32801-1757 Daniel Villazon, Esquire Daniel Villazon, P.A. 1420 Celebration Boulevard, Suite 200 Celebration, Florida 34747 Thomas W. O'Bryant, Jr., Director Division of Real Estate Department of Business & Professional Regulation 400 West Robinson Street, N802 Orlando, Florida 32801-1757 Ned Luczynski, General Counsel Department of Business and Professional Regulation Northwood Centre 1940 North Monroe Street Tallahassee, Florida 32399-0792
The Issue The issue is what penalty should be imposed for a violation by Respondent of the Uniform Standards of Professional Appraising Practice.
Findings Of Fact At all material times, Respondent has been a certified general real estate appraiser, holding license number 000894. He has worked as an appraiser for 14 years and has held his real estate license for 15 years. He has never previously been disciplined. By letter dated March 16, 1995, Respondent sent what he entitled as a "letter of opinion of value for property located at [address omitted]." The letter of opinion states that the document "is not a Real Estate Appraisal Report, rather [it is] an opinion of value." The letter estimates the value of appraised property as $65,000-$70,000. The client for whom the letter of opinion was prepared was satisfied with the process by which Petitioner prepared the letter of opinion and the letter of opinion itself. The letter of opinion caused no one any damage or inconvenience. Standard 2-2 of the Uniform Standards of Professional Appraisal Practice (USPAP) states: "Each written real property appraisal report must be prepared under one of the following three options and prominently state which option is used: Self-Contained Appraisal Report, Summary Appraisal Report or Restricted Appraisal Report." SMT-7, which is commentary that accompanies certain standards of the USPAP, provides: Various nomenclature has been developed by clients and client groups for certain appraisal assignments. The development of this Statement on Appraisal Standards is a response to inquiries about several types of appraisal assignments, and it is appropriate to clarify the meaning of these terms for future reference. The term Letter Opinion of Value has been used to describe a one-page letter sent to a client that stated a value estimate and referenced the file information and experience of the appraiser as the basis for the estimate. This type of service does not comply with USPAP, and should be eliminated from appraisal practice. USPAP recognizes that the results of any appraisal assignment may be presented in a letter format provided that the content items in one of the three report options under Standards Rule 2-2 are addressed. The Restricted Report is the minimum report format and replaces the concept of the Letter Opinion of Value. Respondent has stipulated to a violation of USPAP Standard 2-2 in the preparation of the March 15, 1995, letter.
Recommendation It is RECOMMENDED that, in the absence of an agreement of the type described in the preceding paragraph, the Board of Real Estate Appraisers enter a final order reprimanding Respondent. ENTERED on September 30, 1996, in Tallahassee, Florida. ROBERT E. MEALE, Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this September 30, 1996. COPIES FURNISHED: Henry M. Solares Division Director Division of Real Estate Post Office Box 1900 Orlando, Florida 32802-1900 Steven W. Johnson Senior Attorney Division of Real Estate Post Office Box 1900 Orlando, Florida 32802-1900 Attorney Clifford R. Rhoades 227 North Ridgewood Drive Sebring, Florida 33870
The Issue Whether Respondent violated section 475.624(15), Florida Statutes (2010), as alleged in the Administrative Complaint; and if so, the appropriate penalty.1/
Findings Of Fact Department is the state agency charged with regulating the practice of real estate appraisal pursuant to section 20.165 and chapters 455 and 475, Florida Statutes. Mr. Butterfield is licensed as a state-certified general real estate appraiser, holding state license number RD 1063. Consequently, he is certified to give residential and commercial appraisals in Florida. Further, Mr. Butterfield has been a licensed appraiser in Florida since 1991. In addition to being licensed in Florida, Mr. Butterfield is licensed in 11 other states, holding seven active and four inactive licenses. There is no evidence that Mr. Butterfield has any prior discipline. On April 26, 2010, Mr. Butterfield issued the Appraisal Report, which is at issue in this administrative hearing. He prepared the Appraisal Report for Charles Morgan, P.A., a law firm located in North Miami Beach, Florida. The Appraisal Report identified the law firm as the intended user and that the appraisal would be used in litigation. The stated purpose of the Appraisal Report was to provide a market value for the subject property. The subject property of the appraisal is located at 1500 Brickell Avenue, Miami, Florida.2/ The subject property is a unique parcel located on Brickell Avenue, near the heart of Miami's Financial District. The subject property's site is approximately 15,286 square feet with a 6,497 square foot building. The building is a French Chateau home constructed in 1928 by John Murrell, a prominent Miami attorney that helped develop Miami and Coral Gables. The subject property was the home of Mr. Murrell and his wife Ethel Murrell. Ms. Murrell was a noted attorney, author, lecturer and known as one of Florida's leading feminists. Consequently, the subject property has significant historical value. The building, as described by the Appraisal Report, "contains two octagonal towers with tent roof, parpet roof and dormers, crenellated garage roof, and trefoil arch windows with leaded and stained glass." Clearly, this is a unique historical building situated on one of Miami's most prestigious streets, Brickell Avenue. The Appraisal Report does not identify whether it is a self-contained appraisal report, a summary appraisal report or a restricted use appraisal report, as required by Standards Rule 2-2 of USPAP. Similarly, Mr. Butterfield's work file does not identify the type of appraisal he performed on the subject property. Rather, Mr. Butterfield's work file shows that he contracted to provide a "Commercial Narrative Appraisal Report." Mr. Butterfield's uncontradicted testimony that the Appraisal Report is a summary appraisal report for the intended user, a law firm, is credible. The complaint against Mr. Butterfield was instigated by Scott Taylor (Mr. Taylor). Mr. Taylor, a licensed residential appraiser, initially contacted Mr. Butterfield requesting assistance in appraising the subject property. Because the subject property appeared to be a commercial property, Mr. Taylor was not qualified to give an appraisal. Consequently, Mr. Taylor requested Mr. Butterfield's assistance. Mr. Taylor assisted Mr. Butterfield in the preparation of the appraisal with the taking of photographs and gathering of information. However, Mr. Taylor became unhappy with Mr. Butterfield concerning the payment of Mr. Taylor's fee. According to Mr. Butterfield, Mr. Taylor threatened to file a complaint with the Department, if Mr. Butterfield did not pay the fee. Mr. Butterfield refused to pay the disputed amount. Consequently, Mr. Taylor filed a complaint against Mr. Butterfield for perceived errors in the appraisal. The record contains no evidence that the intended user, the law firm, had any complaint concerning the quality of the work or that the law firm was misled by the Appraisal Report. The Department's expert witness, Mr. Spool, has 39 years of experience as an appraiser in the Miami-Dade, County area. Further, he has taught appraisal practice at Miami-Dade College, and published numerous articles concerning appraisal practice. Mr. Spool identified USPAP as the standards used by appraisers in conducting real estate appraisals. Further, he credibly testified that USPAP standards related to an appraiser using "reasonable diligence" in preparing an appraisal by requiring that the appraiser correctly use recognized methods and techniques to create a credible appraisal. The Appraisal Report contains Mr. Butterfield's certification that the appraisal was conducted in compliance with USPAP. The Department's case at the hearing proceeded to show that Mr. Butterfield did not use reasonable diligence in the preparation of the Appraisal Report along the following four general lines: The Highest and Best Use section of the Appraisal Report did not contain any supporting analyses or discussion; The Zoning section of the Appraisal Report did not contain any supporting analyses or discussion; The comparables used by Mr. Butterfield were inappropriate, and that he used an incorrect methodology for determining the subject property's market value; and The Appraisal Report contained numerous errors that call into question its credibility. Each of these areas is discussed separately in this Recommended Order. Highest and Best Use The Appraisal Report here sets out the Highest and Best Use of the subject property as following: The Highest and Best Use of the subject property could accommodate office usages. The structure represents a significant portion of the total value of the whole property. Therefore, due to the contributory value of the improvements and our estimate of the Highest and Best use of the subject property is its present usage, as would benefit an owner occupant, or as present building may generate lease income. The Appraisal Report's discussion of the subject property's highest and best use contains what could be best described as "boilerplate language," setting out definitions and the appropriate tests to be applied when reviewing the subject property.3/ Mr. Spool's criticism of the Appraisal Report is not that Mr. Butterfield reached an inappropriate conclusion, but rather the lack of analysis. Mr. Butterfield credibly testified, however, that this appraisal was a summary appraisal report, and that further analysis was not required. The undersigned rejects Mr. Spool's testimony that a more detailed analysis needed to be contained in the Appraisal Report because the report is a summary. A review of the appraisal shows that it summarized the highest and best use of subject property as its existing use. Consequently, the undersigned finds that Mr. Butterfield's determination of the subject property's highest and best use complied with USPAP 2-2(b). Moreover, the Comment to Standard 2-2(b)(vii) provides that "[b]ecause intended users' reliance on a appraisal may be affected by the scope of work, the report must enable them to be properly informed and not misled." In the instant case, the Department did not bring forward any evidence showing that the intended user, a law firm, had been misled by Mr. Butterfield's determination of the subject property's highest and best use. The record shows that the Department did not prove by clear and convincing evidence that Mr. Butterfield failed to use reasonable diligence in the preparation of the appraisal's determination of highest and best use. Zoning Mr. Butterfield specifically identified the subject property's zoning, at the time of the appraisal, as "R-3 Multi- Family with HC-Residential Office Heritage Conservation District overlay." Mr. Spool's criticism of the Appraisal Report's zoning section is that Mr. Butterfield's analysis is lacking. A review Appraisal Report's section titled zoning again includes mostly "boilerplate language" without analysis, as to the meaning of the zoning and historical overlay. However, considering that the Appraisal Report here is a summary appraisal report prepared for a law firm, the Department did not prove by clear and convincing evidence that Mr. Butterfield did not use reasonable diligence. There was no evidence that Mr. Butterfield's identification of the zoning, without further analysis, was a lack of reasonable diligence in the context of a summary. Moreover, there was no evidence that the intended user, the law firm, was misled by Mr. Butterfield's identification of the proper zoning, without a further analysis. Market Value Determination The Department questioned Mr. Butterfield's choice of his direct sales and rental comparisons, and his methodology in determining the subject property's market value. Mr. Spool offered properties that, in his opinion, were more appropriate comparisons with the subject property and questioned Mr. Butterfield's methodology. The discussion of each test used to determine the subject property's market value is discussed separately. Direct sales comparison The Appraisal Report here shows that Mr. Butterfield identified the three approaches used by appraisers to determine a property's market value: 1) the cost approach; 2) direct sales comparisons; and 3) an income approach. Further, the Appraisal Report shows that Mr. Butterfield used a direct sales comparison methodology and income approach to determine the subject property's market value. In the direct sales comparison, the Appraisal Report shows that Mr. Butterfield used four comparable direct sales within the location of the subject property for his analysis. Of the four comparable sales identified by Mr. Butterfield, one involved an office and three involved residential homes. The record shows that Mr. Butterfield chose to use both an office and residential properties in the sales comparison because both uses were permitted by the subject property's zoning. At the time of the appraisal, the subject property could have been used as either a residence or an office. Consequently, the direct sales comparison which included both office and residential sales was appropriate for valuing the subject property. Based on Mr. Butterfield's testimony and the Appraisal Report, the key consideration in choosing these comparable sales was the proximity to the subject property's Brickell Avenue address. Further, a review of Mr. Butterfield's work file shows that he considered numerous properties for direct sales comparisons in developing his market value opinion. The key factor for Mr. Butterfield in preparing his sales comparisons was the Brickell Avenue location. The undersigned finds Mr. Butterfield's testimony concerning his use of the comparative properties and methodology credible. Mr. Spool's first criticism was that Mr. Butterfield used an incorrect methodology in conducting the direct sales comparison. Specifically, Mr. Spool testified that the highest and best use of the property, as identified by Mr. Butterfield, was an office. Consequently, Mr. Butterfield used an incorrect methodology when he used direct sales from residences for comparison. In essence, the correct methodology required that any comparison be made with direct sales of office space or rather compare "apples to apples and oranges to oranges." Mr. Spool's criticism that Mr. Butterfield used an incorrect methodology is rejected because it is based on a wrong premise. Mr. Butterfield did not identify the subject property's highest and best use as only an office. The record shows that Mr. Butterfield identified the subject property's highest and best use as its permissible uses, which at the time was either a residence or office. Mr. Butterfield used reasonable diligence in comparing direct sales from nearby residences and an office in his analysis. Next, Mr. Spool identified other properties, which in his opinion, were more appropriate as sales comparisons, such as a historic home near the Miami River that had been converted into office space. However, the identification of other properties that could have been used by Mr. Butterfield does not show that Mr. Butterfield did not use reasonable diligence in preparing his report. It is noted that the properties offered by Mr. Spool did not share the Brickell Avenue address, which is highly desirable. Consequently, the undersigned finds that the Department did not prove by clear and convincing evidence that Mr. Butterfield failed to use reasonable diligence in the preparation of his direct sales comparison. Income approach Next, the Appraisal Report shows that Mr. Butterfield used an income approach to determine the subject property's market value. The record credibly shows that Mr. Butterfield identified four rental comparables all located on Brickell Avenue within close proximity to the subject property, and verified the rental rate per square foot in the range of $24.00 to $37.00 per square foot. Mr. Spool offered alternative properties that in his opinion were more appropriate for making a rental comparison. The crux of the Department's testimony was that Mr. Butterfield's use of rental space from new high rises was inappropriate for comparing with the subject property, which is an older property. The undersigned, however, finds that Mr. Butterfield's explanation that he chose comparable rental properties based on the Brickell Avenue address credible. Again, the fact that other properties may be used as comparable properties does not show that Mr. Butterfield did not prepare the Appraisal Report without reasonable diligence. Next, Mr. Spool's explanation that Mr. Butterfield used an incorrect methodology for determining an income approach by using residential properties is rejected. As found earlier, Mr. Butterfield determined that the subject property's highest and best use could be either as an office or residence. Therefore, it was appropriate to determine the rental income from residences and office space. Moreover, the record shows that Mr. Butterfield gathered information to determine the per square-foot income. Therefore, the Department did not prove by clear and convincing evidence that Mr. Butterfield failed to use reasonable diligence in the preparation of the appraisal's income approach analysis. Miscellaneous Errors The Appraisal Report does contain several admitted errors. Examples of the errors are that the Appraisal Report wrongly indicates that ingress and egress to the subject property was from Brickell Avenue; that Brickell Avenue was a minor north-south thoroughfare; that the three residences used for direct sales comparison were "historic," as opposed to being located in "historic South Miami"; that it failed to designate the type of appraisal that was conducted; and that it did not state in the certification that Mr. Butterfield had not personally viewed the subject property. The undersigned finds that these errors do not rise to the level of showing a lack of reasonable diligence or could mislead the intended user. For example, the Appraisal Report attached photographs of the three residences used in the direct sales comparison. The photographs clearly show that the three residences were not historical homes, but modern construction. Therefore, it is clear that Mr. Butterfield took steps to insure that the intended user of the report would know the type of residences which were being used for comparison with the subject property. Moreover, concerning the errors about Brickell Avenue, one could safely assume that a law firm in Miami Beach would know that Brickell Avenue is a major and desirable location in Miami. Therefore, the undersigned finds that although the appraisal contains errors, which were admitted by Mr. Butterfield, those errors are not of such a nature as to show a lack of reasonable diligence.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Florida Real Estate Appraisal Board enter a final order dismissing the Administrative Complaint against Mr. Butterfield. DONE AND ENTERED this 12th day of December, 2012, in Tallahassee, Leon County, Florida. S THOMAS P. CRAPPS Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 12th day of December, 2012.
The Issue The issue is whether Respondent committed the violations alleged in the Administrative Complaint, and if so, what discipline should be imposed.
Findings Of Fact Respondent is a certified residential real estate appraiser. His license number is RD-4163. Respondent was licensed as a registered trainee appraiser in December 2001. He passed the certification exam and received his current license in November 2003. Respondent has not previously had any disciplinary action taken against him by the Division or the Florida Real Estate Appraisal Board (Board). On June 14, 2005, Respondent was engaged by a mortgage company to appraise the single-family residence located at 620 Adirondack Avenue in Orlando (“the subject property”). The subject property was owned at the time by Cosme Abreu and his wife. The Abreus also owned a single-family residence located at 623 Adirondack Avenue, which is across the street from the subject property. The subject property was at the time of the appraisal under contract for sale to Jose Ciro, who was a co-worker of Mr. Abreu's. Respondent previously conducted an appraisal of the subject property in March 2005. His firm also conducted several appraisals of the Abreus' property at 623 Adirondack Avenue, including an appraisal on June 14, 2005. Respondent went to the subject property on June 14, 2005, and walked around the inside and outside of the residence taking measurements and observing the condition of the property. He testified that at the time of the appraisal the subject property was in good overall condition; that all of the appliances were in place; that the air conditioner was working; that the carpet and flooring were in place; and that there was no readily observable water damage or rotten wood on the interior or exterior of the residence. Respondent prepared an appraisal report of the subject property on June 14, 2005. Respondent estimated in his report that the market value of the subject property as of the date of the appraisal was $185,000. Respondent used the cost approach and the sales comparison approach to arrive at that valuation. The Division’s expert appraiser, Ben Cole, III, did not take issue with the methodology used by Respondent in his appraisal of the subject property. Indeed, Mr. Cole stated in his report that: “The [comparative] sales were legitimate transactions, pertinent and in close proximity to the subject. The home was measured correctly and the square footage correctly computed with the room count and placement shown properly.” Nevertheless, Mr. Cole testified that the appraisal report prepared by Respondent was misleading because it did not disclose the actual condition of the subject property as of the date of the appraisal. Mr. Cole did not have any personal knowledge as to the condition of the property as of the date of the appraisal; his opinion regarding the misleading nature of Respondent’s appraisal report was based upon the assumption that the condition of the subject property at the time of the appraisal was as reflected in the photographs taken in August 2005. However, as discussed below, the validity of that assumption was not established by clear and convincing evidence. Respondent did not take photographs of the subject property in connection with the June appraisal. The exterior photographs of the subject property included in his appraisal report were the photographs that he took in connection with the March appraisal. Respondent testified that the March photographs accurately depicted the condition of the subject property as he observed it in June, and he stated in his appraisal report that the subject property has been “maintained in good overall condition.” Mr. Abreu testified that subject property was in good condition at the time of the appraisal, which was consistent with and corroborated Respondent’s assessment of the condition of the subject property.3 Mr. Ciro had no direct personal knowledge about the condition of the subject property in June 2005. He did not take possession of the property until mid-August 2005, even though the closing occurred in mid-July 2005. Mr. Ciro had only visited the subject property twice before August 2005. One of those visits occurred prior to the three hurricanes that hit the Orlando area in August and September of 2004. Mr. Ciro could not recall the date of his other visit to the property, but it was before June 2005. Mr. Ciro testified that the subject property was in good condition at the time of his visits, although he acknowledged that he did not closely examine the outside of the house because it was nighttime when he was at the subject property. The condition of the subject property in August 2005 was not good, as reflected in the photographs and videotape that were received into evidence. For example, the carpet in the family room was missing, appliances were missing, the kitchen sink and cabinets had been removed and were on the back patio, there was a stain of some kind on the ceiling in at least one of the rooms, the backyard was overgrown and full of trash, and there was damage to the soffit on the right-front of the house. Mr. Abreu testified that some of the damage depicted in the photographs and videotape -- e.g., removal of the sink from the kitchen, floor damage caused by a plumbing problem -- occurred between the time of the appraisal and the time that Mr. Ciro took possession of the subject property, and that he was in the process of fixing the damage when Mr. Ciro took possession of the property. Mr. Abreu attributed the remainder of the damage to Mr. Ciro. Mr. Ciro and the Abreus are currently in litigation regarding the sale of the subject property and its condition in August 2005. Respondent is not a party to that litigation. Respondent and Mr. Abreu testified that the August 2005 photographs do not reflect the condition of the property as of the time of the appraisal on June 14, 2005. That testimony is called into question by the photograph in the appraisal report that appears to show that the soffit damage observed in August 2005 on the right-front corner of the house was present at the time of the March appraisal,4 but the evidence was not clear and convincing on that issue. In October 2005, the Division received a complaint from Mr. Ciro regarding Respondent’s appraisal of the subject property. Beverly Ridenauer was assigned to investigate the complaint. It took Ms. Ridenauer several months to make contact with Respondent because the address that the Division had on file for him was incorrect. Respondent was not able to produce his work file for the subject property when it was initially requested by Ms. Ridenauer.5 When the original work file could not be located, Respondent “reconstructed” the file and provided it to Ms. Ridenauer. The original work file was subsequently located and provided to the Division during discovery. There is no evidence of any discrepancies between the “reconstructed” file and the original file. The work file was not offered into evidence, but Respondent testified that it included the property appraiser records, Multiple Listing Service print-outs, and other information he reviewed and considered in his appraisal of the subject property. Respondent required his trainees to take interior photographs of the property they appraised for his use in reviewing and signing-off on their work, but he did not take interior photographs of properties that he appraised unless the lender specifically requested such photographs. As a result of this case, however, Respondent now takes interior photographs as a standard practice in order to “protect [him]self.” There is no statute, rule, or USPAP standard that requires interior photographs to be taken as part of an appraisal. The Division’s expert appraiser, Mr. Cole, did not know whether it was even typical for appraisers to take interior photographs; he simply testified that such photographs “would have been helpful” in this case.
Recommendation Based upon the foregoing findings of fact and conclusions of law, it is RECOMMENDED that the Board issue a final order dismissing the Administrative Complaint. DONE AND ENTERED this 22nd day of August, 2007, in Tallahassee, Leon County, Florida. S T. KENT WETHERELL, II Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 22nd day of August, 2007.
The Issue The issue in this case is whether Respondent violated various disciplinary provisions, including the Uniform Standards of Appraisal Practice, in preparing a real estate appraisal and, if so, what penalty should be imposed.
Findings Of Fact Background At all material times, Respondent has been a state certified general real estate appraiser, holding license number RZ 0001017. While employed by Appraisal First, Inc., Respondent prepared an appraisal for the Resolution Trust Corporation. The subject of the appraisal is property located at 4423 Palm Beach Blvd. in an area known as Tice in unincorporated Lee County. The purpose of Respondent's appraisal (Appraisal Report) was to estimate the market value of the fee simple interest in the property, based on the highest and best use of the property as of January 21, 1992. This is the effective date of the Appraisal Report. Pursuant to the directions of the Resolution Trust Corporation, "market value" is defined as: The most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller, each acting prudently, knowledgeably and assuming the price is not affected by undue stimulus. Implicit in this definition is consummation of a sale as of a specified date and passing the title from seller to buyer under conditions whereby: --buyer and seller are typically motivated; --both parties are well informed or well advised, and each acting in what he considers his own best interest; --a reasonable time is allowed for exposure in the open market; --payment is made in terms of cash in U.S. dollars or in terms of financial arrangements comparable thereto; and --the price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale. This definition seeks a value estimate in terms of cash or its equivalent. The terms of all comparable transactions should be identified, analyzed and reported in reasonable detail. If any sales utilized as comparable were influenced by financing terms or concessions, they must be adjusted to their cash equivalent price. Moreover, all units of comparison extracted from these sales must reflect the cash equivalent price. The property consists of an L-shaped, 24,500 square-foot parcel with 125 feet of frontage on Palm Beach Blvd. The rear of the property runs 50 feet along Bessie Avenue. Palm Beach Blvd. is State Road 80, which is a major arterial connecting downtown Ft. Myers with I-75. The property, which is west of the I-75/State Road 80 interchange, is about two miles east of downtown Ft. Myers. At the time of the subject appraisal, State Road 80 was four lanes, but was being widened to six lanes east of the subject property to I-75. The front two-thirds of the subject property is zoned commercial, with the remainder (fronting Bessie Ave.) zoned residential. The commercial zoning permits commercial and residential uses. The residential zoning permits small- lot, single-family detached residential uses, with almost no commercial uses. Under the comprehensive plan, the subject property is designated Central Urban, which presumably permits mixed uses. The subject property comprises two tax parcels. Tax parcel #280 consists of an owner-occupied apartment in a commercial building fronting on Palm Beach Blvd. and a detached walk-in cooler. The apartment has one bedroom and two bathrooms. All of the improvements were built in 1959 and last sold in March 1977 for $35,000. In 1991, Lee County assessed tax parcel #280 at $28,000 for the land and $40,000 for the improvements. Tax parcel #250 consists of a two-story apartment building consisting of four units on the first level and two units on the second level. The apartment building has an attached walk-in freezer and limited commercial space fronting on Palm Beach Blvd. These improvements were built in 1950 and last sold in January 1984 for $22,400. The apartments are all one bedroom and one bath. In 1991, Lee County assessed tax parcel #250 at $42,000 for the land and $40,000 for the improvements. The Appraisal Report The Appraisal Report describes the nature and location of recent development activity in the area as follows: "Development along Palm Beach Blvd. has been primarily light commercial with the newest activity nearest the Interstate." Appraisal Report, p. 18. (All page numbers refer to the page handwritten in the stamped space in the lower right-hand corner of the exhibit.) The Appraisal Report continues: Proceeding west on Palm Beach Blvd. [from I- 75 toward Ft. Myers], the closer to . . . Tice, the more blighted and undesirable the area becomes. The Blvd. appears dominated by roadside motels . . . which were popular in the 1950s. The remaining commercial businesses in use are small mom & pop operations including hardware, bakery, and filling stations. The overall condition rating of commercial improvements within Tice is rated "Fair" which is consistent with the subject improvements. There are numerous vacant and abandoned structures as evidenced by an excessive number of "For Sale" and "For Lease" signs for such a small area. Although the existing commercial usage fronting Palm Beach Blvd. in Tice appears to be in a declining cycle, the low income resi- dential rental unit demand is healthy. Our rental survey conducted in the income approach revealed high occupancy levels along with stabilized rents for 1bed/1bth units in fair-average condition. As later discussed in the highest and best use analysis, apartment dwellings compatible with the C-2 zoning would tend to be the most profitable use of vacant sites in lieu of commercial development. Appraisal Report, pp. 18-19. Addressing the rehabilitation of the Tice area, the Appraisal Report adds: "The event of commercial rehabilitation throughout the area does not appear likely in the foreseeable future. The probable future trend is to supply the low income residential demand which is increasing within the neighborhood." Appraisal Report, p. 21. The Appraisal Report describes the site improvements, excluding buildings, as concrete/asphalt paving for rear parking, access from front (Palm Beach Blvd.) to rear (Bessie Ave.) via a dirt road in the rear, a dock-level loading ramp into the cooler, and a chain-link fence enclosing the sides and rear of the property. The Appraisal Report describes the zoning as C-2, ignoring the rear portion of the property that is zoned residential. This is an immaterial omission under the circumstances. The Appraisal Report notes that tax parcel #250, which is the two- story apartment building with attached freezer, contains 3360 square feet of leasable space, excluding the freezer. Three of the four first-story apartments are in "poor- fair" condition, and the fourth is in "poor--totally gutted" condition. The two upstairs apartments are in "average" condition. The report states that the freezer is "functional" and contains 576 square feet of space. The Appraisal Report states that there is no heating or cooling system in the apartment building, except for window units in the second story. The report advises that none of the first- story units meets the minimum building codes. The Appraisal Report states that tax parcel #280, which is the commercial space, was built in 1950 and contains about 2448 square feet of leasable area, including a 600 square-foot one bedroom/one bathroom apartment. The Appraisal Report states that half of the commercial space is unfinished open space with exposed ceilings and walls. The report adds that the electrical service does not meet minimum building code requirements and that there is no heating or cooling except for a window unit. The Appraisal Report states that the detached cooler is about 900 square feet and operational. Summarizing the condition of the improvements on the subject property, the Appraisal Report concludes: Overall, the existing improvements are observed to be in poor to average condition with the exception of the second level apartment units that are rated average. The improvements appear to have nearly exhausted their economic life and are in need of major rehabilitation to achieve the property's highest and best use "As Improved" as later discussed. Excluding the freezer and cooler, the improvements would require the restoration of the property to satisfactory condition without changing the plan, form or style of the structure. The value approach[e]s will later address all forms of depreciation within the structure with related impact on market value. Appraisal Report, p. 28. Citing The Dictionary of Real Estate Appraisal (2d ed.), the Appraisal Report defines "highest and best use" as: The reasonably probable and legal use of vacant land or an improved property, which is physically possible, appropriately supported, financially feasible, and that results in the highest value. The four criteria the highest and best use must meet are legal permissibility, physical possible [sic], financial feasibility, and maximum profitability. Appraisal Report, p. 33. Because the subject property is improved, the Appraisal Report states that the analysis of highest and best use will consider the property first "As Though Vacant" and ready for development and then "As Improved." Id. Analyzing the subject property as though vacant, the Appraisal Report determines that the potential uses for the site are "essentially commercial/residential," based on zoning and designation in the comprehensive plan. Appraisal Report, p. 35. Again stressing the commercial downturn in Tice, the report states the surrounding multi-family residential rental apartments remain strong. . . . Despite the condition of improvements which ranged from poor to average, both occupancy levels and rents appeared stabilized. As of appraisal date, residential multi-family development conforming to the legal and physical site requirements represents the Highest and Best Use of the site "As Vacant." Id. Addressing the subject property with its current improvements, the Appraisal Report restates the need for "major rehabilitation" for "optimum fulfillment of the existing uses." Appraisal Report, p. 35. The report mentions the negative contribution of the existing improvements. Noting the current depressed commercial market in Tice, the report states that "the highest and best use of the site would be to convert and rehabilitate the existing improvements into a low-income rental complex." Id. at p. 36. There are three basic approaches to appraising real property: market data, income, and cost. The market data approach requires the appraiser to find sales of similar properties and compare them to the subject property. By adjusting the comparables' sales prices, the appraiser estimates the value of the subject property. The income approach requires the appraiser to find the market rent for similar buildings and applicable capitalization rate. Then, the appraiser estimates the subject property's net income and, using the applicable capitalization rate, converts the net income into estimated value. The cost approach requires the appraiser to estimate the reproduction cost of the improvements, subtract estimated depreciation, and add the estimated market value of the site. The first approach used in the Appraisal Report is the cost approach. To find the value of the site without improvements, Respondent used the market data approach to find comparables to the subject site "As Vacant." He found two sales and one listing. The limited number of raw-land sales was due to the built-up nature of the area, according to the Appraisal Report. The sales took place in June and October, 1990, and the listing had been on the market continuously from November 1990 through February 1992. The first comparable of raw land is at Ortiz Ave. and Palm Beach Blvd., about three blocks east of the subject property. Sold in October 1990 for $100,000, the 18,225 square- foot parcel brought $5.49 per square foot. The parcel was a used car lot with a 1070 square-foot sales office. As noted by Petitioner's expert, Respondent misstated the area of the first comparable. Because it really contained 25,245 square feet, the sales price was $3.96 per square foot. The second comparable of raw land is at Terry St. and Palm Beach Blvd., about 10 blocks west of the subject property. Sold in June 1990 for $115,000, the 17,280 square-foot parcel brought $6.45 per square foot. The parcel was partially asphalted with a chain-link fence and 576 square-foot garage. The third comparable of raw land is at Palm Beach Blvd. and Palmetto Ave., "approximately 9 blocks east of the subject" property. Appraisal Report, p. 45. As is clear from the area map on page 17, however, the third comparable is nine blocks west of the subject property. Listed at $127,900, the 25,577 square-foot parcel was priced at $5.00 per square foot. The third comparable is raw land and originally listed for $6.00 per square foot. After adjustments, the price of each comparable ranged from $4.34- $4.76 per square foot. Obviously, Respondent's error on the first comparable, when combined with the small number of comparables, contributed materially to his perception of a recent decline in the local commercial market. Analyzing the details of the two transactions and one listing, the Appraisal Report finds that high- profile commercial sites had depreciated from mid-1990 to early 1992. Finding good support for the mid-range value, Respondent selected $4.50 per square foot for the subject property's Palm Beach Blvd. frontage, which consists of 17,500 square feet. Without discussion or explanation, Respondent halved the value of the 7000 square feet fronting on Bessie Ave., so that it was valued at $2.25 per square foot. The result was that the market value of the subject property was $95,000. The next step in the cost approach required Respondent to add to the value of the raw land the reproduction cost of improvements, less depreciation. Using a standard valuation service, Respondent estimated the reproduction costs of the improvements on each tax parcel separately, due to the differences in the age of the improvements on the two parcels. The 3360 square feet of apartments on tax parcel #250 yielded a reproduction cost estimate of $84,000. The freezer yielded a reproduction cost estimate of $12,000. Less depreciation of 88 percent and 75 percent respectively, the Appraisal Report finds that the reproduction costs of the buildings on tax parcel #250 equal $13,100. The 2448 square feet of commercial space on tax parcel #280 yielded a reproduction cost estimate of $62,424. The cooler yielded a reproduction cost estimate of about $17,000. The Appraisal Report treats the one bedroom/two bathroom apartment on tax parcel #280 as part of the commercial space. Less depreciation of 88 percent, the Appraisal Report finds that the reproduction cost of the commercial building on tax parcel #280 equals $7491. The report neglects to carry over the $17,000 unadjusted cost of the cooler and calculate the post-depreciation value of $4250. Estimating the adjusted cost of site improvements at $1250 ($5000 less 75 percent depreciation) and the indirect costs of taxes and financing fees at $1400, Respondent's "total reproduction cost estimate" is $23,168." (Some of the above- described numbers have been rounded off.) Adding the total reproduction cost estimate of $23,168 to the estimated land value of $95,000, Respondent determines that the total development cost is $118,168. Adding a 5 percent factor for developer profit or cost overruns, the total value under the cost approach is rounded off to $125,000. Appraisal Report, p. 59. The Appraisal Report discloses that the market data approach could not be used. The report explains: Extensive market research revealed no bona-fide sales of mix-use properties similar to the subject (i.e., containing apartments, commercial space, and refrigerated storage space) were available for analysis. Therefore, without sufficient sales data the MARKET APPROACH WAS OMITTED AS A VALID APPROACH FOR THIS APPRAISAL. However, submitted for later use in the Income Approach are Small Residential sales of apartment buildings containing four (4) units or less. Appraisal Report, p. 60. Under the income approach, the Appraiser Report finds that the current rents derived from the apartments, which are $9900 annually, are market rate and require no adjustment. The report analyzes the commercial space as commercial storage, rather than commercial retail, due to the unfinished nature of the improvements. The report then derives a market rental rate for the entire commercial area of $9096 annually. Respondent used 1576 square feet for the total combined refrigerated area, rather than the 1476 indicated in the earlier discussion. (Cf. Appraisal Report pp. 54 and 55 with p. 75.) In any event, he calculated an annual rental of $8880 from the cooler and freezer units. After making appropriate adjustments for collections and vacancies, the report estimates that the effective gross income from the subject property is $21,458. Without actual expense data, Respondent reduced the gross income projection by estimated expenses, leaving annual net operating income of $13,728. To convert the net operating income into value, Respondent derived an income capitalization rate from comparable sales of apartment units, based on his determination that the highest and best use of the site "As Improved" is conversion of the existing mixed uses into apartment units. Appraisal Report, p. 79. None of the four comparables is located on Palm Beach Blvd., although all are within two or three blocks of the artery. This fact undermines Respondent's determination of highest and best use and, in this approach, his derived capitalization rate. In any event, Respondent calculates a capitalization rate range of 10 percent-13 percent and wisely chooses 13 percent. Applying the derived capitalization rate of 13 percent to the net operating income of $13,728, the Appraisal Report calculates an indicated value, as is, of $105,000 under the income approach. The Appraisal Report next reconciles the values found under each of the approaches: $125,000 under the cost approach and $105,000 under the income approach. The report sensibly deemphasizes the cost approach, given the relative large amounts of depreciation involved. Instead, the report stresses the income approach as "the most likely investment scenario in which an investor would purchase the existing improvements." This approach is driven by Respondent's choice of highest and best use, which, as noted below, is questionable. Concluding that an investor "would likely be attracted to the subject property not for the existing improvements but alternatively converting all uses into apartment rentals," the Appraisal Report concludes that the value of the fee simple of the subject property is $105,000, as indicated in the income approach. The Review At the request of Petitioner, Richard L. Armalavage conducted a review of the Appraisal Report from April through July 1993 (Review). The effective date of the review is June 15, 1993, but it is intended to reflect market conditions as of January 21, 1992. In the introductory summary, the Review notes that, with one immaterial exception, the items in the Appraisal Report are "in compliance." However, the Review characterizes several items as "minimally acceptable." These items include Respondent's treatment of the highest and best use of the subject property. The Review states: "[Respondent's c]onclusion is that current use is interim; highest and best use is residential multi-family." Review, p. 8. The Review first focuses on Respondent's determination of highest and best use. The Review states: My analysis of the neighborhood and the subject property leads me to the conclusion that the highest and best use of subject is for commercial use. The existing improvements are substantially depreciated, with a limited economic life estimated at five years, or an interim timeframe until future use is more clearly defined for the subject property. The subject neighborhood is in the process of transformation, but has been in general decline for the past several years. The neighborhood appears to be stabilizing, with redevelopment currently taking place and expected to continue in the future. . . . [With respect to area buildings, t]he condition of many of the properties has been deteriorating, and property value has stabilized or in some cases declined. There has been a sharp increase in crime in this area, and many families and businesses have moved to alternative locations. . . . As a result of these factors, it is difficult to forecast the probable future use of subject and surrounding properties. However, it is apparent the neighbor- hood is stabilizing and improvement will occur to the market. The betterment of Palm Beach Boulevard will be a stimulant in the future growth of this neighborhood. Due to its close proximity to the central business district of Ft. Myers, and near proximity to the Caloosahatchee River and I-75, it is certain this area will improve in future years. The subject neighborhood is disjointed, and a hodge- podge of mixed-use properties in varying stages of economic life. As a result, it is difficult to analyze and requires extensive research and compar- ative analysis. Uses along Palm Beach Boulevard are mostly commercial, with scattered industrial or other forms of business related uses. Most properties fronting along Palm Beach Boulevard in subject's immediate area are auto related, such as used car lots, transmission repair, body shops, etc. Commercial use consistent with zoning is the reasonable and logical highest and best use of the property. There are no indications of alter- native uses that would yield maximum returns to the property, and consistent use with the surrounding neighborhood. There is absolutely no trend of residential use for properties along Palm Beach Boulevard, and it does not appear future use will be residential apartments. Although subject's optimum use, as improved, is for future redevelop- ment to intensive commercial use, the existing improvements are suitable for commercial use on an interim basis. The ideal use will be more clearly established in the near future, but it will not be residential rental apartments. Even though the subject and surrounding neighborhood are difficult to analyze due to general age and condition, there is extensive market data of a consistent type to utilize for valuation purposes. The [Appraisal Report] concludes the highest and best use is for residential rental apartments. This conclusion stymied the appraiser, since it is nearly impossible to document, analyze and support an estimate of value for the subject property on this basis. My survey and analysis of the market produced sufficient information to result in an adequate and reasonable conclusion of value as a commercial use property. A better description of the property and the problems affecting the neighborhood, along with a more intense survey of market data would have allowed the appraiser to provide adequate support for a supportable opinion of value. The highest and best use of subject is for use of the existing improvements on an interim basis, with future redevelopment for retail and office uses. The existing improvements can be utilized for retail use and storage. I have analyzed subject in accordance with this conclusion. Review, pp. 12-13. The Review commences with an analysis of the value of the raw land, as part of the cost approach. The Review estimates the value of the raw land at $104,000, not $95,000 as stated in the Appraisal Report. The Review's estimate is based on 10-20 listings and five land sales, including the two land sales used in the Appraisal Report. The Review corrects the Appraisal Report by substituting 25,245 square feet and $3.96 per square foot for 18,225 square feet and $5.49 per square foot that Respondent had incorrectly stated for one of his sales. The Review does not segregate value between the portion of the property fronting Palm Beach Blvd. and the rear portion of the property along Bessie Ave. The Review explains that the bulk of the zoning is commercial, and the rear portion supports the commercial use of the front portion. However, the RS-1 zoning for the rear third of the subject property allows almost no commercial uses in a district that is intended to be reserved for small-lot, single-family detached residences. The Review presumes the availability of rezoning. The Review does not find as "unreasonable" the $9000 disparity between the estimated values of the raw land in the Review and Appraisal Report. But the Review states that the limited number of sales and the mistakes in the computation of the area of one of the comparables "decreases the adequacy of the [Appraisal Report]." Review, p. 33. The five sale comparables used in the Review are all along Palm Beach Blvd., within 1.5 miles of the subject property. Three of the comparables are raw land. The other two comparables have immaterial improvements. As for the cost valuation, the Review ignores the second-story apartments. If Mr. Armalavage is correct (unlike Respondent, he could not inspect the apartments due to the nature of his assignment), the condition of the upstairs apartments had deteriorated from average at the time of the Appraisal Report to uninhabitable at the time of the Review. The apartment building is in "total disrepair" and the plumbing requires "total reinstallation" in order to comply with code. As of its effective date, rather than the effective date of the Appraisal Report, the Review concludes that the logical use of the apartment is storage or rehabilitation and reconstruction for retail storefront units. After making the appropriate adjustments, the Review finds that the total value of the depreciated improvements, including developer profit, is $25,300. With land value of $104,000, the value under the cost approach is $129,000, which is about $4000 higher than Respondent's result under the cost approach. After correcting for Respondent's omission of the cooler, the two estimates are about the same, but, again, the Review concludes that the Appraisal Report is deficient due to limitations in analysis attributable to "inadequate reporting and numerous errors." Review, p. 51. The biggest difference between the Appraisal Report and the Review is that the latter includes an estimate of value based on the market data approach. The Review includes six improved building sales, which were culled from a survey of about 15 sales of improved property near the subject property. The Review warns: Although each of the properties has unique characteristics making them dissimilar in many ways, they are similar enough to reflect a reasonable estimate of value for the subject property. At the very least, the sales information is helpful in establishing a range of values (brackets value) for the subject property in its improved condition. The omission of the Market Data Approach in the [Appraisal Report] is the most glaring mistake in the analysis. There is extensive market information available for analysis, even though much of it is somewhat dissimilar to subject due to unique characteristics. The omission of this approach in the [Appraisal Report] is considered detrimental in the correlation process for estimating value of the subject property. In the case of subject, the large amount of market data available for analysis is quite beneficial in corroborating value, and contributes in the other approaches for estimates of depreciation in the cost approach, and economic life and rent potential in the income approach. The omission of this approach in the [Appraisal Report] is considered an unacceptable departure from the basic reporting requirements set forth by the Appraisal Foundation. Review, p. 56. The Review finds that the value of the subject property, under the market data approach, is somewhere between $122,500 and $134,750 and finally estimates the value as $128,000. Turning to the income approach, the Review notes that the subject property is, as of early 1993, used as a storage operation with the residential apartment located in the commercial building in use, but with the apartment buildings unused and unusable. The Review again rejects residential use, either in the future or, based on the current condition of the improvements, even on an interim basis. The Review states that the highest and best use of the property is commercial, either unimproved retail and storage in its current condition or retail storefront after rehabilitation. The cost of rehabilitation would be about $15 per square foot and would add about 5-10 years to the useful life of the building. The useful life of the present improvements, "as is," is about five years. The Review forecasts operating incomes based on two alternatives. In "as is" condition, the Review calculates that the gross income would be about $20,000 annually. After expenses, the net operating income would be about $10,000 annually. In the alternative, the Review analyzes the income of the property if converted to conventional storefront. The gross income would be about $34,892 annually. After expenses, the net operating income would be about $20,300 annually. Deriving a capitalization rate of 11 percent, the value of the net income of the property "as is" is $91,000. The value of the net income of the property, if renovated, is $184,500. After adjustment for the cost of renovations, the final value of the renovated property is $113,000. The Review concludes that, based on the income approach, the estimated value of the subject property is $91,000- $113,000, which is ultimately estimated to be $100,000. The Review then reconciles the values of $129,000 from the cost approach, $128,000 from the market data approach, and $100,000 from the income approach. Noting that "[d]emand for this location appears to be disjointed, and there is no clear trend of future use patterns at this time," the Review estimates that the value of the subject property is $120,000. The Review asserts: The subject property is best suited for an owner/user of the property with future renovation to an alternative form of commercial use. Minimal renovations could extend the useful life of the improvements by five, possibly ten years. The age and condition of the subject improvements weakens the valuation of subject by the cost approach, and the limited income producing capabilities of properties in this general location weaken the income approach. There are numerous sale properties to utilize for comparison with subject, however, the sales required numerous adjustments which reduces the effectiveness of the market comparison approach. Even so, the extent of sales information has a significant influence in the valuation. As a result, I have given consideration to all three approaches to value, with greatest weight on the Market Data Approach. Review, p. 90. The Review concludes with a final discussion of the Appraisal Report and alleges that Respondent violated the provisions that he is charged with violating in the Administrative Complaint. The Uniform Standards of Professional Appraisal Practice The Uniform Standards of Professional Appraisal Practice (USPAP) sets forth standards of practice for appraisers. USPAP Standard 1 is: "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." The accompanying "comment" explains that the development of a "competent appraisal" is a product of the "requirements" of USPAP Standards Rules 1-1 and 1-5 and the "appraisal guidelines" of USPAP Standards Rules 1-2, 1-3, and 1-4. USPAP Standards Rule 1-1 requires, among other things, that an appraiser "not commit a substantial error of omission or commission that significantly affects an appraisal" and "not render appraisal services in a careless or negligent manner, such as a series of errors that, considered individually, may not significantly affect the results of an appraisal, but which, when considered in the aggregate, would be misleading." USPAP Standards Rule 1-1(b) and (c). The comment accompanying USPAP Standards Rule 1-1(c) "explains" that carelessness or negligence is "not excuse[d]" by the fact that the carelessness or negligence does not cause an error that "significantly affects [the appraiser's] opinions or conclusions." However, nothing in USPAP suggests that the comments are part of the rules. USPAP Standards Rule 1-3 sets forth the following "appraisal guidelines" that an appraiser "must observe": consider the effect on use and value of the following factors: existing land use regulations, reasonably probable modifications of such land use regulations, economic demand, the physical adaptability of the real estate, neighborhood trends, and the highest and best use of the real estate; recognize that land is appraised as though vacant and available for development to its highest and best use and that the appraisal of improvements is based on their actual contribution to the site. The comment to USPAP Standards Rule 1-3(a) states in part: Further, an appraiser must avoid making an unsupported assumption or premise about neighborhood decline, effective age, and remaining life. In considering highest and best use, an appraiser should develop the concept to the extent that is required for a proper solution of the appraisal problem being considered. The pertinent portion of USPAP Rule 1-4 sets forth the following "specific appraisal guidelines" that the appraiser "must observe," "when applicable": value the site by an appropriate appraisal method or technique; collect, verify, analyze, and reconcile: such comparable cost data as are available to estimate the cost new of the improvements (if any); such comparable data as are available to estimate the difference between cost new and the present worth of the improvements (accrued depreciation); such comparable sales data, adequately identified and described, as are available to indicate a value conclusion; such comparable rental data as are available to estimate the market rental of the property being appraised; such comparable operating expense data as are available to estimate the operating expenses of the property being appraised; such comparable data as are available to estimate rates of capitalization and/or rates of discount. The comment to USPAP Standards Rule 1-4(b) states that it "covers the three approaches to value." USPAP Standards Rule 2-2(h), (j), and (k) states that "each written real property appraisal report must": (h) set forth the information considered, the appraisal procedures followed, and the reasoning that supports the analyses, opinions, and conclusions; * * * explain and support the exclusion of any of the usual valuation approaches; set forth any additional information that may be appropriate to show compliance with, or clearly identify and explain permitted departures from the requires of Standard 1[.] The comment under USPAP Standards Rule 2-2(h) explains that the requirement: calls for the appraiser to summarize the data considered and the procedures that were followed. Each item must be addressed in the depth and detail required by its significance to the appraisal. The appraiser must be certain that sufficient information is provided so that the client, the users of the report, and the public will understand it and will not be misled or confused. The substantive content of the report, not its size, determines its compliance with this specific reporting guideline. The comment under USPAP Standards Rule 2-2(k) adds: This requirements calls for a written appraisal report or other written communication concerning the results of an appraisal to contain sufficient information to indicate that the appraiser complied with the requirements of Standard 1, including the requirements governing any permitted departures from the appraisal guidelines. The amount of detail required will vary with the significance of the information to the appraisal. * * * Ultimate Findings There is no evidence that Respondent is guilty of culpable negligence or breach of trust in the preparation of the Appraisal Report. There is some evidence that Respondent failed to use reasonable diligence in the preparation of the Appraisal Report. However, based on all the circumstances, Petitioner has not proved by clear and convincing evidence that Respondent has violated this statutory provision. The closer questions are presented by the USPAP. The allegations concerning USPAP Standard 1 are that Respondent omitted a required valuation approach and was careless in his analysis and selection of methodologies in producing a credible appraisal. The USPAP rules specifically cited in the Administrative Complaint set forth "guidelines" and requirements. The guidelines cover the identification of the highest and best use of the subject property and the use of the three conventional approaches to valuation. The requirements are that the appraisal report state the information considered, the appraisal procedures followed, and the reasoning in support of the analyses, opinions, and conclusions; explain and support the exclusion of any of the usual valuation approaches; and state any additional information appropriate to show compliance or justify noncompliance with the "requirements" of Standard 1. The valuation approaches and determination of highest and best use are crucial elements of an appraisal. Respondent selected residential use as the highest and best use of the subject property. However, there has been no residential redevelopment in the area, and the value of frontage on Palm Beach Blvd. suggests a commercial use. Even on an "As Improved" basis, the subject property does not seem to find its highest and best use in residential uses. The apartments were in bad shape when Respondent appraised them and not surprisingly became worse over time. Code violations rendered continued habitation of the apartments a questionable proposition. The cooler and freezer were in good working order, and less would be required to maintain the existing space as commercial storage. On the other hand, Mr. Armalavage's solution is not unassailable. It requires rezoning one-third of the property (The residential zoning of the rear third of the property was uncovered by Mr. Armalavage, not Respondent.) The crime described in the Review would seem to affect retail, especially storefront, commercial as much as residential. The problem Respondent and Mr. Armalavage faced in determining the property's highest and best use is one of timing. It is unlikely that the highest and best used of the subject property will ultimately be residential, given the arterial frontage and emerging commercial nature of the area. However, interim uses must also be considered, especially given the transitional nature of the area. Mr. Armalavage's interim commercial uses seem more reasonable than Respondent's interim residential uses, but this is in part due to developments after the Appraisal Report. On balance, though, Petitioner has not proved by clear and convincing evidence that Respondent, in identifying the subject property's highest and best use, failed to observe the guideline of consideration of the highest and best use of the subject property, or that Respondent failed to recognize that the appraisal of the improvements is limited to their actual contribution to the site. Likewise, Petitioner has not proved by clear and convincing evidence that Respondent, in identifying the subject property's highest and best use, failed to set forth the highest and best use or the reasoning that supported his determination. Respondent's reasoning is not highly persuasive, but it is present. To borrow Mr. Armalavage's phrase, Respondent's efforts in determining the subject property's highest and best use are "minimally acceptable." Respondent also made numerous sloppy mistakes in his analysis. His use of the cost approach to valuation was particularly sloppy. He omitted a $4250 item. He made a large error on one of two actual sales. Magnified by the small sample size, the error may have contributed to Respondent's perception of commercial depreciation, which may have helped mislead him as to the highest and best use of the property. Without significant analysis, Respondent arbitrarily halved the value of the rear third of the property. On the other hand, Mr. Armalavage's cost approach presumes without discussion the rezoning of the rear third of the subject property. The Review also considers the condition of the apartments as they were at the time of the Review, not as they were at the time of the Appraisal Report. However, Mr. Armalavage's comparables for the raw land are far superior to Respondent's comparables and, perhaps more than any other factor, signal a lack of effort on Respondent's part, at least in preparing the cost approach. Despite the superior quality of the Review when compared to the Appraisal Report as to the cost approach, the difference in their final values is $4000--which is eliminated if one adds to Respondent's cost valuation the depreciated value of the omitted cooler. Respondent's income approach is impaired by two factors. Given the condition of the apartments, his residential rental values are too low, although this deficiency is partly offset by Respondent's selection of a relatively high capitalization rate. Obviously, an investor purchasing improvements at the end of their useful lives would demand a relatively rapid return of his investment. Second, Respondent secures questionable comparables, partly due to his determination of highest and best use. Respondent chose apartment complexes that varied from the subject property's apartment building in three important respects: condition, size, and location. On the other hand, Mr. Armalavage's income approach raises questions in his reliance upon conversion to relatively profitable storefront uses, in a crime-infested area, and a relatively low capitalization rate, given the transitional nature of the area and, in the "as is" alternative, the poor condition of the improvements. Under the income approach, the Appraisal Report estimates the value of the subject property, "as is," at $105,000. Under the same approach, the Review estimates the value of the subject property, "as is," at $91,000 and, if renovated as storefront retail, at $113,000, with a final estimate of $100,000. The difference between Respondent's value and Mr. Armalavage's value is between $5000-$14,000. The biggest objection of Mr. Armalavage to the Appraisal Report is its omission of the market data approach, which is typically the cornerstone of a real estate appraisal. Respondent's decision to omit the market data approach was due to his claimed inability to find true comparables. There is some inconsistency in Respondent's inability to find suitable comparables for the market data approach and his ability to find suitable comparables for deriving a capitalization rate and market rents under the income approach. However, the suitability of the comparables used in the income approach may be judged by looser standards because they were used, in this case, to determine a capitalization rate, which appears to exist in a fairly narrow range, and a market rent for merely the residential component of the subject property. Respondent's inability to find comparables is partly justified by the unique nature of the subject property, which derived, at the time of the Appraisal Report, substantial value from residential, general commercial storage, and refrigerated storage uses. In a small urban market, the subject property allows few, if any, comparables that do not require so much adjustment as to obscure the initial hard data (i.e., sales prices) behind a miasma of price adjustments based upon layer after layer of presumptions on the part of the appraiser. Again, Respondent's failure may be evaluated in the context of the market data approach used by Mr. Armalavage, who himself describes the neighborhood as "disjointed" and a "hodge- podge of mixed-use properties in varying stages of economic life." These features impede all aspects of appraisal, from selecting highest and best use to finding comparables. But Mr. Armalavage reasons that the difficulty of the task means only that more effort must be expended to find the appraisal solution. In finding comparables for his market data approach, Mr. Armalavage concedes that they are dissimilar in many ways, but are "similar enough to reflect a reasonable estimate of value." Implicitly acknowledging that his comparables may not similar enough even for that purpose, though, Mr. Armalavage adds in his next sentence: "At the very least, the sales information is helpful in establishing a range of value " After consideration of such variables as location, condition of improvements, current use, highest and best use, prices, and date of sales, Petitioner failed to establish by clear and convincing evidence that the comparables cited in the Review were of such a nature as to preclude the omission of the market data approach in the Appraisal Report. The Review reaches values of $129,000 under the cost approach, $128,000 under the market data approach, and $100,000 under the income approach and concludes that the value of the property is $120,000. The Appraisal Report reaches values of $125,000 under the cost approach and $105,000 under the income approach and concludes that the value of the property is $105,000. The discrepancy of $15,000, or 14 percent, between the two final value estimates, which is attributable to the final reconciliations performed by each appraiser, is not significant. The absence of a significant discrepancy is not determinative of the outcome, especially where, as here, the appraised property is of relatively low value. But the significance of discrepancies between the challenged appraisal and the appraisal offered by Petitioner is still a factor in evaluating the extent to which Respondent has complied with the applicable professional standards. In this case, Respondent's analysis was often flawed, but the mistakes--even cumulatively--were immaterial. Also, the subject property was a difficult appraising challenge, given the age, condition, and varied types of improvements and the uncertain future of the area. On balance, Petitioner failed to prove by clear and convincing evidence that Respondent's appraisal, although likely inferior to Mr. Armalavage's appraisal, violated any of the cited provisions of law governing the preparation of appraisals.
Recommendation Based on the foregoing, it is hereby RECOMMENDED that the Florida Board of Real Estate Appraisers enter a final order dismissing the Administrative Complaint against Respondent. ENTERED on September 16, 1994, in Tallahassee, Florida. ROBERT E. MEALE Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings on September 16, 1994. COPIES FURNISHED: Darlene F. Keller, Division Director Division of Real Estate West Robinson Street Post Office Box 1900 Orlando, FL 32802-1900 Jack McRay, General Counsel Department of Professional Regulation 1940 North Monroe Street Tallahassee, FL 32399-0792 Theodore R. Gay Department of Business and Professional Regulation Division of Real Estate Rhode Building, Phase II NW 2d Avenue N607 Miami, FL 33128 Kevin J. Lindheim, pro se 9200 Bonita Beach Rd., Suite 210 Bonita Springs, FL 33923
The Issue Whether Fred Catchpole and Gwendolyn Barker (Respondents) should be subject to disciplinary action as licensed residential real estate appraisers by the Department of Business and Professional Regulation, Division of Real Estate (Petitioner) for failure to exercise reasonable diligence in developing an appraisal report in violation of Section 475.623(15), Florida Statutes (2004).1/
Findings Of Fact Petitioner is the licensing authority for real estate appraisers in Florida with revocation and disciplinary authority over its licensees pursuant to Section 20.165 and Chapter 475, Florida Statutes. On or about September 16, 2004, Respondents Fred Catchpole and Gwendolyn Barker prepared, signed and communicated an appraisal report (Report) for the property, including a manufactured home, located at 209 Ponderosa Pine Court, Georgetown, Florida 32139 (Subject Property). At the time of the Report, Respondent Catchpole was licensed by Petitioner as a State Licensed Real Estate Appraiser, and Respondent Barker was licensed by Petitioner as a State Certified Residential Real Estate Appraiser. Both Respondents are currently licensed by Petitioner as State Certified Residential Real Estate Appraisers. The Report was prepared for Pass and Associates in connection with refinance of a loan secured by the Subject Property. Respondents issued a corrected version of the Report (Corrected Report) with changes and additions requested by the client in 2004, prior to refinancing the loan on the Subject Property. In October 2004, a One-Unit Residential Appraisal Field Review (Field Review) of the Report was conducted on behalf of Chase Manhattan Mortgage Corp., who was listed in the Field Review as the “Lender/Client.” Between 2004 and 2009, Respondents provided rebuttal and rebuttal materials to address the Field Review. In 2009, Chase Home Lending (Chase Manhattan Mortgage Corp. and Chase Home Lending are both referred to herein as “Chase”) filed a complaint with Petitioner regarding the Report. The complaint consisted of a cover letter from Larry Handley with Chase Home Lending, a copy of the Report, and a copy of the Field Review. The complaint was found legally sufficient and forwarded to Petitioner’s investigator. Petitioner’s investigator did not receive a copy of the Corrected Report. T. 15, 204. Following the investigation, the Administrative Complaints were filed against Respondents. Count I of the Administrative Complaints relies on a number of alleged problems with the Report or the supporting workfiles (Workfiles), as detailed in the “Essential Allegations of Material Fact” section of the Administrative Complaints. After dismissing Counts 2 through 12 of the Administrative Complaints at the beginning of the hearing, Petitioner did not provide an Amended Administrative Complaint for either Respondent. Count I of the Administrative Complaints is based solely upon Respondents’ alleged failure “to exercise reasonable diligence in developing an appraisal report in violation of Section 475.624(15).” Instead of providing Amended Administrative Complaints, during the final hearing and in its proposed recommended order, Petitioner addressed the following alleged problems with the Report or Workfiles: The address of comparative sale 2, listed in the Sales Comparison Analysis section of the Report, was incorrect. The Subject Property has a zoning classification of R-2, which is mixed residential, which was incorrectly stated in the Report. The Workfiles for comparable sales 1, 2, 3, 4, 5 and 6 listed in the Sales Comparison Analysis section of the Report are not supported by documentation contemporaneous to the effective date of the Report. Multiple Listing Services (MLS) is listed as a data source in the Sales Comparison Analysis section of the Report for comparable sales 3, 5 and 6, but the Workfiles lack MLS documentation for those comparative sales. The Sales Comparison Analysis section of the Report failed to identify features for comparable sale 2 that were noted in the Workfiles. The Workfiles lack data to support the gross living area for comparable sale 6 noted in the Sales Comparison Analysis of the Report. The Report failed to note fences on the comparable sales, failed to make adjustments for the fences in the Sales Comparison Analysis section of the Report, and failed to address whether the fences had an influence on the price. The Report contains inconsistent Cost Approach data. The Workfiles lack documentation supporting the Estimated Site Value, Lump Sum, and As-Is Value data for the Subject Property in the Cost Approach sections of the Report. The Workfiles lack documentation supporting the Site Value for the Subject Property listed in the Cost Approach sections of the Report. The Workfiles lack documentation supporting the market trends outlined in the Sales Comparison Analysis section of the Report. The Report lacks internal consistency. At the final hearing, Respondents addressed each of the above-listed allegations. Alleged Incorrect Address in Comparable Sale 2 The incorrect address was a minor typographical error. The address listed for comparable sale 2 was only one number off the actual street address. The Report listed the street address as 815 CR 309B instead of the correct street address of 815 CR 308B. [underlines added]. The Corrected Report corrected the typographical error in the street address. Alleged Wrong Zoning Classification for the Subject Property The Subject Property is zoned “R-2, mixed residential” in the public records of Putnam County. Page one of the Report, consisting of the first page of the Uniform Residential Appraisal Report, Freddie Mac Form 70, revised 6-93, the Report lists as the specific zoning classification and description, “single family residential R-2.” At the final hearing, Respondent’s investigator, who pointed out the alleged error in the Report, admitted that he had not had training in filling out the Freddie Mac Form 70. The description used in the Report is consistent with the public tax record information on the web, which describes the Subject Property as “residential” with a zoning of “R-2.” Exhibit R-18. In addition, the One-Unit Residential Appraisal Field Review Report of the Report, which was prepared to determine the correctness of the procedures used by the original appraisal, specifically stated, “The zoning is correct.” Exhibit R-37. Alleged Lack of Contemporaneous Documentation Supporting Comparative Sales Petitioner’s witness, Francois K. Gregoire, a real estate appraiser who reviewed the Report, provided testimony to support a number of the factual allegations in the Administrative Complaints. Based upon his credentials, Mr. Gregoire was allowed to offer opinions on the Report as an expert in residential real estate appraisals. An appraiser’s workfile must be contemporaneous with the development and communication of the appraisal report. In addressing this allegation, Mr. Gregoire referenced comparable sales data in the Workfiles taken from Win2Data and Putnam County tax rolls in 2008, approximately four years after the effective date of the Report, which was issued in September 2004. Although Petitioner’s expert opined that since the data was retrieved in 2008, it could not be contemporaneous, the 2008 data included comparable sales contemporaneous with the Report. The fall 2004 issue of the Florida Real Estate Appraisal Board News & Report included a question and answer from the Appraisal Standards Board (ASB) relating to the Uniform Standards of Professional Appraisal Practice (USPAP). The question and pertinent parts of the answer stated: Question: Recently I have considered maintaining only electronic workfiles (i.e. saving only electronic versions of my reports and supporting data, and scanning any paper documents used so that copies may be stored on electronic media). Is this prohibited by USPAP? Response: No. There is nothing in USPAP that would prohibit an appraiser from maintaining only electronic versions of workfiles. The Record Keeping section of the ETHICS RULE states, in part: The workfile must include: the name of the client and the identity, by name or type, of any other intended users; true copies of any written reports, documented on any type of media; summaries of any oral reports or testimony, or a transcript of testimony, including the appraiser’s signed and dated certification; 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. As long as an electronic workfile contained these items, it would be sufficient. An appraiser must also be mindful of the requirement to have access to the workfile for the applicable required time period. The appraiser must ensure that the proper software is maintained to allow access to the electronic files. (Italics in original.) October 2008, the ASB issued a sequel its 2004 opinion, in the following response to the following question: Question: In the course of preparing my appraisals, I often research Multiple listing Service (MLS) and other data sources. I use this information to develop conclusions regarding neighborhood value ranges and market trends. Is it necessary for me to include copies of this information in my workfile? Alternatively, can I simply reference the data sources in my workfile. Response: References in the workfile to the location of documentation used to support an appraiser’s analysis, opinions, and conclusions can be adequate. It is not always necessary for the appraisal workfile to include all the documentation provided the referenced material is retrievable by the appraiser throughout the workfile retention period. Care should be exercised in the selection of the format and location of documentation. The Workfiles reflect that Respondents used MLS, Win2Data, and MLS public records to support the Report. While contemporaneous paper copies may not have been maintained of all the data, they were retrievable as reflected in the workfiles. Alleged failure to include MLS Listings in the Workfiles When Listed as a Source for Comparative Sales 3, 5 and 6 As noted in Finding of Fact 21, supra, while MLS and other supporting data contemporary with comparative sales 3 and 5 listed in the Report may not have been kept in the Workfiles, they were retrievable. See, e.g., Exhibit R-20, pp. 74-75 (listing 2009 tax data showing comparative sale 5 on 6/8/2004 for $92,000 and MLS data retrieved on 2/28/10 showing subsequent sale of the property on 7/20/05 for $110,000). Moreover, contrary to the allegation, the Report does not list MLS as a data source for comparative sale 6. Rather, the Sales Comparison Analysis section of the Report lists “WINDAT/PUB REC/DRIVEBY” as the data and/or verification source for comparative sale 6. See Exhibit P-2, p. 3. Alleged Failure of Report to Identify Features for Comparable Sale 2 Noted in the Workfiles Paragraphs 6(R) and 6(S) of the Administrative Complaints allege that the Report failed “to note that comparable sale 2 had a hot tub,” and failed “to note the renovated status of comparable sale 2, as outlined in workfile documentation.” According to Mr. Gregoire, “in Comparable Sale Number 2, the MLS printout indicates some features that were not described in the appraisal report. There’s inconsistency between the work file data and what was reported in the appraisal.” T. 93-94. While the MLS listing in the Workfiles provided additional information, there is no indication that the information was “inconsistent” with the Report. At the final hearing, Respondent Catchpole explained their rating in the Report of comparative sale 2 as “good,” accurately reflected recent renovations in that sale when compared to the “good” rating given to the Subject Property, which, at the time of the Report, had new floors, new carpets, and a new AC system. T. 202. Alleged Lack of Data in the Workfiles to Support Gross Living Area Listed in Report for Comparable Sale 6 The gross living area reported in the Report for comparable sale 6 is 840 square feet. At the final hearing, Petitioner’s expert, Mr. Gregoire, testified that there is no contemporaneous data to support that figure, and noted that the contemporaneous Win2Data in the Workfiles lists the square footage for comparable sale 6 as 2,380 square feet. In making his observation, however, Mr. Gregoire conceded that Win2Data sometimes rolls non-living areas into the reported living area. T. 99. The 2008 tax data in Respondents’ Workfiles for comparative sale 6 shows that the “base” square footage for the mobile home on comparative sale 6 was 840 square feet, which is the same square footage reported in the Report. Exhibit P-3, p. 60 While the tax data print-out is not contemporaneous with the sale, the tax data on that print-out reflects the 2003 sale for $89,000 listed in the Report, and provides a basis for the reported 840 square feet for comparable sale 6. As noted above, electronic data that has retrievable information contemporaneous with the Report is acceptable. Alleged Failure of the Report to Note or Make Adjustments for Fences on the Comparable Sales Respondent Catchpole explained at the final hearing that, in addition to reviewing public sources and MLS listings, Respondents based their Report on actual drive-bys of the comparative sales. According to Mr. Catchpole, as memory served him from six years before when the Report was written, only one fence was visible from the road. Mr. Catchpole further explained that they did not add any value to the comparative sales for the fences which they saw because they considered them to be personal property and were not a 100 percent sure that the fences they observed belonged on the comparative sale property, as opposed to adjacent land. According to Mr. Gregoire, whether or not comparative sales had fences should have been reported in the Report, “because to some buyers, that may have had an influence on the price.” T. 101. Mr. Gregoire conceded, however, that “I can’t say whether or not there should have been an adjustment, because I haven’t done an appraisal in this area.” Id. Alleged Inconsistent Cost Approach data in the Report Petitioner’s expert witness, Mr. Gregoire, noted during his direct examination that there were inconsistent values between the Estimated Site Value of $15,000 set forth on page 2 of the Report and the Market Value of Subject Site reported as $10,000 on page 5 of the Report. He also noted that the value for “Lump Sum” of $8,000 set forth on page 2 of the Report was different from the $5,000 value for “Lump Sum” reported on page 5 of the Report. Finally, he noted that the “As is” value of $15,000 for site improvements set forth on page 2 of the Report was different from the $10,000 value reported on page 5 of the Report for “other depreciated site improvements.” Exhibit P-2, pp. 2, 5. According to Mr. Gregoire, these internal inconsistencies made the Report misleading and demonstrated a lack of due diligence in its preparation. T. 107-110. Mr. Gregoire’s observations, however, did not take into account the fact that Respondents issued a Corrected Report with changes and additions requested by the client in 2004, prior to refinancing the loan on the Subject Property. T. 15; Exhibit R-1. The Corrected Report corrected the inconsistencies pointed out by Mr. Gregoire. Exhibit R-1, pp. 2, 9 (the Corrected Report lists both “Estimated Site Value” and “Market Value of Subject Site” as $15K; reports the “Lump Sum” value consistently as $8K; and consistently reports both “As is Value of Site improvements” and “Market Value of Subject Site” as $15K). Alleged lack of documentation in Workfiles supporting the Estimated Site Value, Lump Sum, and As-Is Value data for the Subject Property in the Cost Approach sections of the Report. The record citations provided in the Proposed Recommended Order submitted by Petitioner do not clearly indicate the alleged problem with the estimated site value, other than the inconsistency, which was corrected in the Corrected Report. Petitioner’s PRO, ¶ 22. Nevertheless, there were six comparable sales listed in the Report, and Corrected Report, with supporting data in the Workfiles from which estimated site cost data could be derived. As further noted by Respondent Catchpole, site data was addressed in an addendum to the Workfiles noting: Where difference in the size of the site did not afford additional utility, there was no adjustment taken, it was considered excess land. (P-3, p. 4) Mr. Gregoire also stated that there was no identification as to what “lump sum” is, either in the Report or the Workfiles. T. 109. At the final hearing, in his cross- examination of Mr. Gregoire, Respondent Catchpole indicated that the lump sum figure included porches and the air-conditioning system. In response, Mr. Gregoire stated that, if that was the case, it should have been disclosed. T. 139. There is no evidence, however, in the Field Review, that the “lump sum” category was criticized. In fact, the Field Review reported that “the data in the improvements section [is] complete and accurate.” Exhibit R-37, p. 1, § II, ¶ 4. Further, there is no evidence that the lender asked for further explanation prior to refinancing the loan on the Subject Property. As far as the alleged failure of supporting documentation for the “as is” value of site improvements on page 2 of the Report, although noting that it was not specifically identified in the report, Mr. Gregoire conceded that the value “easily corresponds with the way it’s described on Page 5 of [the Report] as Other Depreciated Site Improvements. But there is no explanation as to why in one - - it goes from $15,000 [on page 2] to $10,000 [on page 5 of the Report].” T. 110. As noted above, however, the Corrected Report, which Mr. Gregoire did not review, corrected the inconsistency between the two “as is” values set forth in the Report. Alleged Lack of Support for the Site Value for the Subject Property listed in the Cost Approach sections of the Report As noted in Finding of Fact 30, supra, the Workfiles contain comparable sales supporting the site value for the Subject Property, with an explanation in an addendum in the Workfiles. In addition, the Field Review of the Report prepared in 2004 marked “Yes” to the inquiry, “Did the appraisal report contain the appropriate prior sale(s) and/or prior listings(s) of the subject property and comparable sales?” Exhibit R-37, p. 1. Aside from the comparative sales, there was also data in the Workfiles showing other land sales in the area. Exhibit P-3, pp. 64-65. Alleged lack of documentation supporting the Market Trends outlined in the Sales Comparison Analysis section of the Report. The Neighborhood section of the Report indicates that the subject property is in a suburban area with 25 to 75 percent build-up and stable growth, and with stable property values, demand and supply in balance, and a marketing time of three to six months. Exhibit P-3, p. 1 (top third); T. 110. The Report finds that the following factors affect the marketability of the properties in the neighborhood: MSA 3600 the area located in south Putnam County, is convenient to major transportation routes which offer easy access to employment opportunities, schools, and most residential services. The homes in the area exhibit average to good quality and appeal and are typically frame, manufactured or masonry construction and are generally well maintained. P-3, p. 1. The Report states as market conditions in the subject neighborhood: The market is currently stable with mortgage funds available to qualified buyers at competitive rates. There is no evidence of concessions, buydowns, or discounts which would affect market value. Property values are relatively stable with no changes expected in the market in the near term. Recent fluctuations in mortgage lending rates do not appear to have affected market values in the subject market. Exhibit P-3, p. 1. According to Mr. Gregoire, referring to the Workfiles, he “couldn’t develop any trend here based on the way it’s maintained, whether it’s stable or not.” In addition, Mr. Gregoire opined that the Workfiles contain poor support for the reported single-family price range. T. 111. Mr. Gregoire acknowledged, however, that the Workfiles include, “in addition to the comparable sales that we discussed, some what I call on-line printouts.” Mr. Gregoire also acknowledged that the Workfiles contained several sales in the above $200,000 price which are indicated as being the high price. According to Mr. Gregoire, however, “it doesn’t necessarily show a predominant value there.” T. 110-111. The on-line printouts referenced by Mr. Gregoire appear on pages 26 through 30 of the Workfiles for improved property, and pages 64 and 65 of the Workfiles for land sales. Exhibit P-1, pp. 26-30, 64-65. The on-line printouts were derived from Win2Data, which Mr. Gregoire admitted was a recognized service for extracting market data. While Mr. Gregoire suggested that the “RealQuest” data source he utilizes was superior because it has updated on-line data, on- line Win2Data is also available and was utilized by Respondents. T. 150. The evidence did not show that the market data utilized by Respondents was deficient. Respondent Catchpole is also expert in real estate appraisal. He has a master’s degree in business administration, has testified as an expert before Congress, the United States District Courts in Georgia and Florida, and before the United States Bankruptcy Court in the Middle District of Florida. He has testified in numerous circuit courts in Florida. He has been a member of the Appraisal Institute. He has appraised nuclear power plants, been an advisor for real estate investment trusts, and has been an appraiser for Whirlpool, Citi Corp and Shearson Lehman. In the exchange during Mr. Gregoire’s cross- examination by Respondent Catchpole, it was clear that they had a difference of opinion as to how to best support an appraisal. See T. 115-167; see also T. 196-198. The evidence was insufficient to show that Mr. Gregoire’s approach was superior to the method utilized by Respondents in conducting the appraisal reflected in the Report or that Respondents did not use reasonable diligence in its preparation. Alleged Failure of Respondents to Maintain Internal Consistency in the Report In support of this allegation, Petitioner cites to Mr. Gregoire’s testimony at the final hearing that “it is the appraiser’s responsibility to ensure internal consistency and to ensure that the report reflects their opinions and conclusion before they affix their name to the report or certification. Petitioner’s PRO, p. 12; T. 135. Aside from the fact that Mr. Gregoire’s opinion did not reflect the Corrected Report, it is apparent his opinion did not consider other information provided by Respondents in support of the Report. While the Field Review was critical of a number of aspects of the Report, Respondents provided rebuttal to that Field Review prior to the complaint by Chase initiating this action. Some of the rebuttal included information indicating that the reviewer who prepared the Field Review had used comparable sales that were not arm’s length transactions. Although Petitioner’s investigator saw the information provided by Respondent Catchpole indicating that the reviewer’s comparables were not arm’s length transactions (T. 53), Mr. Gregoire did not review that information. Mr. Gregoire admitted that he was aware that Respondents provided a written rebuttal with documentation to Chase to the Field Review conducted in 2004. At the time of his testimony in this case, however, Mr. Gregoire had not reviewed any correspondence related to the rebuttal. T. 117-118. One document in particular, Exhibit R-30, that was provided to Petitioner’s investigator from Respondents’ Workfiles, contained notes from Respondent Catchpole contemporaneous to the Report indicating that Respondent Catchpole had contacted the property appraiser’s office to resolve differences in comparable sale 2 between the MLS listing and public records. T. 65-66. Mr. Gregoire was not provided this further evidence of Respondents’ diligence prior to his testimony. T. 121-122. In addition, the Workfiles submitted as Exhibits P-3 and P-7, were offered as the same documents. T. 25. It is clear, however, that a number of documents in P-7 were not in P-3. P-3 consists of 78 pages, whereas P-7 has 94 pages. It is apparent from Mr. Gregoire’s testimony and reference to Exhibit P-3, that his opinions were based upon his review of P-3. There was also evidence that there were a number of documents provided to Petitioner’s investigator, but not placed in Exhibit P-3 for review by Mr. Gregoire for his analysis. Exhibits RA-1 through RA-12, RB-1, and RC-1 through RC-8. While ultimately not used as comparative sales, the documents are additional evidence of Respondents’ efforts and diligence in preparing the Report. In addition, the refinanced loan for which the Report was provided has never gone into default. In sum, the evidence adduced at the final hearing was far less than convincing that Respondents did not use reasonable diligence in preparing the Report.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Department of Business and Professional Regulation, Division of Real Estate, enter a Final Order dismissing the Administrative Complaints. DONE AND ENTERED this 19th day of May, 2010, in Tallahassee, Leon County, Florida. S JAMES H. PETERSON, III Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 19th day of May, 2010.
