The Issue The issue is whether Respondent had failed to maintain records for at least five years, committed culpable negligence in the preparation of an appraisal report, or failed to exercise reasonable diligence in the preparation of an appraisal report.
Findings Of Fact Respondent has been a certified residential real estate appraiser since 1998. He holds license RD-3106, and his license has not previously been disciplined. He has worked in the real estate appraisal business since high school and full-time for the past 12 years. In November 2000, Respondent was employed by Southeast Property Appraisers as an independent contractor. Customers of Southeast Property Appraisers would contact the company and request a residential real estate appraisal. With a secretary often making the assignment, Southeast Property Appraisers would then subcontract the work to an independent contractor, such as Respondent. Upon completion of the appraisal report, Southeast Property Appraisers would split the fee with the independent contractor, pursuant to their contractual arrangement. In November 2000, Countryside Mortgage contacted Southeast Property Appraisers and requested a residential appraisal for a residence located in Delray Beach. The secretary assigned the file to Respondent, who undertook the responsibility of preparing the necessary appraisal report. Respondent researched the subject property, but found it a difficult assignment in one respect: the 3407 square-foot, one-story, single-family residence comprises seven bedrooms. Single-family residences with seven bedrooms are not present in great numbers in the vicinity of the subject property. On November 20, 2000, Respondent issued the appraisal report, under his own name. The appraisal report estimates the value of the subject property as $188,000, based primarily on the sales comparison approach. The report states that it did not use the income approach because of insufficient sales/rental data. The appraisal report identifies the name of the borrower and lists the sales price of $188,000, although the report cautions that the appraiser did not receive a copy of the sales contract. The report lists, under a table on the form, 18 rooms by type, including seven bedrooms and three bathrooms. Immediately beneath this table, the report states that the subject property consists of 13 rooms: seven bedrooms and three bathrooms. Both the table and the information beneath the table agree that the total area of the house is 3407 square feet. The appraisal report analyzes three comparables. According to the report, Comparable 1 is eight blocks northwest, Comparable 2 is eight blocks southeast, and Comparable 3 is one mile northeast. Petitioner's problems with the appraisal report concern two matters. First, the report omits any mention that Comparable 1 abuts a canal and is within a gated community. However, Respondent observed the canal, which is a narrow waterway leading into a nearby, small lake. Respondent reasonably determined that the canal did not warrant mention because it did not affect the sales price of the comparable. Respondent underwent a similar process with the gate, which the community association no longer manned or operated, at least during the daylight hours. Therefore, this omission from the report was also reasonable. Second, Comparable 3 is about one mile from the subject property, not more than two miles as alleged. Driving distance is 1.6 miles, and, as the crow flies, the distance is almost exactly one mile. According to Petitioner's expert witness, the proper way to measure the distance between comparables is as the crow flies. Petitioner's witnesses claimed several other deficiencies with the work papers: no copy of the assignment sheet from the customer indicating the scope of the appraisal, no copy of the purchase contract, no notes of conversations with parties to the documents, no copy of the signed, finished appraisal report, and no documentation of the search for comparables. Respondent's work files in fact lacked these documents. Petitioner's remaining issue with Respondent is that he did not retain his work file after he left Southeast Property Appraisal, which was shortly after the completion of the subject appraisal report. However, Respondent contacted Southeast Property Appraisal and cooperated with Petitioner's investigator in obtaining these materials within a reasonable period of time.
Recommendation It is RECOMMENDED that the Florida Real Estate Appraisal Board enter a final order dismissing the Administrative Complaint. DONE AND ENTERED this 18th day of August, 2005, in Tallahassee, Leon County, Florida. S ROBERT E. MEALE 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 18th day of August, 2005. COPIES FURNISHED: Jay Small, Chairman Florida Real Estate Appraisal Board Department of Business an Professional Regulation 400 West Robinson Street, Suite 801N Orlando, Florida 32808-1900 Leon Biegalski, General Counsel Department of Business and Professional Regulation Northwood Centre 1940 North Monroe Street Tallahassee, Florida 32399-2202 Alfonso Santana, Senior Attorney Department of Business and Professional Regulation Division of Real Estate 400 West Robinson Street, Suite N801 Orlando, Florida 32802 Donald S. Rose, Attorney 622 Courthouse Tower Building 44 West Flagler Street Miami, Florida 33130
Findings Of Fact Respondent is a state certified general appraiser, holding license number RI 0000912. In late 1993 First Sarasota Mortgage Company hired the appraisal company for which Respondent worked to prepare a "small income property report." This was a short form appraisal report used for multifamily housing, up to seven attached units. Respondent visited the subject duplex to meet the borrower and inspect the property. He found the duplex in bad disrepair. The building was constructed in 1928. Forty or fifty years ago a prior owner removed a second story from the building, leaving it a single-story building. The interior walls are the original walls of the building, which is a legal nonconforming use in an area without other duplexes or similar properties. The building also suffered from a serious termite inspection. Respondent reported what he had seen to the loan officer at First Sarasota. He told her that the property had considerable deferred maintenance and was not as represented by the borrower to the bank. Contrary to the borrower's assurances, the building was infested with termites, either uninsured or underinsured, and not owner-occupied. The loan officer instructed Respondent to continue the appraisal and try to find comparables. After about two and one- half days of research over a five day period, during which time he kept the loan officer informed of his lack of progress, Respondent contacted the loan officer and told her what he had found. After searching in a 15 mile-radius Respondent had still been unable to find properties that did not require large adjustments due to the age or condition of the property. The loan officer agreed that the comparables were useless. Respondent asked her whether he should continue the project or stop. She said that she would talk to the borrower and get back to Respondent. The loan officer called Respondent the next day and said stop working on the project. The loan officer denied the loan application, evidently due to the inadequacy of the property to be mortgaged. Although the lender ordered the appraisal, the borrower had paid the lender in advance for the appraisal. Respondent went to his supervisor and explained that the borrower had already paid $450, and Respondent felt uncomfortable not giving him anything. Respondent suggested that they provide the lender with a letter of opinion based on their opinion of the worth of the property using a cost approach, omitting the market and income approaches due to the absence of comparables. The supervisor approved the issuance of a letter of opinion. A copy of the letter went to the borrower. Respondent did not hear from the borrower for some time after issuing the letter of opinion. Then the borrower asked for a formal appraisal report. Respondent offered a partial refund or the letter of opinion, but the borrower insisted on a formal appraisal report. which Respondent could not provide. The letter of opinion is on the letterhead of Respondent's employer and is dated October 4, 1993. Addressed to First Sarasota, the letter, which is signed by Respondent, describes the property and states: After a thorough inspection of the property, an intensive search of the Lee County Property appraisers tax records, the last three years of recorded sales taken from the Lee County REDI records, sales from the past two years taken from the Ft. Myers MLS and telephone interviews with local realtors and appraisers, it is our opinion that if an appraisal were to be per- formed on this property, the estimated fair market value of the subject property as of the date of inspection, 09/02/93, would be $65,000 to $75,000. The one-page letter explains in detail the calculations under the cost approach for the property, leading to a total value of $92,000 for land and building. A note adds that the cost approach was given little weight due to the magnitude of needed repairs, including repairs for termite damage. The final sentence of the letter states: "This is a letter of opinion only and is not meant to be misinterpreted or utilized as an appraisal." Twice, the letter disclaims being an appraisal report. The letter is accurate, reasonably detailed, and carefully conditioned. The main issue in the case is whether the letter of opinion is a permissible alternative to a formal appraisal report under the Uniform Standards of Professional Appraisal Practice (USPAP) that are incorporated into the disciplinary statutes. Statement of Appraisal Standards No. 7 was adopted on March 22, 1994, and is included in the 1995 USPAP. Statement No. 7 addresses the situations under which an appraiser may perform an assignment that calls for something less than, or different from, a formal appraisal, as required by USPAP standards. The commentary identifies the issue as follows: Throughout the history of real property appraisal practice, a perception has existed that certain types of transactions in the real estate market require something less than or different from a Complete Appraisal. The phrase something less than or different from in this context has meant a Limited Appraisal and a condensed report. To distinguish this type of assignment from a Complete Appraisal, different names have been created for this activity, including Letter Opinion of Value, Update of an Appraisal, Recertification of Value, and, more recently, Evaluation of Real Property Collateral. 1995 USPAP, page 73. Statement No. 7 proceeds to describe a "complete appraisal" and "limited appraisal" and a "self-contained appraisal report," "summary appraisal report," and "restricted appraisal report." Mentioning a provision that permits an appraiser to enter into an agreement that "calls for something less than, or different from, the work that would otherwise be required by the specific guidelines," Statement No. 7 explains: This provision goes on to permit limited departures from specific guidelines provided the appraiser determines the appraisal process is not so limited as to mislead the client and intended users of the report, the appraiser advises the client of the limitations and discloses the limitations in the report, and the client agrees that the limited service would be appropriate. 1995 USPAP, page 73. After an extended discussion of the types of appraisal reports and appraisals, Statement No. 7 concludes in part: Clarification of Nomenclature 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. . . . The Restricted Report is the minimum report format and replaces the concept of the Letter Opinion of Value. 1995 USPAP, page 75. The 1993 Uniform Standards of Professional Appraisal Practice, which was in effect at the time of the subject transaction, does not contain Statement No. 7 because the statement was not in effect at the time, nor at the time of the subject transaction. Appraisers have historically used letters of opinion and not been disciplined. Statement No. 7 represents an attempt, in 1994, to provide and clarification "for future reference." Nothing in Statement No. 7 nor the 1993 USPAP supplies Petitioner with any basis for disciplining Respondent for the use of the letter of opinion in 1993. The client in this case was First Sarasota, to which the borrower paid the appraisal fee. Respondent's letter is directed to the client, not the borrower. Nothing in the letter could possibly mislead the client or the borrower. The limitations of the letter are largely apparent in the letter itself. Perhaps most important, Respondent consistently kept the client informed about the project and disclosed for his client the abject condition of the property and misrepresentations of the borrower. Respondent's diligence in fact engendered the complaint from the borrower that resulted in this case. After the subject transaction the restricted appraisal report replaced the letter of opinion. Respondent discontinued use of letters of opinion since the October 4, 1993 letter. In October 1993, however, Petitioner could not discipline an appraiser for the use of a letter of opinion, at least under the facts of this case. The October 4, 1993 letter was not an appraisal report under either then-existing USPAP standards, but was a widely recognized alternative to a formal appraisal report. In October 1993, as is clear from the language of Statement No. 7, USPAP had not created the alternative of the restricted appraisal report and had not limited all communications from appraisers to one of three types of reports. There is absolutely no evidence that Respondent failed to use reasonable diligence in the preparation of an appraisal report.
Recommendation It is RECOMMENDED that the Florida Real Estate Appraisal Board enter a final order dismissing the Administrative Complaint against Respondent. ENTERED on December 21, 1995, 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 21st day of December, 1995. COPIES FURNISHED: Linda Goodgame, General Counsel Department of Business and Professional Regulation 1940 North Monroe Street Tallahassee, FL 32399-0792 Steven W. Johnson, Senior Attorney Department of Business and Professional Regulation Division of Real Estate P.O. Box 1900 Orlando, FL 32802 Gary A. Berleue, pro se 13604 Wainwright Ave. Port Charlotte, FL 33953 Darlene F. Keller, Division Director Division of Real Estate 400 West Robinson Street Post Office Box 1900 Orlando, FL 32802-1900
Findings Of Fact At all times pertinent to the allegations herein the Division of Real Estate was the state agency responsible for the licensing of real estate sales persons and brokers and the regulation of the real estate profession in Florida. Respondent, Diana C. Verdi, was licensed as a real estate salesperson under license number 0545114, and Respondent, Realtec Group, Inc., was licensed as a real estate broker under license number 0273784. Respondent, Verdi, was employed by Respondent, Realtec, at its office at 3474 Tampa Road, Palm Harbor, Florida. On October 23, 1993, Respondent Verdi, while working for Respondent, Realtec, solicited and obtained an offer from James and Maureen Herhold, to purchase residential property owned by J. and K. Griffin. The contract called for the placement of a $50,000 non-refundable deposit with Realtec, and allowed the Herholds to move in on October 30, 1993, with closing to be held on November 30, 1993. The contract also provided that once the Herholds moved into the house, the Griffins would no longer be responsible for any repairs or maintenance needed by the property. Prior to moving in, the Herholds requested that Respondent, Verdi, obtain for them a seller's disclosure statement which would list any material defects in the property known to the sellers. In that regard, the Griffins' listing agent, Marta Shank, had previously requested they prepare such a statement. The statement was prepared on August 20, 1993, and reflected that the only known defect was a shower leak which had purportedly been fixed and a shower wall which had purportedly been replaced. Notwithstanding the Herholds repeatedly requested the disclosure statement from Respondent, Verdi, and notwithstanding such a statement had been prepared by the Griffins, the statement was not furnished to Respondent, Verdi, by Ms. Shank and, thereafter, to the Herholds until after they moved into the property. Consistent with the terms of the contract, the Herholds were required to pay for the repairs to the shower and shower wall which, it appears, were not properly repaired prior to their move into the property. At closing the Herholds requested the Griffins reimburse them for the cost of the repairs, which was not done. In the interim, however, and before the Herholds moved into the property, Respondent, Verdi, as was her custom in all residential sales, insisted that the Herholds obtain an independent inspection of the home. Mr. Herhold admits she did this. She claims she would not sell a home without this being done. This inspection, conducted by an inspector of the Herholds' choosing, failed to disclose any defect in the shower or shower wall. Respondent, Verdi, also suggested that since her repeated efforts to obtain the disclosure statement were unsuccessful, Mr. Herhold contact the Griffins or their agent directly. She also suggested to him that if he were not satisfied with the condition of the house, or if he had any qualms about moving in without the disclosure statement, he should not move in until he received it. This was verified by Ms. Kissner. Herhold elected not to do this, however, because he feared he might lose his deposit. Respondent, Verdi, represents herself as being an experienced and successful real estate salesperson, and there appears little reason to doubt that representation. She contends that though she never went to Shank's office to pick one up, she repeatedly asked Ms. Shank, the selling agent, for a disclosure statement as she always does, and her testimony in this regard is supported by that of both Ms. Kissner and Mr. Scarati. Both repeatedly tried to contact the selling office to obtain a disclosure statement but their calls were either nonproductive or not returned. There is some indication that when Ms. Verdi asked Ms. Shank for a disclosure statement, she was told that none existed. After the closing, when Mr. Herhold was unable to obtain a reimbursement from the Griffins for the cost of repairs, he filed suit against Realtec, Verdi, Shank and her agency, Coldwell Banker and his own inspection service. He admits that, at court, when he was asked by the judge who he believed was responsible, he did not know. He sued Verdi because he had asked her for a disclosure statement which she did not give him. He claims the sale was not an "as is" sale. At hearing, he was awarded $835.20 plus costs against Verdi and Realtec. She did not pay right away and sought the advice of counsel. When Herhold found she was listing her own home for sale, he filed a lien against it. As a result of that action, because she determined that fighting the lien would cost more than the amount involved, she paid the judgement even though she believed the judgement to be in error. Realtec paid nothing. No evidence was presented as to exactly when the judgement was satisfied.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is, therefore: RECOMMENDED that the Administrative Complaint filed in this matter against Respondents Diana C. Verdi and Realtec Group, Inc., t/a Re/Max Realtec Group, be dismissed. RECOMMENDED this 6th day of September, 1995, in Tallahassee, Florida. ARNOLD H. POLLOCK, 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 6th day of September, 1995. COPIES FURNISHED: Daniel Villazon, Esquire Department of Business and Professional Regulation Division of Real Estate 400 West Robinson Street, N-308 Post Office Box 1900 Orlando, Florida 32802 Diana C. Verdi 2474 Tampa Road Palm Harbor, Florida 34684 Realtec Group, Inc. percentRe/Max Realtec Group 3474 Tampa Road Palm Harbor, Florida 34684 Lynda L. Goodgame General Counsel Department of Business and Professional Regulation 1940 North Monroe Street Tallahassee, Florida 32399-0792 Darlene F. Keller Division Director Division of Real Estate 400 West Robinson Street Post Office Box 1900 Orlando, Florida 32802-1900
The Issue The issues presented are whether Respondent reviewed the appraisal report of an assistant appraiser in a manner that departed from the standards of care in Subsections 475.624(14), and (15), Florida Statutes (2001); and, if so, what penalty should be imposed against Respondent's professional license.
Findings Of Fact Petitioner is the state agency authorized to regulate certified general real estate appraisers (appraisers) and assistant appraisers pursuant to Chapter 475, Part II, Florida Statutes (2001). Respondent and Ms. Deborah Hall are certified appraisers pursuant to certificate numbers RZ-1589 and RD-4615. On April 5, 2002, Respondent operated an appraisal business located at 1727 Coachman Plaza Drive, Clearwater, Florida. Respondent supervised approximately 14 assistant appraisers, including Ms. Hall.1 Ms. Hall was certified as an assistant appraiser pursuant to certification number RI-5557.2 Ms. Hall developed a written appraisal report for residential real estate located at 7415 Flounder Drive, Hudson, Florida. Respondent reviewed the appraisal report and cosigned it with Ms. Hall before she communicated it to the client. The appraisal report complied with all applicable standards of practice except one. The appraisal report included incorrect values for three comparable properties. The correct closing prices of the three comparables were $73,000, $74,000, and $82,000. The appraisal report included erroneous closing prices of $110,000, $116,000, and $110,000; and inadvertently inflated the appraised value. Omission of the comparable values from the appraisal report was a substantial error. The error significantly affected the appraisal according to statutorily adopted Uniform Standards of Professional Appraisal Practice, Appraisal Standards Board, The Appraisal Foundation, 2002 ed. (USPAP), Standards Rule 1-1(b), at page 15. (The terms USPAP and "appraisal standards" are used synonymously and the abbreviation "SR" refers to a specific Standards Rule, such as SR 1-1(b)).3 The "workfile" developed by Ms. Hall contained the correct closing price for each comparable. The term "workfile" is defined in USPAP, Definitions, at page 5. A workfile consists of the "documentation necessary to support an appraiser's analysis, opinions, and conclusions."4 The omission of the correct comparable values from the appraisal report could not be discovered without reviewing the "workfile" developed by Ms. Hall. It is undisputed that Respondent did not include the workfile in his review of the appraisal report; and that the workfile was located in the appraisal office and was readily accessible. Petitioner alleges the omission of the workfile from Respondent's review of the appraisal report violated statutorily adopted appraisal standards as well as the statutory requirement to exercise reasonable diligence in Subsections 475.624(14) and (15), Florida Statutes (2001) (the relevant statutes). The parties agree no express requirement existed for Respondent to review the workfile. SR 2-3 discusses the standard of care applicable to the supervision of assistant appraisers. In relevant part, the standard states: When a signing appraiser(s) has relied on work done by others who do not sign the certification, the signing appraiser is responsible for the decision to rely on their work. The signing appraiser(s) is required to have a reasonable basis for believing that those individuals performing the work are competent and that their work is credible. SR 2-3, USPAP at 30-31. Respondent did not rely on work done by an assistant appraiser who did not sign the appraisal report. Ms. Hall signed the appraisal report as the "Appraiser." Respondent signed the appraisal report as the "Supervisory Appraiser." On April 5, 2002, Respondent had a reasonable basis, within the meaning of SR 2-3, to believe that Ms. Hall was competent and that her work was credible. Ms. Hall had sufficient experience and demonstrated proficiency to develop and communicate the appraisal report without the need for Respondent to review her workfile. Ms. Hall began appraising real estate in 1979 and had been a certified appraiser in several states. On April 5, 2002, she was certified in Florida and New York, had worked for Respondent for approximately three years, and had completed over 100 appraisals for Respondent. Ms. Hall was a Senior Resident Appraiser in the Society of Real Estate Appraisers. Other than enforcement action ancillary to this proceeding, Ms. Hall has no disciplinary history against her professional license. Respondent had sufficient experience and demonstrated proficiency to continually evaluate the competence of Ms. Hall. Respondent was first licensed as an appraiser in Kentucky in 1965 and became a licensed appraiser in Indiana in 1967 where he also taught appraisal courses. Respondent moved to Florida in 1977 and continued his career as an appraiser and appraiser instructor. In accordance with statutory requirements enacted in 1990, Respondent became certified in Florida as a General Real Estate Appraiser and is authorized to appraise commercial, industrial, and residential real estate. Respondent has developed and reviewed thousands of real estate appraisals in Florida and has no disciplinary history against his professional license. A footnote to SR 2-3 references Advisory Opinion AO-5 on page 132 of USPAP. Advisory Opinion AO-5 does not establish new appraisal standards or interpret existing standards. Rather, the Opinion illustrates the applicability of appraisal standards in specific situations and offers advice for the resolution of appraisal issues and problems. In the terms of Advisory Opinion A-05, Respondent was a principal on April 5, 2002, and Ms. Hall was an assistant. The extent of assistance that can be provided in the appraisal process is directly related to the competence of the assistant. As experience and demonstrated proficiency increase, it is appropriate for the principal to place greater reliance on the work performed by the assistant. It is appropriate for a principal to allow an experienced assistant with demonstrated proficiency to develop and communicate an appraisal. Such an assistant is competent to inspect the property, take pictures, draft the final appraisal report, and cosign the appraisal report with the principal. Advisory Opinion AO-5, at page 134, lines 112-114, lists only two minimum standards for the supervision of an experienced assistant. The principal should inspect both the exterior of the property and the photographs. Respondent's review of the appraisal report exceeded the express minimum standards for supervision of an assistant. Respondent personally inspected the property and the photographs and examined the appraisal report to verify that the distances of the comparables from the property were appropriate. Respondent ensured that adjustments in the report between comparables and the property were accurate and not excessive and also validated the calculation of adjustments in the appraisal report. Respondent reviewed maps of the area and verified dates and legal descriptions in the appraisal report. The omission of the workfile from Respondent's review of the appraisal report did not violate the standard of practice in the community in which Respondent and Ms. Hall practice. Two certified real estate appraisers with significant experience testified as peers in the community. Their testimony confirms the practice followed by Respondent and Ms. Hall.5 The community standard does not require a principal to review the workfile of an experienced appraiser unless the appraisal report is complex. The appraisal report that Respondent reviewed was not complex. Ms. Hall appraised a manufactured home in an area zoned for condominiums with no existing condominiums. A variation between actual and zoned use does not make an appraisal complex. As one peer explained in her testimony, "That wouldn't have made it complex to me. Zoning is a simple thing to me." The community standard of peers is an acceptable measure of competence in the appraisal standards adopted by statute. SR 1-2(f), USPAP at page 17, states that the scope of work necessary to complete an assignment is acceptable when it is consistent with the actions that peers would take in performing the same assignment or a similar assignment. A requirement for a principal to review the workfile of an experienced appraiser would be problematic in the community. Many experienced appraisers work from home and do not provide their principal with the workfile until after the appraisal report is communicated to the client. Even when a workfile is readily accessible, most principals do not have time to personally review the workfile. A principal must rely on administrative staff to perform that task. Only larger appraisal companies with extra staff have the luxury of reviewing workfiles. One peer who testified at the hearing had previously operated an appraisal company with sufficient staff to review workfiles. The staff routinely reviewed only the workfiles of assistants in training. Staff did not review the workfiles of experienced assistants.6 Respondent's signature on the appraisal report appears under a "Supervisory Appraiser's Certification." In relevant part, Respondent certified that he agreed to be bound by Appraiser Certification numbers 4-7 in the appraisal report. Appraiser Certification numbers 4-6 are neither relevant nor material to the matter at issue. The certifications address racial and other types of bias, an interest in the property, and a predetermined appraised value. Appraiser Certification number 7 certifies that Ms. Hall performed the appraisal in compliance with applicable appraisal standards. Similarly, the Supervisory Appraiser's Certification states that Respondent takes "full responsibility for the appraisal and the appraisal report." Petitioner interprets the quoted terms and similar terms elsewhere in the appraisal standards to mean that Respondent certifies to Petitioner that Ms. Hall performed the appraisal correctly and that Respondent is responsible to Petitioner for her errors. Petitioner interprets the certification of the "appraisal" to include the workfile. The agency's interpretation of statutory terms conflicts with the weight of the evidence. The term "responsibility" is reasonably construed as acknowledging responsibility to the client, rather than Petitioner, for the acts or omissions of an assistant. If Respondent were to evade his responsibility to the client, Respondent arguably may be responsible to Petitioner for the evasion. However, there is no evidence that Respondent attempted to evade his responsibility to the client. The precipitating complaint for this proceeding did not originate from the client, and there is no evidence of harm to the client. Ms. Hall does not know how the correct sales price information was omitted from the appraisal report. There is no evidence of intent or culpable knowledge by Ms. Hall. The closing price of a comparable is not the type of information that an appraiser would knowingly alter in an appraisal report. The correct closing prices at issue were matters of public record at the time and were so basic and fundamental that their omission from the appraisal report is patently inadvertent in the absence of contrary evidence. Ms. Hall followed the normal appraisal procedure she has used consistently over time. She utilized what is identified in the record as a clone appraisal. Ms. Hall modified an appraisal she had previously completed with data pertinent to the property being appraised. Either the computer program did not accept the correct closing prices for the comparables or Ms. Hall inadvertently failed to "input" them. Respondent did not have constructive knowledge of facts unknown to Ms. Hall at the time she drafted the appraisal report. SR 1-1(c), USPAP at page 15, does not define competency as perfection. Perfection is impossible to attain. Rather, competency requires only that Respondent use due diligence and due care in reviewing the appraisal report.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that Petitioner enter a final order finding Respondent not guilty of the violations charged in the Administrative Complaint and imposing no penalty against Respondent's professional license. DONE AND ENTERED this 3rd day of February, 2006, in Tallahassee, Leon County, Florida. S DANIEL MANRY 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 3rd day of February, 2006.
The Issue The issue is whether either Respondent committed the violations alleged in Counts I through VIII of their respective Administrative Complaints.
Findings Of Fact The Florida Real Estate Appraisal Board is the state agency charged with regulating real estate appraisers who are, or want to become, licensed to render appraisal services in the State of Florida. At all times pertinent, Ms. Green was licensed as a certified residential real estate appraiser. Ms. Green held license number 3236 in accordance with Chapter 475, Part II, Florida Statutes. Ms. Moody was licensed as a registered trainee appraiser. Ms Moody held license number 16667 in accordance with Chapter 475, Part II, Florida Statutes. In October 2008, Ms. Moody received a license as a certified residential appraiser, license number RD 7444. On March 8, 2007, Ms. Moody signed an appraisal of real property located at 11735 Chanticleer Drive, Lot 16, Block B Grand Lagoon, in Pensacola, Florida. She signed as appraiser. Ms. Green signed the report as supervisory appraiser. The listed borrower was James W. Cobb, and the lender was Premier Mortgage Capital. Respondents developed, signed, and communicated this report. Subsequently, the borrower, Mr. Cobb, who was also the buyer, complained to the Division with regard to the appraisal on the property, and the Division investigated the matter. The investigation resulted in an investigative report dated December 21, 2007. According to the appraisal, the property was listed for $1,030,000 in the multiple listing service, and the contract price was $790,000. The appraisal report valued the property using both the sales comparison approach and the cost approach. Both approaches resulted in a value of $1,030,000. These facts were reported in a six-page Uniform Residential Appraisal Report, Fannie Mae Form 1004 March 2005. At the time of the hearing, the property was the subject of a foreclosure action. The USPAP provides guidance to those involved in the business of conducting real estate appraisals. Real estate appraisers typically use both a "sales comparison approach" and a "cost approach" in attempting to arrive at a value. A "sales comparison approach" uses data obtained from sales of similar properties and adjusts for differences. A "cost approach" starts with the cost of an empty building site and adds to that the cost of building an identical structure and adjusts for enhancements and depreciation. Both approaches were used by Respondents and were reported on the Form 1004. The Division's expert witness, Sylvia G. Storm, reviewed the Form 1004 and all of the available supporting data. She did not make an appraisal herself and did not visit the property in question. Ms. Storm was accepted as an expert as provided by Section 90.702, Florida Statutes, because she had "specialized knowledge" regarding real estate appraisals. This was the first time that Ms. Storm testified as an expert witness in a case involving appraisals. The same was true in the case of the expert witness presented by Respondents, Victor Harrison. It is noted that these experts were only minimally qualified, and their testimony is given little weight. Ms. Storm commented on the fact that the property was called "new" in the improvements section yet on the following sales comparison approach it was listed under actual age, "27/E New-2." This suggests the property with improvements is 27 years old, but has an effective age of new to two years. In fact, in the improvements section it was noted that the property has been completely reconstructed. It is clear from the Form 1004, and the hearing record, that the property was essentially destroyed during Hurricane Ivan and was rebuilt above the surviving foundation. It is found that the house was essentially new at the time of the appraisal. Ms. Storm believes some of the deficiencies she noted in the Form 1004, discussed in more detail below, and the supporting documentation contained in the work file, affect the credibility of the report. She believes that some of these deficiencies amounted to a violation of USPAP. Ms. Storm stated that an appraiser should do a complete analysis of the contract and that if it is not done the appraiser is not being reasonably diligent. She also testified that an appraiser, who failed to discuss the large difference between the contract price and appraised value, and who failed to document the analysis, is not being reasonably diligent. Mr. Harrison, on the other hand, testified that after his analysis of the report he found no indication at all of a lack of reasonable diligence. Ms. Storm opined that two or more appraisers, appraising the same property may arrive at two or more numbers and that there is nothing unusual when that occurs. Ms. Moody testified under oath that the supporting information contained in the work file was adequate and that references to other documents, such as public records, were plentiful and complied with the requirements of USPAP. This testimony was adopted by Ms. Green. In order to provide clarity, actual allegations contained in the Administrative Complaints will be discussed in seriatim. As will be addressed more fully in the Conclusions of Law, the Division must prove its factual allegations by clear and convincing evidence. In evaluating the evidence presented, that standard will be used below. The factual allegations will be presented in bold face type, and the discussion of the proof will be in regular type: Respondent made the following errors and omission in the Report:"Failure to discuss or explain why the Subject Property was listed for sale for $1,030,000 and the contract price was $790,000." Ms. Storm opined that the discussion of the contract price did not go into the details as to the history of the property, or list price history, or who the contracting parties were or any fees to be paid by either party. She believes the Form 1004 should have reported when the property was listed and how many days it had been on the market. She believes that USPAP requires the appraiser to analyze the contract completely. She believes the Form 1004 should have commented on the large difference between the sales price and the appraised price. The Form 1004 states, "I did analyze the contract for sale for the subject purchase transaction." Ms. Moody testified under oath that they analyzed the difference between the appraisal price and the selling price. She stated that there was no requirement to discuss it in the Form 1004. Ms. Green adopted this testimony. Ms. Moody also stated that the contract price of a piece of property does not affect the value of the property as reported in the Form 1004. This factual allegation was not proven. "Use of an outdated FEMA map for the Subject Property." Respondents used a FEMA flood map that was outdated. This occurred because the computer program Respondents were using, InterFlood.com, presented an out-of-date map. The map used in the appraisal was dated February 23, 2000, but the most current edition of the map available at the time of the appraisal was dated September 26, 2006. The later map was no different from the map Respondents used. The Form 1004 notes, with regard to the flood status, "It appears to be located in FEMA Flood Zones X and AE. A survey would be needed to confirm flood zones." In sum, there is nothing incorrect or misleading with regard to flooding potential. The Division's expert witness, Ms. Storm, concluded that Respondents did not err with regard to the FEMA flood map. This factual allegation was not proven. "Misstatement of PUD Homeowner's Association Fees for the Subject Property." Respondents asserted the homeowner's association fee to be $100 annually. The by-laws of the Grande Lagoon Community Association, Inc., in effect during all times pertinent, state unequivocally that annual dues of the Association are $100. The Division's investigator stated that he learned through a telephone call with a "Mr. Broome," who was possibly an officer in the homeowner's association, that at the time of the appraisal there was an annual assessment by the homeowner's association of $250 for canal maintenance, and that this amount was to increase to $500 annually in 2008. Information about this assessment was not readily available to Respondents. An assessment is different from a homeowner's fee. The Division's expert witness stated that if there is a homeowner's fee it should be stated on the Form 1004, but that it is not a USPAP requirement. This factual allegation was not proven. "Failure to differentiate view of Subject Property and comparable sale 2, when the Subject Property is located on a canal and the comparable had an open water location." Comparable Sale 2 is located on Star Lake, a small, lagoon- like body of water with access to Pensacola Bay, similar to the location of the appraised property, which is on a canal with access to open water on Big Lagoon. The views on these properties are sufficiently similar that no adjustment is required. This factual allegation was not proven. "Failure to note financial assistance in the sales contract, where seller was to pay all closing costs." The agreement whereby seller would pay $20,000 in closing costs was not made until March 28, 2007, 20 days after the appraisal was completed. This factual allegation was not proven. "Failure to note consulting fee to Investor's Rehab in the sales contract." This allegation is true in that the consulting fee was not mentioned. Ms. Storm opined that it should be analyzed in the appraisal report. She asserted that persons who were not privy to the contract might make decisions in reliance upon the appraisal report and, therefore, the Form 1004 should mention the consulting fee. However, Ms. Moody pointed out that the consulting fee had no effect on the value of the property and stated that it was intentionally omitted. This factual allegation was proven to the extent that the consulting fee was not mentioned, but this omission did not affect the accuracy or credibility of the appraisal report. "Failure to explain range of effective age dates for the Subject Property and comparable sale 1." As discussed in Finding of Fact 8, the subject property was essentially new at the time it was appraised. As pointed out by Mr. Harrison, the effective age was new. Effective age is an estimate of the physical condition of a building. The actual age of the building may be shorter or longer than the effective age. The determination of effective age is largely a matter of judgment. In the case of Comparable Sale 1, it was built in 1980 and last sold in August 2005. Respondents reported the age in 2007 as 26 years with an effective age of 1-5 years. The Form 1004, therefore, presented a one year error as to actual age, which is insignificant. The allegation is that Respondents failed to explain the range of effective age dates. However, it is found that the Form 1004 adequately informs anyone reading it. Accordingly, this factual allegation is not proven. "Failure to make an adjustment or provide an explanation for no adjustment on comparable sale 1 for its effective age difference." No evidence supporting this allegation was presented. The unrebutted testimony of Ms. Moody, adopted by Ms. Green, was that there was no market data suggesting that there was a need for adjustment. There was no evidence that an explanation for no adjustment was required. Accordingly, this factual allegation is not proven. "Incorrect site size adjustment for comparable sale 1; the $17,000 should be in the positive direction." The site size adjustment for Comparable Sale 1 is in the amount of $40,000. It appears that the intentions of the Administrative Complaints were to allege an error in gross living area. The result is that the record provides no proof of this allegation. "Adjustment for both the room count and square footage, without explanation of its necessity or market support of its accuracy, for comparable sale 1." The Division's expert found this to be inconsequential. There was no proof adduced indicating that this was a violation of any standard. "Incorrect actual age for comparable sale 1." In the case of Comparable Sale 1, it was built in 1980 and last sold in August 2005. Respondents reported the age in 2007 as 26 years with an effective age of 1-5. The Form 1004 therefore presented a one-year error. This error is insignificant. "Failure to explain inconsistent site size adjustments made to comparable sale 1, comparable sale 2, and comparable sale 3." The subject property was located on a site (or lot) that was .3 acres. Comparable Sale 1 was located on a site that was .52 acres. Respondents subtracted $40,000 from the sale price of Comparable Sale 1. Comparable Sale 2 was located on a site that was .7 acres. Respondents subtracted $60,000 from the sale price of Comparable Sale 2. Comparable Sale 3 was located on a site that was .44 acres. Respondents added $25,000 to the sale price of Comparable Sale 3. It is the appraiser's duty to value a comparable in such a way that differences between the comparable and the subject property are accounted so that a common denominator may be found. For example, Comparable Sale 1 was approximately .2 of an acre larger than the subject property and thus more valuable solely because it is on a larger site. To equalize the situation, the price of Comparable Sale 1 must be reduced, and it was. Comparable Sale 2 also was reduced, but Comparable Sale 3 that was on a larger lot than the subject property, was credited with a $25,000 addition to its price. Nothing in Respondents' work file provides how the figures for the comparables were found. Moreover, if two of the comparables experienced a downward adjustment because of a larger lot size, then the third comparable, having a larger lot size, should have been adjusted downward also. Therefore, there were inconsistencies requiring explanation, and no explanation was found in the file. "Failure to note that comparable sale 1 has a fireplace." The Division's expert witness said that the failure to adjust for the fireplaces was of no consequence. No evidence was adduced to demonstrate that the failure to adjust for fireplaces was necessary. Accordingly, this factual allegation was not proven. "Failure to make an adjustment or provide an explanation for no adjustment on comparable sale 1 for its fireplace." The Division's expert witness said that the failure to adjust for the fireplaces was of no consequence. No evidence was adduced to demonstrate that the failure to adjust for fireplaces was necessary. Accordingly, this factual allegation was not proven. "Incorrect actual age for comparable sale 2." Comparable Sale 2 was built in 1990. At the time of the appraisal, it was approximately 17 years old. It last sold November 2006. It was reported to be 16 years of age with an effective age of five years on the Form 1004. This is both incorrect and insignificant. "Adjustment for both room count and square footage, without explanation of its necessity or market support of its accuracy, for comparable sale 2." The Division's expert found this to be inconsequential. There was no proof adduced indicating that this was a violation of any standard. "Incorrect actual age for comparable sale 2." This allegation repeats that stated in "O" above. "Failure to not [sic] that comparable sale 2 has three fireplaces." The Division's expert witness said that the failure to adjust for the fireplaces was of no consequence. No evidence was adduced to demonstrate that the failure to adjust for fireplaces was necessary. Accordingly, this allegation was not proven. "Failure to make an adjustment or provide an explanation for no adjustment on comparable sale 2 for its multiple fireplaces." The Division's expert witness said that the failure to adjust for the fireplaces was of no consequence. No evidence was adduced to demonstrate that the failure to adjust for fireplaces was necessary. Accordingly, this allegation was not proven. "Failure to make an adjustment or provide an explanation for no adjustment on comparable sale 2 for its lake view." Comparable Sale 2 is located on Star Lake, a lagoon-like body of water with access to open water, similar to the location of the appraised property, which is on a canal with access to open water on Big Lagoon. The views on these properties are sufficiently similar that no adjustment is required. This allegation was not proven. "Incorrect actual age of comparable sale 3." Comparable Sale 3 was built in 1989. At the time of the appraisal, it was approximately 18 years old. It last sold in August of 2005. It was reported to be 16 years of age with an effective age of 10 years on the Form 1004. This age was reported incorrectly. "Use of comparable sale 3 which sold 19 months prior to the Report." The Form 1004 noted that finding comparables was difficult due to market disruption caused by Hurricane Ivan. As noted by Ms. Storm, the change in the real estate market during the years 2004, 2005, and 2006, have been profound everywhere. Primarily, market prices have declined during those years. She was of the opinion that the August 18, 2005, sale date of Comparable Sale 3 was too remote. She stated, correctly, that a market condition adjustment should have been made to the price reported for Comparable Sale 3. Ms. Storm found in the work file analyst listings of the comparables that were utilized, and pages from the Marshall and Swift, but did not see any actual paired sale analyses for any of the adjustments that were used in the report. She could not determine from where they obtained these sales and the adjustments for differences. She opined that this made the report less credible. According to Ms. Storm, the insufficient analysis runs afoul of USPAP. The opinion of Ms. Storm, however, fails to take into account the insufficient data in the Pensacola area that resulted from hurricane-induced market disruption and the consequent lack of sales. Because of the lack of viable alternatives, using this property as a comparable was necessary. This factual allegation was not proven. "Adjustment for both room count and square footage, without explanation of its necessity or market support of its accuracy, for comparable sale 3." The Division's expert found this to be inconsequential. There was no proof adduced indicating that this was a violation of any standard. "Failure to calculate and list the net adjustment and gross adjustment totals for comparable sale 1, comparable sale 2, and comparable sale 3." The Division's expert found this to be inconsequential. There was no proof adduced indicating that this was a violation of any standard. "Failure to utilize current Marshall & Swift information for the Cost Approach section of the Report." Marshall and Swift is a reference service that is used to develop information in the cost approach analysis. It provides "local multipliers" to provide for cost differentials in various geographic areas, including differentials for garages and two-story houses. It also provides "local multipliers" for the cost per square foot for construction. The pages used by Respondents expired at the end of February 2007, eight days before the Form 1004 issued. Respondents receive quarterly updates. The issue after February 2007 showed no change. To the extent Respondents failed to get the most current information, it had no impact on the appraisal amount. "Failure to complete the PUD information section of the Report, when Subject Property, as noted by Respondent in Report, is located in a PUD." The Division acknowledged during the hearing that there was no support for this allegation, and withdrew it. AA) "Failure to date when Respondent inspected the Subject Property and comparable sales listed in the Report." (This allegation was made in the case of Ms. Green, but not in the case of Ms. Moody.) In the blocks on the Form 1004, below the Supervisory Appraiser's signature, Ms. Green signed statements indicating that she inspected the interior and exterior of the subject property and that she inspected the exterior of the comparable sales properties. She did not date either of these statements. There is no documentation in the work file to support the $40,000 "site size" adjustment made to comparable sale 1 in the Sales Comparison section of the Report. Respondents' work file, attached as Exhibit 1 to the Administrative Complaints, does not contain documentation for this adjustment to the "site size" of Comparable Sale 1. There is no documentation in the work file to support the $60,000 "site size" adjustment made to comparable sale 2 in the Sales Comparison section of the Report. Respondents' work file, attached as Exhibit 1 to the Administrative Complaints, does not contain documentation for this adjustment to the "site size" of Comparable Sale 2. There is no documentation in the work file to support the $25,000 "site size" adjustment made to comparable sale 3 in the Sales Comparison section of the Report. Respondents' work file, attached as Exhibit 1 to the Administrative Complaints, does not contain documentation for this adjustment to the "site size" of Comparable Sale 3. There is no documentation in the work file to support the $50,000 "view" adjustment made to comparable sale 1 in the Sales Comparison section of the Report. Comparable Sale 1 is on Big River. The Form 1004 notes that Big River is similar to Big Lagoon. A $50,000 downward adjustment was made in the "view" category. Ms. Storm stated that she had searched for documentation and did not find it. The work file does not have documentary support for the adjustments. Respondents and Ms. Storm agreed that the lack of sales in the area made such adjustments like this problematic. As Ms. Storm said, "I know there haven't been that many sales of waterfronts so it's really difficult to arrive at that data." Nevertheless, the lack of any information in the work file to support the adjustment means that this factual allegation is proven. There is no documentation in the work file to support the $5,000 "age" adjustment made to comparable sale 2 in the Sales Comparison section of the Report. Respondents' work file, attached as Exhibit 1 to the Administrative Complaints, does not contain documentation for this adjustment to the "age" of Comparable Sale 2. There is no documentation in the work file to support the $10,000 "age" adjustment made to comparable sale 3 in the Sales Comparison section of the Report. Respondents' work file, attached as Exhibit 1 to the Administrative Complaints, does not contain documentation for this adjustment to the "age" of Comparable Sale 3. There is no documentation in the work file to support the $3,000 "triple garage" adjustment made to comparable sale 3 in the Sales Comparison section of the Report. A downward adjustment of $3,000 was made to Comparable Sale 3 because of its triple garage. No testimony supporting this allegation was presented. Respondents' work file, attached as Exhibit 1 to the Administrative Complaints, includes Marshall and Swift data for garages. Although exactly how the $3,000 adjustment was calculated is not clear, the Marshall and Swift information was in the file and provided a method for making the calculation. There is no documentation in the work file to support the $10,000 "dock/pier" adjustment made to comparable sale 1 in the Sales Comparison section of the Report. A downward adjustment of $10,000 was made to Comparable Sale 1 because of the presence of a "dock/pier." No testimony supporting this allegation was presented. Respondents' work file, attached as Exhibit 1 to the Administrative Complaints, does not contain documentation for this adjustment. There is no documentation in the work file to support the $15,000 "pool" adjustment made to comparable sale 2 in the Sales Comparison section of the Report. A downward adjustment of $15,000 was made to Comparable Sale 2 because of the presence of a pool on the property. No testimony supporting this allegation was presented. Respondents' work file, attached as Exhibit 1 to the Administrative Complaints, does not contain documentation for this adjustment. There is no documentation in the work file to support the $39/square foot adjustment for gross living area made tocomparable sale 1, comparable sale 2, and comparable sale 3 in the Sales Comparison section of the Report. No testimony supporting this allegation was presented. The Division has not directed the attention of the Administrative Law Judge to any reference in the record to a "$39/square foot adjustment for gross living area." An independent search of Respondents' work file, attached as Exhibit 1 to the Administrative Complaints, did not reveal documentation for this adjustment or any documentation mentioning it. Accordingly, this allegation is not proven. The work file lacks current Marshall and Swift pages for the time frame that the Reports were completed, as well as any local builder information, to justify the dwelling square footage price in the Cost Approach section of the Report. Marshall and Swift is a reference service that is used to develop information for use in the cost approach. It provides "local multipliers" to provide for cost differentials in various geographic areas, including differentials for garages and two-story houses. It also provides information used to calculate the construction cost per square foot. The pages used by Respondents expired at the end of February 2007, eight days before the report issued. Respondents receive quarterly updates. The issue subsequent to February 2007 showed no change. To the extent Respondents failed to get the most current information, it had no impact on the appraisal amount. The work file lacks any documentation to support the $30,000 As-Is Value of Site Improvements adjustment in the Cost Approach section of the Report. As-is value of site improvements adjustment, in the cost approach section, is a positive value of $30,000. There is no explanation in the record as to what an "as-is value of site improvements adjustment" is or from what source came the $30,000 value. The work file lacks any documentation to support the $60,000 Porches/Appliances adjustment in the Cost Approach section of the Report Respondents' work file, attached as Exhibit 1 to the Administrative Complaints, contains Marshall and Swift information for porches and appliances. Thus, documentation is present.
Recommendation RECOMMENDED that the Florida Real Estate Appraisal Board find Respondents guilty of violating Subsection 475.624(14), Florida Statutes, by failing to document adjustments made to comparable sales and reprimand Respondents. DONE AND ENTERED this 27th day of January, 2009, in Tallahassee, Leon County, Florida. S HARRY L. HOOPER 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 27th day of January, 2009. COPIES FURNISHED: Thomas M. Brady, Esquire 3250 Navy Boulevard, Suite 204 Post Office Box 12584 Pensacola, Florida 32591-2584 Robert Minarcin, Esquire Department of Business & Professional Regulation 400 West Robinson Street, N801 Orlando, Florida 32801-1757 Ned Luczynski, General Counsel Department of Business and Professional Regulation Northwood Centre 1940 North Monroe Street Tallahassee, Florida 32399-0792 Thomas W. O'Bryant, Jr., Director Division of Real Estate Department of Business and Professional Regulation 400 West Robinson Street Suite 802, North Orlando, Florida 32801 Frank K. Gregoire, Chairman Real Estate Appraisal Board Department of Business and Professional Regulation 400 West Robinson Street, Suite 801N Orlando, Florida 32802-1900
