I have seen several folks on social media asking what it takes to pick up stakes and move to a new market. I am surprised at the advice and lack of GSE and FHA/USDA understanding out there regarding such a thing. While Fannie Mae, Freddie MAC, FHA and USDA do not prohibit an appraiser from moving to a new market, they do prohibit one form doing any work in the new market until the appraiser becomes competent. Each entity requires that competency already be established when talking on a new assignment. In this blog, we are discussing a specialized competency: geographic competency.
Over my career, I have moved four times where I required to become market competent. I was careful in each case to do so by working with offices that could help me become competent. It was not an easy task, but one that I knew was required. Yes, it meant taking less fee for a bit, but I wanted to be bullet proof from a possible complaint. I will add that each experience served as rewarding one. If you move you must retool your processes for each market.
When I moved to Charlottesville (Blue ridge Mountains), I came from a coastal plains area (Hampton Roads). When I lived in Hampton Roads there was almost no such thing as a basement except in rare cases. I had no choice but to learn about this and many other things that were common to a Piedmont location. That meant doing case studies to prove contributory values, etc. Thank goodness I had experience with Excel and other tools like Regression+ to help me do my job well enough.
GSEs and Agencies
Many would argue that USPAP allows one to become competent, which it does. But the issue with the GSEs and agencies is that they require demonstrated competency. So, there is an assignment condition which makes that flexibility found in USPAP not applicable to the assignment. This what they say about it:
Fannie Mae Selling Guide B4-1.1-03
Knowledge and Experience
Lenders must use appraisers that
- have the requisite knowledge required to perform a professional quality appraisal for the specific geographic location and particular property type; and
- have the requisite knowledge about, and access to, the necessary and appropriate data sources for the area in which the appraisal assignment is located.
Appraisers that are not familiar with specific real estate markets may not have adequate information available to perform a reliable appraisal. Although the Uniform Standards of Professional Appraisal Practice (USPAP) allows an appraiser that does not have the appropriate knowledge and experience to accept an appraisal assignment by providing procedures with which the appraiser can complete the assignment, Fannie Mae does not allow the USPAP flexibility. (emphasis added)
FHA 4000.1 I-B-1-b
(B) Competency Requirement
The Appraiser must be knowledgeable of the Uniform Standards of Professional Appraisal Practice (USPAP) and FHA appraisal requirements. The Appraiser must meet the competency requirements defined in the USPAP prior to accepting an assignment. The Appraiser must be knowledgeable in the market where the assignment is located. (Emphasis added) (this applies to USDA as well since USDA requires adherence to FHA protocol)
FHA 4000.1 I-B-1-d-ii
The Appraiser assigned to provide the appraisal must be able to complete an assignment for the property type, assignment type, and geographic location of the subject Property.
The Appraiser must comply with the USPAP, including the Competency Rule, when conducting appraisals of Properties intended as security for FHA-insured financing.
What do the Experts Say?
I even took the time to interview a USPAP instructor, Maureen Sweeney, SRA, AI-RRS, IFA, CDEI on the topic and she wrote me up this ditty (I use the word ditty on purpose, as anyone that knows Maureen knows that she likes to sing):
“Competency is competency, and it is not to be sliced up like a pie of different categories. You either have it, or you don’t, and it is not sliced into demonstrated or normal or abnormal; it just is. Credible assignment results are based on the appraiser’s total ethics and total competency. The assignment results either has it, or it doesn’t. USPAP is very specific in what Competency requires, how it is acquired, and what to do if you lack it. USPAP required the appraiser to be competent when they sign the report. Fannie Mae goes one step further. They want you to be competent when you accept the appraisal assignment. Per the Fannie Mae Selling Guide, dated June 24, 2014, page 549 under “Knowledge and Experience”: “Although the Uniform Standards of Professional Appraisal Practice (USPAP) allows an appraiser that does not have the appropriate knowledge and experience to accept an appraisal assignment by providing procedures with which the appraiser can complete the assignment, Fannie Mae does not allow the USPAP flexibility.” Fannie Mae wants their appraisers competent when they accept the assignment. The Selling Guide states, “Lenders must use appraisers that 1) have the requisite knowledge required to perform a professional quality appraisal for the specific geographic location and particular property type; and 2) have the requisite knowledge about, and access to, the necessary and appropriate date sources for the area in which the appraisal assignment is located.” https://www.fanniemae.com/content/guide/sel062414.pdf For those who think FHA is going to give them a pass, too bad. Per SF Handbook, I.B.1.b.i.(B) Competency requirement, “The appraiser must be knowledgeable of the Uniform Standards of Professional Appraisal Practice (USPAP) and FHA appraisal requirements. The appraiser must meet the competency requirements defined in the USPAP prior to accepting an assignment. The appraiser must be knowledgeable in the market where the assignment is located. Fannie Mae and FHA are making suggestions that appraisers should maybe be competent. The say we MUST be competent PRIOR to accepting the assignment.” https://www.hud.gov/sites/documents/APPR_ESSENTIAL_09-14-16.PDF There is no wiggle room around this requirement. If an appraiser doing work for Fannie Mae and Freddie Mac is not competent at the accepting of the appraisal assignment, and they hope to gain competency prior to signing the report, and this is your current practice, please stop.”
I also interviewed another USPAP instructor, Jim Atwood, SRA. He takes it even a bit further, and states that if the FNMA 1004 is used at all, then because of certification-11, the appraiser must have demonstrated competency. I agree with his summation.
“Certification -11, pre-printed into the Fannie Mae 1004 appraisal form, states: “I have knowledge and experience in appraising this type of property in this market area.” When using this form for Fannie Mae, Freddie Mac, VA, or FHA purposes, the appraiser is indicating, by signing the certification, his or her pre-existing knowledge and experience (competency) regarding a particular property type or geographical area. Although USPAP, assuming the client’s agreement, allows an appraiser, who is unfamiliar with a certain property type or geographical area, to perform the appraisal as long as he/she becomes competent prior to completing the assignment, this certification implies that the appraiser is to have sufficient prior knowledge and experience so as to perform the appraisal competently. Certification #11 seems then to preclude accepting assignments for which the appraiser is not already competent.”
I hope this was a meaningful post. I am not writing this to sound pious, but to help my colleagues make pragmatic decisions. This is an easy enough thing to overlook and I have seen several appraisers do it. As the sergeant used to say on Hill Street Blues: