Department of Labor and Revenue

Title - South Dakota Appraiser Certification Program

News Articles - August 2010

Vacancy - Advisory Council

New Licensees - July/August 2010

Information Regarding Disciplinary Actions

Anonymous Complaints

Review of Cases - January 1, 2010 through July 16, 2010

Upgrades - August, 2010

Standards Deviation - Ten Common Misconceptions About Uniform Standards

Vacancy - Advisory Council

The Department of Revenue and Regulation is seeking nominations for a State-Licensed Appraiser to serve as a member of the Appraiser Advisory Council.

The Advisory Council is responsible for advising the Department Secretary in matters of program administration, procedure, and policy in order to sustain a program that is consistent with Title XI, Financial Institutions Reform, Recovery and Enforcement Act (FIRREA) of 1989 administered by the Appraisal Subcommittee and the uniform standards and qualifications criteria as set by the Appraisal Standards Board and the Appraiser Qualifications Board of the Appraisal Foundation. The council members do not receive compensation for any expenses incurred to serve on the council. Four meetings are held each year in Pierre. The term limit is four years.

If you are interested in nominating yourself or another appraiser for appointment to the Advisory Council, please submit your nomination in writing to the Department of Revenue and Regulation, Appraiser Certification Program, 445 East Capitol Avenue, Pierre, South Dakota 57501.

The nomination should include the appraiser's name, address, appraiser title and the reason that you believe you or the person you have nominated should be appointed to the Advisory Council. Any person nominated for the position should possess substantial knowledge regarding appraising, a reasonable understanding of Title XI, FIRREA and its impact on the appraiser profession, and be highly respected by other appraiser professionals.

Please submit nominations to the Department no later than October 15, 2010. If you have any questions, please feel free to contact Sherry Bren at 605.773.4608.

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New Licensees - July/August 2010

Robert K. Ruggles, State-Certified General - Florham Park, NJ
Nicholas J. Dizona, State-Certified General - Omaha, NE
Jason S. VanRuler, State-Registered - Harrisburg, SD
Bonnie M. Downing, State-Certified General - North Platte, NE
Colin M. Steen, State-Registered - Rock Valley, IA
Brian D. Schaefer, State-Certified Residential - Sioux City, IA

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Information Regarding Disciplinary Actions

Public information regarding disciplinary action taken against an appraiser is available upon written request to the Department of Revenue and Regulation, Appraiser Certification Program, 445 East Capitol Avenue, Pierre, SD 57501 or email

Include in the request for information the name of the appraiser and the appraiser's city and state of residence. (Disciplinary action may include denial, suspension, censure, reprimand, or revocation of a certificate by the department. (Administrative Rule of South Dakota (ARSD) 20:14:11:03)

The following disciplinary action has been taken by the Department of Revenue and Regulation, Appraiser Certification Program:

Kelly A. Longstaff, Rapid City, South Dakota - Complaint Case # 09-312. The Department of Revenue and Regulation entered an Amended Agreed Settlement, effective August 4, 2010, accepting the immediate, voluntary surrender of Longstaff's appraiser license.

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Anonymous Complaints

ARSD 20:14:11:01.01. Anonymous complaints. Initiation of an investigation may be commenced upon receipt of an anonymous complaint if it meets the following criteria:

(1) The allegations of violations of any provision of this article are considered credible and based upon factual information which is independently verifiable; and

(2) The complaint is accompanied by a copy of the appraisal report or other documents which contain clearly identifiable errors or violations of the provisions of this article.

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Review of Cases - January 1, 2010 through July 16, 2010

For the period January 1, 2010 through July 16, 2010, the Department has received 13 upgrade applications and initiated 11 complaint investigations.

Upgrades - 9 pending.
Complaints - 5 pending.

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Upgrades - August 2010

Jeff Barker, State-Certified General
Jonathan Hatch, State-Certified Residential

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Standards Deviation - Ten common misconceptions about Uniform Standards (by Joseph Palumbo, SRA)

While no system or doctrine is perfect, the Appraisal Standards Board of The Appraisal Foundation - which is responsible for developing and interpreting the Uniform Standards of Professional Appraisal Practice - has come a long way in its quest to provide the industry with a clear, concise set of minimum professional appraisal standards. However, there remain a few misconceptions about USPAP that stagnate and confuse the industry from both the appraiser and user side.

The following is a list of 10 common USPAP misconceptions that I have encountered during my 10 years as a USPAP instructor and my 12 years managing thousands of appraisers.

Misconception One - USPAP in general is too overwhelming and intimidating.

Truth: The document containing the guidance is quite thick; however, USPAP is technically just Definitions, Rules, Standards and Statements. The Advisory Opinions (AO) and FAQs are for information and guidance only, so the average appraiser - involved in appraising, doing reviews and possibly some appraisal consulting - will not have to regularly consult most of the few hundred pages that are bound in the document.

Consider taking your copy of USPAP and putting a binder paper clip on the table of contents (including the preamble) and each of the following sections: Definitions, Rules and Standards 1 through 5. At this point, you have only 45 pages to review. Throw in a few Statements and Advisory Opinions pertinent to your specific appraisal problems, and perhaps you are up to 55 or 60 pages. If you are just performing appraisals and doing some Standard 3 reviews, the amount is significantly less; Standards 1, 2 and 3 combined are only 37 pages, and even with the addition of a few Statements and AOs, the total page count is still under 50 - not really intimidating at all.

Misconception Two - USPAP requires verification of sales via two sources.

Truth: Appraisers are required to "collect ... verify and analyze all information necessary for credible assignment results ..." as indicated in SR 1-4. Since "verification" is not defined by the ASB, the word is considered to have the same meaning as in common English: "To confirm or substantiate in law by oath: to establish the truth, accuracy, or reality of; verify the claim" (Merriam-Webster online dictionary).

The method or extent of verification should take into consideration the use of the assignment, the client's and user's expectations, what the appraiser's peers would do in the same situation and what level of verification market participants expect. In the end, the extent of the verification is the appraiser's responsibility and is part of the appraiser's scope of work decision.

Misconception Three - In developing an opinion of market-value assignment, analyzing a current agreement of sale, when available through the normal course of business, is as simple as stating, "The value opinion confirms the sale price," when reporting the findings.

Truth: Since "analyze" is not defined by the ASB, the word is considered to have the same meaning as in common English: "to separate (a material or abstract entity) into constituent parts or elements; to determine the elements or essential features of (opposed to synthesize); to examine critically so as to bring out the essential elements or give the essence of; to carefully and in detail identify causes, key factors, possible results, etc." (Merriam-Webster online dictionary).

Analyzing a contract, when available, should always include analysis of the details of the transaction: whether the sale is arms-length, whether there are any special financing or concessions, whether there are any personal property or special or unusual circumstances, and how the home was exposed (include listing in report or outline details) to the market.

Misconception Four - In developing an opinion of market value, analyzing a prior sale of the subject property that has occurred within three years of the effective date is as simple as stating the facts - "The subject sold for [amount] on [date]" - when reporting the findings.

Truth: As with misconception three, the issue of what "analyze" means is pertinent here. Sometimes there are no or very few details available on the particulars of a prior sale. When possible and available in the normal course of business, there should always be an attempt to determine whether the sale was arms-length, whether there were any special financing or concessions, personal property or special or unusual circumstances. At a minimum, a determination of the availability or lack of information as well as the extent or means used to uncover the information is warranted.

The discussion of SR 1-5 is an area of importance for all report types and, in fact, those details must be summarized even in the event of a Restricted Use Report (see SR 2-2(c)(viii)).

Misconception Five - Expired or withdrawn listings are meaningless since Standard 1-5(a) only requires analysis of current listings.

Truth: While Standard 1-5(a) does only require analysis of current listings, an expired or withdrawn listing may provide additional insight on what the market's reaction was to a property when it was previously exposed. This is not to say the expired or withdrawn listing tells the whole story without investigation; failure to investigate could lead to false conclusions. Not discussing and properly analyzing prior listings that are germane and relative to the appraisal problem could be seen as a violation of both SR 1-1(b) - "in developing a real property appraisal, an appraiser must ... not commit a substantial error of omission or commission that significantly affects an appraisal" - SR 2-1(b) - "each written or oral real property appraisal report must ... contain sufficient information to enable the intended users of the appraisal to understand the report properly."

Misconception Six - It is "misleading" to "adjust" active listings in an appraisal.

Truth: While comparables are addressed in USPAP as "comparable sales," active listings can provide valuable insight as current competition offering buyer alternatives. Nowhere does USPAP prohibit the use of active (or withdrawn, expired or pending) listing data. Closed sales provide the basis for extracting adjustments for relevant characteristics but do not show the reality of a current buyer's view. Analysis of the available competition helps to validate the theory of substitution. Carefully screening listing data is just as important as screening sales data and is part of the overall data-gathering process. Identification or labeling of such data in the report as "not sold" or "active" can prevent the user from mistaking them as closed sales when, in fact, they are not.

Misconception Seven - A valuation may be completed that has any unusual or client-requested condition as long as it is identified as a "hypothetical condition."

Truth: Not all conditions are hypothetical conditions. The Comment to Standards Rule 1-2(g) states that a hypothetical condition may be used in an assignment only if use of the hypothetical condition is clearly required for legal purposes, or purposes of reasonable analysis or comparison. Furthermore, the use of the hypothetical condition must result in a credible analysis, and the appraiser must comply with USPAP disclosure requirements. To state that a value based on a hypothetical condition was completed for "reasonable analysis or comparison," whereas market conditions or external or functional obsolescence are "ignored/omitted" just so the user can "observe the effect," is to produce an appraisal that does not yield credible results. Note: Valuations with hypothetical conditions are not "hypothetical values" but are values based on hypothetical conditions.

Misconception Eight - The ASB prohibited appraisal updates in 2005.

Truth: The term "update" is often used by clients when they are seeking a current appraisal of a property that was the subject of a prior assignment. In 2005, AO-3 was revised clarifying that an "update" was not an extension of a prior assignment but a new assignment. Based on that revision, three ways to satisfy reporting the need to provide a more current valuation are to: 1) provide a new report without incorporation, 2) provide a new report that incorporates by attachment, and 3) provide a new report that incorporates by reference (must be original firm and original intended user; see AO-3 for details). The new assignment does not also mean starting over from "scratch." The option used and the scope of work for the new assignment should take into consideration the user's expectations, additional assignment conditions, changes to the property, duration of time since prior assignment and, of course, the appraisal problem.

Misconception Nine - Those who provide significant appraisal assistance need only to be named in the certification.

Truth: While SR 2-3 does state that "the name of each individual that has provided significant real property assistance must be stated" in the certification, it is also noted as a reporting requirement under SR 2-2(a), (b) and (c)(vii) that a summary of the extent of that assistance be provided. While USPAP dos not define "significant real property assistance," there is guidance to assist appraisers in determining what constitutes assistance. The term "significant' means the contribution must be of substance: A person who collects or gives information but does not analyze does not provide significant appraisal assistance. Reference to "appraisal assistance" requires appraiser competency or a contribution related to the appraisal process.

Misconception Ten - What is credible for one use must be credible for another.

Truth: The key concept here: credible for the intended use. A different scope or use could result in a different solution (value) to the appraisal problem. As it relates to the Scope of Work Rule - "credible assignment results require support by relevant evidence and logic to the degree necessary for the intended use" - Black's Law Dictionary defines credible as "worthy of belief." There is no "one size fits all" approach in solving appraisal problems. In other professions, there are different types of medical exams, accounting audits and legal briefs. Simply put: If one were to have a carpenter build a shelf, the scope of the design (strength, width, length) would be in accordance with the intended use of the shelf. Likewise, the user of an appraisal can be harmed if the use is not as intended based on the agreement at the time of the assignment.

[This article originally appeared in the First Quarter 2010 issue of Valuation magazine. Copyright 2010. The Appraisal Institute. All rights reserved.]

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Marcia Hultman, Secretary
123 W. Missouri Ave.
Pierre, SD 57501-4505
Tel. 605.773.3101
Fax. 605.773.6184