Editors Note: The American Society of Appraisers is the acknowledged leader in appraisal review and management (ARM). Three-quarters of a century in appraisal education count when you want the finest service in ARM.
ASA sat down with Karin Lusnic, ASA , Roger P. Durkin, FASA and Robert Podwalny, FASA for a little Q&A to learn more about the Appraisal Review and Management discipline at ASA.
Q: How has the appraisal review and management specialty changed over the past five years?
KL: As a practitioner in Slovene appraisal environment (part of EU) I can say that we noticed an increased interest for professional appraisal reviews in past 2-3 years, driven mostly by banks and auditors (especially on real estate segment). Rather than relying on in house reviews, users of valuation reports are now more often requesting assistance of professional reviews. On the other hand request for structured professional reviews in court cases or in other transactions are at this point still low.
In part, the increased interest for appraisal review (in our case) can also be attributed to new local (Slovene) appraisal review standard (effective as at beginning of 2014) that puts appraisers under similar set of requirements as USPAP 3.
RD: Appraisal Review has moved away from & Management. There is a fast growing appraisal review practice. Dodd Frank Statute mandated that all appraisals for bank be reviewed meaning a USPAP Standard 3 Review.
RP: ARM was originally formed to find a way for executives and owners of large appraisal companies to become members of the ASA. These were individuals who did not actually do appraisal but managed the appraisal activities of their respective companies. Later when ASA merged with a governmental appraisal society, it was a way to recognize and bring in those members into ASA. More recently, as an outfall of the financial institutions near total collapse for the second time in less than 25 years, the governmental regulators recognized that part of the problem was due to faulty appraisals, and recognized that there were no regulatory national appraisal standards for appraisers. Thus, the Appraisal Foundation came into being. This was the initial step that lead to the recognition that not only were standards necessary but there was a need for reviewers of appraisals as well. The Dodd-Frank Bill was passed to help avert problems in the future. One of the provisions was that stated that appraisals performed for federally insured financial institutions, required an independent process of hiring appraisers and having the appraisals reviewed.
Q: What new trends do you see impacting those who specialize in this area?
KL: It can be argued that appraisal review in our environment is at a “start-up” phase and could potentially be impacted the most by banks (based on European Banking regulation requirements). At this stage it is difficult to speculate how the profession will be impacted. I believe however that this could lead to increased interest in appraisal review education on the side of banks and to potential formation of ARM specialized companies in the long run. The next new trend is probably litigation.
RD: The latest trend is litigation. Appraisers seldom were sued. Today, appraisers are regularly sued for negligence, gross negligence, etc. Appraisers should be aware that the appraisal report affects someone’s wealth and as such makes the appraiser more and more vulnerable to criticism and damage suits.
RP: Over the last several years, I have seen a number of companies spring up offering appraisal review services. I believe ASA was the first to recognize the need. Roger Durkin, FASA, became Chair of the Committee and the committee was reorganized and through his efforts a new set of courses were developed. We have seen over 150 people go through the classes and the ARM designated appraisers grow from the low 30’s to where we are now ~65+. In discussions that I have had with the OCC and various financial institutions, they all indicated that as the Dodd-Frank Bill is fully implemented, this will require many appraisal reviewers for not only real property but for personal property and business valuations in the next few years.
Q: Why should appraisers from other specialties consider educating themselves on related issues?
RD: All disciplines would benefit from the ARM courses, particular the practice sessions that teach how to “objectively” critique another appraiser’s work. Too many appraisers apply their own view on whether another appraisal report is proper. This leads to subjective and sometime liable… for which the appraisal can be sued.
RP: First and foremost are that so many appraisal reports leave a lot to be desired because so many appraisers do not know how to write an appraisal report in the first place. The individuals, who are self-employed or leave a big company to go out on their own, then have to learn how to write the report. Unfortunately, many of the classes offered in report writing fall short and or are preaching dogma. Dogma is what has been passed down over time by practicing appraisers over generations.
To become a reviewer of appraisals, one must be able to know what an appraisal is and understand the standards the appraisal reports are measured against. It is important to teach the reviewer to maintain objectivity and keep the “I” or “We” out of the review. It is also important to only focus on the work product and not start criticizing the individual.
KL: On this point I fully agree with what RD and RP have already said above. I can only add that reviewing an appraisal is much more challenging compared to conducting a valuation report. One must be aware of technical issues such as valuation theory, has to know the standards,…etc, however also be aware of the ethics.
Q: What is the greatest potential growth for ARM?
KL: Being from Slovene (Europe) environment I can only comment on potential for ARM development in our region. In my opinion the potential is there, however it will at a first stage require better understanding of valuation review (what they can get out of it) by users.
RD: The greatest potential for ARM growth has been and is now bringing into ASA a portion of the nearly 100,000 State Certified Real Estate Appraisers. Review is big business in the market for federally related appraisals.
RP: I see the potential for growth in the ARM discipline to continue as it has over the last few years and eventually become the premier discipline within ASA. I see a potential of over 100,000 potential individuals taking the ARM Classes. This would include the State certified licensed appraisers who do not already a member of any professional society. I also see that the loan and credit officers of financial institutions would also benefit as well as the IRS appraisal review agents as well.
Q: Does ARM represent a global opportunity for ASA?
KL: I would say yes. To my understanding ARM courses by ASA are already taught internationally, so there is a need for that. It however needs to be understood that development of valuation profession or valuation profession organizations (VPOs) in Europe varies a lot from country to country and from discipline to discipline. You have countries with very developed valuation profession and structured set of standards on one hand, while on the other hand you would have countries where valuation policies are only being put in place. This of course results in different educational requirements in different potential for appraisal review growth.
RD: Yes and no. I taught a review course for the Slovenian Appraisers a few months ago. Their standard of practice is the principles based International Valuation Standards. Slovenia is the only country in the world that has adopted IVS as the law. In the U.S. real estate state certified appraiser have statutory USPAP. IVS is principles based standards and therefore open to wide interpretation. Some like that idea because there are no ‘rules’. However, when the regulators turn on you, the situation would be far better if there were clear ‘rules’ instead of principles. Remember Barbarossa speaking to Sparrow in the Pirates of the Caribbean… He said, ‘the pirate code is not rules you see, they’re more like guidelines.”
RP: It is a definite yes. This is demonstrated by having already members of ASA with a designation in ARM in other countries. As a matter of fact, the ARM Discipline for the first time is putting on a full series of educational programs at the upcoming ASA International Conference. Some of our presenters are individuals who hold an ARM designation and are from Russia and Slovenia. The presenters in the ARM educational sessions are individuals who hold high positions in these international arenas and have a wealth of insight as to the potential growth of the ARM discipline globally. The global attention of ARM is in part driven by the proposed convergence between the Appraisal Foundation and the International Valuation Standards Committee. Both groups have recognized the need for qualified reviewers and common standards.
Q: Can you give us some background information on the pre conference courses ARM204 and ARM207 that are being offered prior to ASA’s 2015 International Appraisers Conference in Las Vegas?
KL: I sat in on the ARM 207 course that was offered in Slovenia. It is a well-designed 2 day course that provides a basic full overview of what appraisers need to know when doing appraisal review.
RD: ARM204 is tentatively scheduled for the October 15-18, before the conference starts ARM207 is a 2-day course that we also put on in Slovenia. In addition, I am doing an hour on Tuesday related to the Court/Litigation and Appraisal Review.
RP: The ARM 204 class is one of the two POV classes (the other ARM201) that are required to be taken by already designated appraisers to get a second designation for appraisal review in their discipline. The Board of Governors passed a special provision to assist individuals who are or want to be reviewers in their discipline only.
The ARM 207 is a special introductory 2 day course that was designed to provide an overview of what the ARM discipline is about. It covers its history and the events that have occurred that has created the need for the ARM designation. It also provides a detailed overview that covers briefly the four POV courses explaining what the participants will gain from them as well as what the anticipated future of appraisal review will hold.
Q: What is special about the ARM offerings being presented during the Monday through Wednesday sessions at the 2015 International Conference this year in Las Vegas?
RP: First, this is the first time the ARM discipline has put together a separate program for the entire conference. During the planning sessions, we strove to get the most high profile individuals to be speakers, from all over the world who are in high positions in their respective corporations and have valuable information to share with appraisers about issues affecting their work in appraising and appraisal review. We have succeeded in achieving that goal. Not only are our speakers well known and respected globally but they are in strategic positions to bring important up to date issues affecting the appraisal profession from a domestic as well as international perspective. I urge all attending the conference not to miss this opportunity to gain valuable insight into the valuation issues and challenges. This is especially true with the convergence of GAAP and the International Accounting Standards and the convergence of the USPAP and IVSC standards as well. This is the new frontier!
Karin Lusnic, ASA is a licensed business valuation appraiser, holding Accredited Senior Appraiser (American Society of Appraisers), ARM and Slovene Business Valuation appraiser designations. She is a member of Appraisal committee at the Slovene Institute of Auditors, member of Advisory Forum Group at IVSC and member of marketing committee at IIBV.
Roger P. Durkin, FASA is a Boston attorney and appraiser. His law firm durkinlawpc.com defends appraisers before the state license board.
Robert (Bob) Podwalny, FASA is the current Chair of ARM Committee, past chair of MTS Committee, Past Governor, Past Education Committee Chair, Vice Chair BOE for ARM &MTS, A fellow of ASA, Past Executive VP Union Bank Commercial Leasing, Sr.VP Bank of America Leasing, POV Course developer for ARM & MTS and Sr. instructor Contributing author to all three editions of Valuing M&E.
Editors Note: Thank you Karin, Roger and Bob for taking the time to discuss ASA’s ARM discipline with us.
For the first time, ASA’s ARM committee is offering a full schedule of educational sessions for the 2015 International Appraisers Conference. These sessions are incredibly valuable for ARM appraisers but also to appraisers of other disciplines. To view the full conference ARM schedule, click here.
To learn more about ASA’s ARM offerings, visit our website here.