Does "Linking in" with Agents and Brokers Violate USPAP?

Appraisers live and bleed by USPAP. The Uniform Standards of Professional Appraisal Practice. Anyone that's ever been through appraisal school knows that getting ready for the USPAP test is like nurses getting ready for the NCLEX. It's gruelling, boring (for a lot of us), regulatory-based study, sometimes involving points as obscure, convoluted, or eccentric as the pecking order in a mediaeval bureacracy.

One of the concepts essential to professional appraisal practice, and central to the USPAP, is the "arms length transaction". The key application, we're looking at here, is that the appraiser is adhering to a set of professional practices independent of any influence by lenders, mortgage brokers, agents, buyers, sellers, or other parties or biases. So far, everything we've said is something every appraiser knows. So is the fact that sometimes there is "pressure".

The desire to avoid the appearance of (or actual) violation of USPAP in this regard motivates some appraisers to question social networking techniques, in light of the incredible shift of the online atmosphere, the conglomeration of relationships, and the new marketing techniques brought on by web 2.0 - the social web - social media and social networking, from LinkedIn to Facebook. This new atmosphere of social and professional networking, and the marketing techniques that go with it, are more recent than USPAP and, as appraisers are confronted with this evolution of human interfacing, there are legitimate concerns. As real estate professionals "link in" to one anothers' profiles, post comments to each others' blogs, and participate in shared spaces, what are the implications for "arms length transactions"?

Consider the following internet marketing components:
(We won't go into how these tie together and integrate into an overall and effective internet marketing plan. Right now, the point is USPAP).

• Including client testimonials pages on your web site, with positive comments from agents, brokers, buyers, and sellers
  
• Asking clients (e.g. lenders) to link back to your site
• Including "area professionals" pages on your site, linking to recommended businesses that may include agents, mortgage brokers, etc.
• Linking profiles in a social networking medium like LinkedIn or Facebook
• Being reviewed in social networking venues

These are some of the most basic internet marketing, search engine optimization, and social networking techniques. As part of an overall internet marketing plan, they're proven, they tend to generate increased traffic, enhance search engine position, drive more clients to your site and, importantly, convert prospects/visitors into contacts/clients. But again, what about USPAP - does it allow this?

First of all, I'm no legal expert, and not a USPAP expert, despite having been through appraisal school. So, I'm not going to offer legal advice, or render a fixed opinion on USPAP and appraisal practice. The truth is, though, that however rigid USPAP may seem, how it has been interpreted and applied has varied, evolved, and will likely have to continue to do so, in light of new technologies. Just as with the concept of copyright - when you download a song on your IPOD, do you "own it"? Can you copy it, share it, upload it, modify it, keep it on multiple devices, convert it for use in your car or your home stereo, make a cassette copy, include it in a video, post that video to youtube, put the lyrics on your web site, or make a comical "take-off" version of it for a social media site? The definitive answer? There isn't one. It's not that clear. And it's going to take time to work it out.

With Social Networking, there are lots of appraisers using it, and using it to even enhance, extend, and support their industry, to further the practice of ethical appraising, to foster ethical and appropriate exchanges of insight with other real estate professionals, to gain industry knowledge and local expertise, and yes to market their services. These appraisers seem to be ethical, conscientious, professional appraisers who are adhering to the standards.

Is there potential for violation? Yes. The same is true if you socially network by eating at the one diner in your town every morning, at the same table as a local lender, agent, etc. Or you attend the same worship service. Or your kids go to school together. So where is the line? The line seems to be in the intent, in the outcome, and in the actual conduct of the appraisal. That's not a legal opinion - it's just an external observation.

Personally, I'm an advocate of marketing your business. If marketing were a USPAP violation, you couldn't appear in the same ad pack as a mortgage broker. But let's go farther - how many of you are married to a real estate agent or loan broker? Do you file a joint tax return? Do you pool your income? Do you pay for marketing, for web sites, for whatever out of the same pool? Well, we always suggest you get an LLC anyway.** But that said, do you work in the same house? Perhaps  you don't ever share the same clients - maybe one of you turns them away. But don't you each give referrals then, to someone in the industry? See - if merely being "seen together" or collaborating in any capacity, is a USPAP violation, we're all in a lot of trouble. Heck, some companies employ agents, mortgage professionals, and appraisers in-house!

At some point, whether or not you're arms length depends on whether you're actually doing the things we know you're not supposed to do - namely, allowing formal or informal relationships to influence a determination of value.

I asked an experienced colleague to comment on this topic, presenting him with the questions, issues, and examples above. This is what he said:

To begin with: The single most common appraiser objection (to anything) is “it’s not USPAP compliant”.  This particularly comes up whenever you discuss good business practice because USPAP is vague enough that many people interpret it to mean that you have to run a sweat shop to be a legal appraiser.  It’s a Fear, Uncertainty, and Doubt thing.

What about the marketing techniques I've mentioned?: What you’re describing here is just good business practice.  You see this anywhere you find good businesses.  Testimonials, references to other services, etc.  That’s just taking good care of your clients.  To interpret “arms length” as a precaution against that would mean you couldn’t do business (at least not professionally) in the ways the rest of the world does good business.

So what might a real violation look like?:  An “arms length” transaction is one that’s not particularly close to home.  In other words, you’re doing the transaction at an “arms length” – not in each other’s arms. Ahem… If the mortgage broker kept taking the appraiser out to lunch to discuss home values on the active loans he’s working or offered kickbacks for meeting value that’s an entirely different situation.   I believe the “arms length” stipulation is there to prevent an appraiser and lender or mortgage broker from getting closely involved with each other to the point where there’s either a financial incentive to meet value OR some other kind of incentive (like a close relative).  That would not be an “arms length” transaction because it is not be one that was purely influenced by the market.  There are other factors influencing that transaction.

In summary: So how would a testimonial or link (a different form of testimonial) alter the “realness” of a transaction?  And how significant is that really? Then, also keep in mind that many appraisals don’t have anything to do with the loan market.  While the “arms length” stipulation would still apply, there’s no incentive for an appraiser to meet value in the non-lender market.  Just some food for thought.

Related Links:

Pressure: (Note: we endorse the contents of these or any other articles)
Lender Pressure and Appraiser Independence-Gimme Shelter
Appraisers Under Pressure

**LLC (Limited Liability Company)
(Protects your assets, while minimizing your paperwork. Taxes: can still file Schedule-C).