ALJDEC decisions subject to certification as final

08F-2586-BOA · Board of Appraisal · 2009-09-29

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

HEARING: September 23, 2009 at 9:00 a.m. APPEARANCES: The Arizona State Board of Appraisal appeared through Jeanne M. Galvin, Esq., Assistant Attorney General; Respondent Mark L. Andrews did not appear. ADMINISTRATIVE LAW JUDGE: Diane Mihalsky _____________________________________________________________________

FINDINGS OF FACT 1. The Arizona Board of Appraisal (“the Board”) has been authorized and entrusted by the Arizona legislature to regulate the appraisal profession in the State of Arizona by issuing licenses, investigating complaints, and disciplining licensees. 2. In December 1995, the Board issued Certified General Appraiser Certificate No. 30830 to Respondent Mark L. Andrews. That certificate is currently scheduled to expire on December 31, 2009. 3. On March 17, 2008, the Board received an anonymous complaint against Respondent and Alan Weiner that alleged that their violations of the Uniform Standards of Appraisal Practice (“USPAP”) and Arizona law in an appraisal report of a residential property located at 5100 N. 24th St. in Phoenix, Arizona had resulted in an inflated value. Respondent was the supervisory appraiser on the appraisal report. 4. The complaint against Mr. Weiner was not at issue at the hearing in this matter. 5. On March 25, 2008, the Board provided a copy of the complaint to Respondent and requested that he respond and provide a copy of his work file. 6. On April 18, 2008, Respondent provided a written response to the complaint to the Board, in which he denied any statutory, regulatory, or USPAP violations. Respondent also provided the new address of 5049 W. Vogel Ave., Glendale, AZ 85302. 7. Respondent also provided to the Board a copy of his appraisal report, which had an effective date of January 19, 2006, and a copy of his work file. The print date of the supporting documents provided was April 4, 2008. 8. The Board assigned the complaint for investigation to contract investigator Richard L. Kloc, MAI, SRPA, SRA, who is a certified general appraiser in Arizona. 9. On July 19, 2008, Mr. Kloc issued an investigative report to the Board. 10. The Board subsequently referred the matter to the Office of Administrative Hearings, an independent agency, to schedule and to conduct a fair hearing. 11. On August 18, 2009, the Board issued a Complaint and Notice of Hearing, setting an administrative hearing for September 23, 2009 at 9:00 a.m. and charging Respondent with a violations of USPAP, 2005 edition: Standards Rule 1-1(a); Standards Rule 1-1(b); Standards Rule 1-1(c); Standards Rule 1-4(a); Standards Rule 1-4(b)(i) and (ii); Standards Rule 1- 5(c); Standards Rule 2-1(a); Standards Rule 2-2(b)(ix); Standards Ethics Rule – Record Keeping; Standards Competency Rule; and A.R.S. § 32-3635. 12. The Complaint and Notice of Hearing was sent to Respondent via certified and regular mail to his most recent address of record on 5049 W. Vogel Ave., Glendale, AZ 85302. 13. The Board submitted the United States Postal Service Track & Confirm receipt for the Complaint and Notice of Hearing, which showed that the certified mail was delivered on September 9, 2009. The copy of the Complaint and Notice of Hearing sent via regular mail was not returned to the Board. 14. Although the beginning of the duly noticed hearing was delayed fifteen minutes to allow Respondent additional travel time, he neither appeared personally or through an attorney, contacted the Office of Administrative Hearings to request a continuance or that the time for the hearing be further delayed, nor presented any evidence to defend his license. 15. The Board presented the testimony of its Executive Director Deborah G. Pearson and Mr. Kloc and submitted ten exhibits. 16. Mr. Kloc provided expert testimony to establish the conclusions of this investigative report, which provided the bases of the Board’s Complaint and Notice of Hearing, as follows: a. Public Records and the Multiple Listing Service (“MLS”) show the subject property closed escrow on July 29, 2005 for a recorded price of $1,155,000. Although this prior sale of the subject is disclosed in the subject appraisal report, Respondent failed to include any discussion or analysis to reconcile this prior sale with the estimate of market value communicated in the current report, which was $1,755,000. b. Respondent identified the condition of the subject as “good” in the appraisal report, but he failed to include the cost figures for a list of recently completed features included in the Supplemental Addendum. c. The Sales Comparison Approach identifies six properties as comparables for the subject. Based upon the boundaries identified in the Neighborhood Section of the appraisal, four of the six comparables are outside of the subject neighborhood. Only Comparable No. 5 is located within close proximity of the subject (less than one mile from the subject). d. With respect to Comparable Sale No. 5, according to the subject appraisal report, this property is located at 2311 E. Colter Street in Phoenix, Arizona and sold on January 10, 2006 for $1,700,000. A search of the Arizona Regional Multiple Listing Service (“ARMLS”) did not report this transfer as a sale. Maricopa County Public Records Document No. 06-0040074 identified this transfer as being between related parties and as being exempt from filing an Affidavit of Property Value. Thus, a sales price is not reported in the public records. The document containing this information is included in the appraiser’s work file that was provided to the Board. Comparable No. 5 does not appear to be an actual closed sale. e. In the adjustment grid of the appraisal report, the location of Comparable No. 5 is identified as “Fronts Traffic.” However, the location of this comparable is on an interior residential street that ends at 18th Street, two blocks west, as compared to the subject’s busy arterial location. An upward adjustment is made to this comparable for “Site.” The size of this comparable is reported as 0.85 acres and the size of the subject site as 1.35 acres. An upward ($20,000) adjustment is made to Comparable No. 5 for this difference. However, Maricopa County Records reports the site area of Comparable No. 5 as 2.39 acres, which is actually over an acre larger than the subject parcel. f. Data sources listed as confirmation of Comparable No. 2 are public records and MLS. A search of the ARMLS did not report any information pertaining to this property. No MLS information was contained in the appraiser’s work file. g. Downward adjustments are applied to Comparable Nos. 2, 3, 4, and 6 to reflect the subject’s exposure to traffic, due to its location along a busy arterial street. Based upon the sales prices of the comparables, this adjustment represents slightly more than one-half of one percent of the sales prices of these comparables. h. Size adjustments made to the comparables in the Sales Comparison Approach are based upon a per unit rate of $135 per square foot. However, the replacement cost figure (new) used in the Cost Approach is $103.89 per square foot. It is unreasonable for the per unit adjustment for size in the Sales Comparison Approach to exceed the cost new figure. The livable area of Comparable No. 6 reported in the adjustment grid is 463 square feet smaller than the reported livable area of the subject, yet no size adjustment is made to this comparable. i. On page 11 of the Supplemental Addendum, lot size adjustments are reportedly based upon $100,000 per acre, with incremental differences adjusted at $1.00 per square foot. The actual adjustments made to the comparables range between $0.82 and $2.32 per square foot. No explanation for this difference is provided in the narrative of the report. The land value estimate used in the Cost Approach is $1,400,000. Based upon the size of the subject site, this estimate reflects a unit price of $1,037,037 per acre or $23.81 per square foot. The incremental adjustments made to the Sales Comparison Approach are inconsistent with the site value estimate in the Cost Approach. The work file provided to the Board does not contain any land sales or analysis to support any of the land value estimates. j. In researching the subject’s immediate neighborhood two properties were discovered in ARMLS that were marketed as possible teardowns, or needing updating. Both of these properties were on the market within one mile of the subject property as of the effective date of the appraisal. The improvements on both of these properties were subsequently demolished. These active listings tend to set the upper limit to value for the subject site. k. Two improved properties located within 1.25 miles of the subject are closer in proximity and more current than other sales used as comparables in the appraisal. l. Three of the comparables used in the subject report (Comparable Nos. 1, 4, and 6) are located in the Town of Paradise Valley. Other than a small adjustment for Traffic Noise, no adjustment was made to these comparables for location. Land prices are between 14% and 18% higher in the Town of Paradise Valley than in the immediate subject neighborhood. m. The Site Description on page 4 of the subject appraisal states, “The subject fronts a busy street and sides a commercial building and traffic noise can be heard from the front of the residence.” Downward adjustments (although minimal -$10,000) are applied to the comparables that are located along interior residential streets. However, an adjustment for External Obsolescence is missing in the Cost Approach. It is inconsistent to adjust the comparables in the Sales Comparison Approach for External Depreciation, and omit any adjustment on the Cost Approach. n. Since the subject appraisal is identified as a Summary Appraisal Report, the contents of the appraiser’s work file are considered as additional support. The work file provided to the Board for investigation lacks any handwritten notes or analysis. All of the pages contained in the work file are dated April 4, 2008, clearly produced after the effective date of the appraisal. The file does not include any type of engagement letter, order, fax, or any other communication or correspondence with the client. No working notes or sketch of the subject improvements were contained in the file provided. 17. The Board submitted Substantive Policy Statement #1, which it adopted on July 21, 2005 to establish guidelines for resolution options for violations of increasing severity. Ms. Pearson testified that the Board considered Respondent’s violations to be Level IV violations, which Substantive Policy Statement #1 defined as follows: Significant violations found. Violations of ethics and/or competency may be found. Violations found to rise to the level of affecting the credibility of the assignment.

18. As a factor in aggravation of the penalty, the Board submitted a copy of Respondent’s acceptance of a non- disciplinary letter of remedial action in Case No. 2025 for possible violation of the ethics rule regarding record keeping. The Board also submitted a copy of the fully executed Consent Agreement and Order in Case No. 2325, dated September 21, 2007, in which Respondent had admitted to certain statutory violations and, as a result, had agreed to have his appraiser certificate suspended for 30 days and then placed on disciplinary probation for six months. CONCLUSIONS OF LAW 1. The notice of the hearing that the Board mailed to Respondent at his address of record was reasonable and Respondent is deemed to have received notice of the hearing.[1] 2. This matter lies within the Board’s jurisdiction.[2] 3. The Board bears the burden of proof and must establish Respondent’s statutory violation by a preponderance of the evidence.[3] “A preponderance of the evidence is such proof as convinces the trier of fact that the contention is more probably true than not.”[4] A preponderance of the evidence is “[t]he greater weight of the evidence, not necessarily established by the greater number of witnesses testifying to a fact but by evidence that has the most convincing force; superior evidentiary weight that, though not sufficient to free the mind wholly from all reasonable doubt, is still sufficient to incline a fair and impartial mind to one side of the issue rather than the other.”[5] 4. Licensed and certified appraisers in Arizona are required to comply with USPAP.[6] 5. The Board has established that Respondent in his appraisal of the subject property violated USPAP, 2005 edition: Standards Rule 1-1(a); Standards Rule 1- 1(b); Standards Rule 1-1(c);[7] Standards Rule 1-4(a); Standards Rule 1-4(b)(i) and (ii);[8] Standards Rule 1- 5(c);[9] Standards Rule 2-1(a);[10] Standards Rule 2- 2(b)(ix);[11] and Standards Ethics Rule – Record Keeping;[12] Standards Competency Rule.[13] 6. With respect to the penalty, the prior disciplinary order and probation did not prevent Respondent from committing the significant violations in this matter. A more severe penalty is warranted. RECOMMENDED ORDER Based on the foregoing, it is recommended that, on the effective date of the Board’s final order in this matter, that the Board suspend Respondent Mark L. Andrews’ Certified General Appraiser Certificate No. 30830 for six months. During the six-month term of Respondent’s disciplinary suspension, he shall be required to successfully complete the following education: 1) A minimum of eight (8) hours in ethics; 2) A minimum of three (3) hours in Fannie Mae; 3) A minimum of six (6) hours in fraud and legal issues; 4) A minimum of seven (7) hours in market and trend analysis; 5) A minimum of fifteen (15) hours in qualifying report writing, with an examination; 6) A minimum of thirty (30) hours in qualifying sales comparison approach, with an examination; 7) A minimum of seven (7) hours in Uniform Residential Appraisal Reports (“URAR”); and 8) A minimum of fifteen (15) hours in qualifying cost approach, with an examination. Respondent cannot use any of these additional hours of education to renew his certified general appraiser certificate. Completion of the minimum number of required hours shall be required for reinstatement of Respondent’s certified general appraiser certificate. Done this day, September 29, 2009.

______________________________________ Diane Mihalsky Administrative Law Judge

Original transmitted by mail this ____ day of __________, 2009, to:

Deborah G. Pearson, Executive Director Board of Appraisal 1400 West Washington, Suite 360 Phoenix, AZ 85007

By ___________________________ ----------------------- [1] See A.R.S. §§ 41-1092.04; 41-1092.05(D). [2] See A.R.S. § 32-3601 et seq. [3] See A.R.S. § 41-1092.07(G)(1); A.A.C. R2-19-119; see also Vazanno v. Superior Court, 74 Ariz. 369, 372, 249 P.2d 837 (1952). [4] Morris K. Udall, Arizona Law of Evidence § 5 (1960). [5] Black’s Law Dictionary at page 1220 (8th ed. 1999). [6] See A.R.S. § 32-3635(A) and (B); A.A.C. R4-46-401 (promulgated by the Board under the authority of A.R.S. § 32-3605(B)(1)). [7] Standards Rule 1-1 provides in relevant part as follows:

In developing a real property appraisal, an appraiser must:

(a) be aware of, understand, and correctly employ those recognized methods and techniques that are necessary to produce a credible appraisal;

(b) not commit a substantial error of omission or commission that significantly affects an appraisal;

Comment: In performing appraisal services, an appraiser must be certain that the gathering of factual information is conducted in a manner that is sufficiently diligent, given the scope of work as identified according to Standards Rule 1-2(f), to ensure that the data that would have a material or significant effect on the resulting opinions or conclusions are identified and, where necessary, analyzed. Further, an appraiser must use sufficient care in analyzing such data to avoid errors that would significantly affect his or her opinions and conclusions.

(c) not render appraisal services in a careless or negligent manner, such as by making a series of errors that, although individually might not significantly affect the results of an appraisal, in the aggregate affect the credibility of those results.

[8] Standards Rule 1-4 provides in relevant part as follows:

In developing a real property appraisal, an appraiser must collect, verify, and analyze all information applicable to the appraisal problem, given the scope of work identified in accordance with Standards Rule 1-2(f).

(a) When a sales comparison approach is applicable, an appraiser must analyze such comparable sales data as are available to indicate a value conclusion.

(b) When a cost approach is applicable, an appraiser must:

(i) develop an opinion of the site value by an appropriate appraisal method or technique;

(ii) analyze such comparable data as are available to estimate the difference between the cost new and the present worth of the improvements (accrued depreciation).

[9] This rule requires that, “[i]n developing a real property appraisal, when the value opinion to be developed is market value, an appraiser must, if such information is available to the appraiser in the normal course of business: . . . analyze all sales of the subject property that occurred within the three (3) years prior to the effective date of the appraisal.” [10] Standards Rule 2-1(a) requires that “[e]ach written or oral real property appraisal report must . . . clearly and accurately set forth the appraisal in a manner that will not be misleading.” [11] Standards Rule 2-2(b)(ix) provides in relevant part as follows:

The content of a Summary Appraisal Report must be consistent with the intended use of the appraisal and, at a minimum: . . . .

(ix) summarize the information analyzed, the appraisal procedures followed, and the reasoning that supports the analyses, opinions, and conclusions . . . .

Comments: The appraiser must be certain that the information provided is sufficient for the client and intended users to adequately understand the rationale for the opinions and conclusions, including reconciliation of the data and approaches, in accordance with Standards Rule 1-6.

When reporting an opinion of market value, a summary of the results of analyzing the subject sales, options, and listings in accordance with Standards Rule 1-5 is required. If such information is unobtainable, a statement of the efforts undertaken by the appraiser to obtain the information is required. If such information is irrelevant, a statement acknowledging the existence of the information and citing its lack of relevance is required.

[12] This rule requires an appraiser to prepare a work file for each appraisal. The work files must include “all other data, information, and documentation necessary to support the appraiser’s opinion and conclusions and to show compliance with [the ethics rule] and all other applicable Standards, or references to the location(s) of such other documentation.” Appraisers must retain the work file for at least five years after preparation of the report. [13] This rule requires that, “[p]rior to accepting an assignment or entering into an agreement to perform any assignment, an appraiser must properly identify the problem to be addressed and have the knowledge and experience to complete the assignment competently; or alternatively, must . . . take all steps necessary or appropriate to complete the assignment competently . . . .”

-----------------------

Office of Administrative Hearings 1400 West Washington, Suite 101 Phoenix, Arizona 85007 (602) 542-9826