99-000856 Florida Real Estate Appraisal Board vs. David B. Combs Status: Closed Recommended Order on Thursday, September 30, 1999.

Summary: Petitioner agency proved appraiser committed culpable negligence and lack of due diligence by rendering appraisals without consulting readily available data and by making excessive adjustments to comparable sales property values and descriptions.

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

DEPARTMENT OF BUSINESS AND )

PROFESSIONAL REGULATION, DIVISION )

REAL STATE, )

)

Petitioner, )

)

vs. ) Case No. 99-0856

)

DAVID B. COMBS, )

)

Respondent. )

______________________________________)

RECOMMENDED ORDER

This cause came on for formal hearing as noticed before

P. Michael Ruff, duly designated Administrative Law Judge of the

Division of Administrative Hearings. The hearing was conducted

on May 7, 1999, in Shalimar, Florida.

APPEARANCES

For Petitioner: Laura McCarthy, Esquire

Department of Business and

Professional Regulation

Division of Real Estate

Suite N-308

Hurston Building, North Tower

400 West Robinson Street

Orlando, Florida 32801-1772

For Respondent: David Combs, pro se

2567 Oleander Lane

Navarre, Florida 32566

STATEMENT OF THE ISSUE

The issue to be resolved in this proceeding concerns whether

the Respondent's Florida Real Estate Appraiser's License should

be subjected to sanctions, based upon the charges of culpable

negligence or breach of trust in a business transaction, in

violation of Section 475.624(2), Florida Statutes; alleged

failure to exercise reasonable diligence in developing an

appraisal report, in violation of Section 475.624(15), Florida

Statutes; and violation of various of the Uniform Standards of

Professional Appraisal Practice, in consequent violation of

Section 475.624(14), Florida Statutes (1995).

PRELIMINARY STATEMENT

This cause arose upon the filing of an Administrative

Complaint by the Petitioner agency against the Respondent on

January 6, 1999. The complaint alleges that the Respondent

violated the above-referenced legal authority concerning the

preparation of two appraisal reports; one with an effective date

of November 27, 1995, and the other with an effective date of

February 5, 1996. The Respondent disputed the allegations and

requested a formal proceeding in accordance with Section

120.57(1), Florida Statutes.

The cause was ultimately assigned to the undersigned

Administrative Law Judge of the Division of Administrative

Hearings. A formal hearing ensued and was held pursuant to

appropriate notice on May 7, 1999. The Petitioner called three

witnesses at the hearing and offered Petitioner's Exhibits one

through eleven into evidence. Petitioner's Exhibit one, as well

as Petitioner's Exhibits three through eleven were received into

evidence. The Respondent's Exhibit one was received into

evidence; however, the Respondent offered no witnesses to

testify. Official recognition was taken of Chapters 455, 475 and

120, Florida Statutes, as well as Rule 61J-1, Florida

Administrative Code.

Upon concluding the proceeding, the parties ordered a

transcript thereof and elected to seek an extended briefing

schedule which was granted. Additionally by the Petitioner's

motion, the parties were granted an additional extension on

submitting Proposed Recommended Orders. Those Proposed

Recommended Orders have been considered in the rendition of this

Recommended Order.

FINDINGS OF FACT

1. The Petitioner is an agency of the State of Florida

charged with regulating and enforcing the licensure and practice

statutory provisions pertaining to licensed real estate

appraisers, particularly the provisions of Chapter 475, Florida

Statutes and Rules promulgated thereunder.

2. The Respondent is a state-certified real estate

appraiser having been issued License Number RD0001619 pursuant to

Part II of Chapter 475, Florida Statutes. The license was issued

for the address of 2567 Oleander Lane, Navarre, Florida 32566.

There is no evidence that the Respondent's licensure has

previously been the subject of a disciplinary action. The

Respondent's sole means of livelihood is his work as a

professional appraiser with this license.

3. There has been no proof of harm to a consumer or the

public. Jill Endico was a client of the Respondent who retained

the Respondent to appraise certain property located at 2120

Windtrace Road. Ms. Endico had purchased the subject property

through a "contract for deed" and retained the Respondent to

appraise it for purposes of obtaining re-financing on the

property. The property consisted of what is known as a "four-

plex" or four one-bedroom, one-bath rental units.

4. The Respondent prepared an appraisal report dated

November 27, 1995, and then a second appraisal report on the same

property dated February 5, 1996.

5. Thereafter, Executive Funding Corporation of Miami

retained a state-certified real estate appraiser, Daniel Ryland,

to review the November 1995 report. Ryland has been an appraiser

since 1986 and has performed approximately four to five review

appraisals per month for the last five years. He reviewed the

November 1995 appraisal report and his review is dated March 8,

1996. Mr. Ryland was thereafter engaged by CLT Appraisal

Services/Commonwealth Land Title Insurance Company to review the

Respondent's February 1996 appraisal report.

6. After reviewing the reports, Ryland submitted a

complaint to the Petitioner regarding the Respondent's

appraisals. The nature of the complaint submitted was that the

appraisals prepared by the Respondent contained "extreme

misstatements" and numerous rule violations. Mr. Ryland

submitted the complaint because he felt that the Respondent had

produced misleading appraisal reports.

7. The complaint matter was duly assigned to the agency

investigator Benjamin F. Clanton, who conducted an investigation.

He advised the Respondent of the complaint filed against him by a

letter to the Respondent (Petitioner's Exhibit three in

evidence).

8. In his testimony concerning the November 1995 appraisal,

Mr. Ryland noted that the property would not have been an easy

task to appraise for any appraiser because there were not many

similar properties available for comparable studies. Ryland

believes that it was understandable that the Respondent therefore

used comparable properties outside of the immediate area of the

subject property. Ryland did, however, consider that all three

comparable sales properties used by the Respondent, in his

November 1995 report, exceeded the Federal National Mortgage

Association's (FNMA),(Fannie Mae) net and gross adjustment

guidelines by an excessive amount. Two of the comparables

contained gross adjustments of two-hundred sixty percent and one

contained adjustments of two-hundred fifty nine percent.

9. The Respondent, in his November 1995 report, indicated

that he followed the June 1993 FNMA guidelines. Fannie Mae

guidelines are parameters set up by the mortgage industry and

when those guidelines are violated it is an indication of

weakness in the appraisal report. Pursuant to the Fannie Mae

guidelines, if a comparable property requires adjustments in

excess of twenty-five percent, then it is not truly comparable.

It is clear that the Respondent did not follow Fannie Mae

guidelines, as he used comparables with adjustments as much as

ten times higher than those recommended guidelines. Mr. Ryland

located a more appropriate property to use as a comparable

through the "Metro Market Trends" database. The sale on that

property had closed at the time the Respondent completed his

November 1995 report and therefore he should have been able to

locate that sale and use it as a comparable. The sale of the

property had been recorded in the Official Records of Santa Rosa

County at that time.

10. Mr. Ryland stated that he would have limited his

comparables to either triplexes or quadriplexes and would not

have limited his search to the Fort Walton Beach area. He also

stated that after performing a paired sales analysis, the market

did not seem to recognize a difference between leasehold and

fee-simples as far as their sales prices are concerned.

Therefore there was no need to limit comparables to one type or

the other.

11. Investigator Clanton also reviewed the November 1995

report. It contained inconsistencies with the comparable

properties used. These included: (a) the gross rent multipliers

were out of range for the neighborhood (see Petitioner's Exhibit

seven in evidence); (b) the Respondent made "extreme" adjustments

to the comparable properties (Petitioner's Exhibit seven in

evidence); and (c) the rental data included in the report was not

properly verified (Petitioner's Exhibit seven).

12. Adjustments to comparable sales are made based upon

"market extraction." When large adjustments over $15,000.00, are

made to a comparable, it is industry practice to fully explain

them, so that the user of the appraisal will understand why the

adjustment was made.

13. Mr. Ryland noted in his review report (Petitioner's

Exhibit five in evidence) that Comparable No. one in the

Respondent's November 1995 report was a single unit and had

amenities which the subject property did not. That property

should not have been used to compare to the subject property.

Ryland considered Comparable No. two in the November 1995 report

to be a good comparable, but did not agree with the adjustments.

There was no evidence to support the location, quality of

construction, age or condition adjustments. Concerning the

location adjustment, Ryland stated that the subject property was

located in close proximity to a mobile home community. There was

thus no demonstrated basis for a positive adjustment from the

land sales in the area in which Comparable No. two was located.

14. The Respondent failed to mention in his report that the

subject property was in a neighborhood that included a mobile

home community. With regard to the condition adjustment, the

Respondent did not indicate (nor could Ryland locate in the MLS

data base), any reason to believe that Comparable No. two was in

need of repair. In Ryland's opinion the Respondent did not use

his sales approach correctly and thus the November 1995 report

was not credible.

15. The process of dividing the market rent by the

comparable sales price develops a gross rent multiplier. The

selection of comparable properties is directly related to and

affects the resultant gross rent multiplier. Selection of in-

appropriate comparables may exaggerate or deflate the gross rent

multiplier. Mr. Ryland, like Mr. Clanton, felt that the gross

rent multiplier reported by the Respondent in the November 1995

report was not reasonable.

16. Investigator Clanton interviewed the Respondent on May

27, 1998. The Respondent was unable to produce evidence from the

market to support the value adjustments to the comparable

properties in the November 1995 report. Instead, he relied on

his prior experience and historical data as a basis for the

adjustments. The Respondent could provide no justification from

the market upon which to base the adjustments. The Respondent

told Mr. Clanton that he had indicated in both reports that there

were sales contracts attached because he was using a report he

had previously prepared and had failed to delete that reference

to sales contracts.

17. The Respondent's November 1995 appraisal report

indicated that he had verified the comparable sales data through

a realtor. When Clanton asked him for the name of the realtor

the Respondent explained that he used a form that he had

previously prepared and in fact had not consulted a realtor.

18. By letter of June 9, 1998, the Respondent told Mr.

Clanton that he used the Multiple Listing Service (MLS) and

Metro Market Trends (MMT) to verify the comparable sales data.

MLS and MMT data are appropriate sources from which to obtain

comparable properties for an appraisal report, so long as the

data is independently verified. Data obtained through MLS and

MMT may be verified with a individual involved in the sale, deeds

recorded in the official records or other recognized sources.

The Uniform Standards of Professional Appraisal Practice (USPAP)

require verification from at least two other sources.

19. When Mr. Clanton interviewed the Respondent the

Respondent told Mr. Clanton that he verified the comparable data

by cross-matching between the MLS and the MMT. Mr. Clanton

opined that the Respondent had used the MLS and MMT to increase

the level of data and not to cross-reference it.

20. Mr. Ryland also reviewed the February 1996 report on

April 21, 1996. The Respondent represented Comparable No. two as

one triplex, when in fact it was two triplexes. That rendered

the report misleading as to value because it appeared that one

triplex sold for $169,000.00, when actually two triplexes were

sold for that total price. Additionally, MLS indicated that

Comparable No. one was 3,592 square feet, but the Respondent

represented it in the report as 2,596 square feet. Comparable

No. three in the February 1996 report was actually a ten-unit

apartment complex. The Respondent represented it as one

quadriplex, despite the MLS data which clearly indicated that the

building consisted of ten units.

21. Mr. Clanton reviewed the February 1996 report as well

and found that Comparable No. two, in that report, was listed as

one building when in fact it was two buildings on one property.

CONCLUSIONS OF LAW

22. The Division of Administrative Hearings has

jurisdiction of the subject matter of and the parties to this

proceeding. Section 120.57(1), Florida Statutes.

23. The Uniform Standards of Professional Appraisal

Practice (USPAP) are national standards accepted in the appraisal

industry for use when preparing appraisal reports. The Florida

Legislature, through the enactment of the provisions of Chapter

475, Florida Statutes, has required that appraisers adhere to the

USPAP in preparing appraisal reports. Specifically Section

475.620, Florida Statutes (1995), provides that the Florida Real

Estate Appraisal Board may:

. . . deny an application for registration,

licensure, or certification; investigate the

actions of any appraiser registered,

licensed, or certified under this section;

and may reprimand, fine, revoke, or suspend,

for a period not to exceed 10 years, the

registration, license, or certification of

any such appraiser, or place any such

appraiser on probation if it finds that the

registrant, licensee, or certificate holder:

(14) Has violated any standard for the

development or communication of a real estate

appraisal or other provision of the uniform

Standards of Professional Appraisal Practice.

24. The Preamble to USPAP 1994 which the Respondent used in

his November 1995 report, states in part that:

It is essential that a professional appraiser

arrive at and communicate his or her

analyses, opinions, and advice in a manner

that will be meaningful to the client and

will not be misleading in the marketplace.

The above Findings of Fact show that the appraisal reports did

not conform to this basic standard. USPAP 1994 defines "client"

as any party for whom an appraiser performs a service. Clearly

Jill Endico was the Respondent's client concerning both the

subject appraisal reports. "Real Property" is defined in the

USPAP standard at issue as the interests, benefits and rights

inherent in the ownership of real estate. It defines "real

estate" as an identified parcel or tract of land, including

improvements, if any. The subject property fits this description

and definition.

25. USPAP 1994 standard rule 1-1(a), states that in

developing a real property appraisal, an appraiser must be aware

of, understand, and correctly apply those recognized methods and

techniques that are necessary to produce a credible appraisal.

The November 1995 report violates that rule because the

comparable properties used in the sales approach analysis

required adjustments of two-hundred fifty-nine to two-hundred and

sixty percent, over ten times that allowable under Fannie Mae

Standards. Either the Respondent was not aware of or did not

understand the sales approach. He did not apply it correctly and

adjustments of that magnitude render the appraisal incredible.

26. The February 1996 report does not comply with the

above-cited rule either. The gross rent multiplier the

Respondent asserted is inconsistent with the rental data he

himself gathered. The property used in comparable sale no. one

was represented in the February 1996 report to consist of 2,596

square feet, when it was actually 3,592 square feet. Comparable

sale no. two was represented as a triplex when it was in fact two

triplexes. The Respondent represented comparable sale no. three

as a four-plex, when in fact, it was a ten-unit apartment-

ocmplex. His failure to apply the correct method resulted in an

incorrect gross rent multiplier. His misrepresentation of the

size of comparable sales resulted in an inaccurate evaluation

using the sales approach.

27. USPAP 1994, standard rule 1-1(c) requires that the

appraiser "not render an appraisal service in a careless or

negligent manner, such as a series of errors that, considered

individually, may not significantly affect the results of an

appraisal, but which, when considered in aggregate, would be

misleading." The November 1995 report violates this standard for

a number of reasons. The comparables used in the sales approach

needed adjustments to the point where they were not truly

comparable The Respondent had no basis for the adjustments. He

omitted the proximity of the subject property to a mobile home

park as a consideration. His gross rent multipliers were out of

range for the subject property's neighborhood. He indicated in

his November 1995 report that there was a sales contract pending

and attached, and then admitted to the investigator that he had

made a mistake in putting that reference in the report. The

Respondent stated in the November 1995 report that he verified

comparable sales data through a realtor and then admitted to the

investigator Mr. Clanton that there was no realtor. The

Respondent does not appear to have verified his comparable data

with two independent sources. These errors and omissions taken

together render the November 1995 report misleading.

28. The February 1996 report violates USPAP 1994 standard

rule 1-1(c). It was obviously rendered in a negligent and

careless manner as none of the comparable sales are properly

identified or presented accurately. The errors as well as the

problems with the gross rent multiplier, prevent the 1996 report

from being a credible appraisal.

29. USPAP 1994 standard rule 1-2(a) states that:

In developing a real property appraisal, an

appraiser must observe the following specific

appraisal guidelines: (a) adequately

identify the real estate, identify the real

property interest, consider the purpose and

intended use of the appraisal, consider the

extent of the data collection process,

identify any special limiting conditions, and

identify the effective date of the appraisal.

Ms. Endico testified that the purpose of the appraisal was to re-

finance her property. The Respondent approached the report as

though it were based on a contract for sale and purchase.

Although it is true that the bank would not technically treat a

contact for deed as a re-finance, it is clear that the November

1995 report did not consider the purpose and intended use of the

appraisal. It also failed to consider the extent of the data

collection process, as observed by Mr. Ryland, when he stated

that he would not have limited himself to the Fort Walton Beach

area in choosing comparable data. The Respondent also failed to

collect independent data to verify the data he put in the

November 1995 report. Therefore the November 1995 report

violated USPAP 1994 standard rule 1-2(a).

30. USPAP 1994 standard rule 1-4(b), states that:

In developing a real property appraisal, an

appraiser must observe the following specific

appraisal guidelines, when applicable:

(b)(iii) - such comparable sales data,

adequately identified and described, as are

available to indicate a value conclusion;

(b)(iv) - such comparable rental data as are

available to estimate the market rental of

the property being appraised.

The findings of fact are clear that the Respondent did not gather

the appropriate sales data, nor did he gather appropriate rental

data for either report. Both sets of data resulted in misleading

evaluations of the subject property. Therefore, the November

1995 report and the February 1996 report violated 1994 USPAP

standard rule 1-4(b)(iii) and (iv).

31. The Petitioner has thus established by clear and

convincing evidence that the Respondent's November 1995 report

violated USPAP 1994 standard rules 1-1(a)(c), 1-2(a), 1-4(b)(iii)

and (iv). Therefore these inadequacies are a derivative

violation of Section 475.624(14), Florida Statutes, (1995).

32. The Petitioner has established by clear and convincing

evidence that the February 1996 report violated USPAP 1994

standard rules 1-1(a)(c) and 1-4(b)(iii) and (iv). These also

constitute a violation of Section 475.624(14), Florida Statutes,

(1995). Section 475.624, Florida Statutes (1995), states that

the Florida Real Estate Appraisal Board may:

. . . deny an application for registration,

licensure, or certification; investigate the

actions of any appraiser registered,

licensed, or certified under this section;

and may reprimand, fine, revoke, or suspend,

for a period not to exceed 10 years, the

registration, license or certification of any

such appraiser, or place any such appraiser

on probation if it finds that the registrant,

licensee, or certificate holder;

(2). Has been guilty of fraud,

misrepresentation, concealment, false

promises, false pretenses, dishonest conduct,

culpable negligence, or breach of trust in

any business transaction in this state or any

other state, nation, or territory; . . .

33. The Petitioner has established by clear and convincing

evidence that culpable negligence was committed by the Respondent

in the preparation of both appraisal reports at issue. The use

of comparables was inappropriate enough that it caused the lender

involved to reject the first report. The Petitioner proved by

clear and convincing evidence as well that the Respondent

breached his trust with client Endico by preparing both reports

which lacked credibility.

34. Section 475.624, Florida Statutes (1995), provides at

paragraph (15), that the penalties referenced and quoted above

with regard to that statutory section may be imposed for any

licensee, registrant or certificate holder who:

. . . Has failed or refused to exercise

reasonable diligence in developing an

appraisal or preparing an appraisal report.

35. The clear and convincing evidence of record and the

above findings of fact show that the Respondent failed to

exercise reasonable diligence in developing and preparing the

November 1995 and February 1996 appraisal reports. The errors,

omissions, and misstatements were substantial enough and numerous

enough that it is clear that the Respondent made no reasonable

effort to prepare a credible, usable report for his client. Rule

61J1-8.002, Florida Administrative Code, contains disciplinary

guidelines for appraisers. Rule 61J1-8.002(3), Florida

Administrative Code, states:

Except as otherwise noticed below, the

minimum penalty for all below listed sections

is a reprimand and/or a fine of up to

$1,000.00 per count. The maximum penalties

are as listed:

(d). 475.624(2), Guilty of fraud,

misrepresentation, concealment, false

promises, false pretences, dishonest dealing

by trick scheme or device, culpable

negligence or breach of trust: RECOMMENDED

RANGE OF PENALTY: Revocation.

(o). 475.624(14), Has violated any standard

for the development or communication of a

real estate appraisal or other provision of

the Uniform Standards of Professional

Appraisal practice. RECOMMENDED RANGE OF

PENALTY: Up to 5 years suspension or

revocation.

(p). 475.624(15), Has Failed or refused to

exercise reasonable diligence in developing

or preparing an appraisal report.

RECOMMENDED RANGE OF PENALTY: Up to 5 years

suspension or revocation.

The Petitioner has established clear and convincing evidence that

the Respondent is guilty of culpable negligence, violation of the

above-mentioned Uniform Standards of Professional Appraisal

Practice, and, in the particulars referenced found and concluded

above, failed to exercise reasonable diligence in developing or

preparing the appraisal reports. In light of Rule 61J1-8.002(4),

Florida Administrative Code, mitigatory factors established by

the evidence and considered as to the penalty issue include the

fact that the Respondent has never before been the subject of

investigation and discipline; that practice as an appraiser is

his sole means of earning a livelihood and severe financial

hardship would result from a suspension or a maximum fine and

that there was no showing of harm to the consumer or public.

RECOMMENDATION

Accordingly, in consideration of the foregoing Findings of

Fact, Conclusions of Law, the evidence of record, the candor and

demeanor of the witnesses and the pleadings and arguments of the

parties, it is,

RECOMMENDED:

That the Department of Business and Professional Regulation,

Division of Real Estate find the Respondent guilty of Counts I

through VI of the Administrative Complaint and impose a penalty

of a reprimand, a one-year probation with relevant continuing

education requirements and a fine of $300.00 per count.

DONE AND ENTERED this 30th day of September, 1999, in

Tallahassee, Leon County, Florida.

P. MICHAEL RUFF

Administrative Law Judge

Division of Administrative Hearings

The DeSoto Building

1230 Apalachee Parkway

T allahassee, Florida 32399-3060

[phone] SUNCOM 278-9675

Fax Filing [phone]

www.doah.state.fl.us

Filed with the Clerk of the

Division of Administrative Hearings

this 30th day of September, 1999.

COPIES FURNISHED:

Laura McCarthy, Esquire

Department of Business and

Professional Regulation

Division of Real Estate

Suite N-308

Hurston Building, North Tower

400 West Robinson Street

Orlando, Florida 32801-1772

David Combs

2567 Oleander Lane

Navarre, Florida 32566

Barbara D. Auger, General Counsel

Department of Business and

Professional Regulation

Northwood Centre

1940 North Monroe Street

Tallahassee, Florida 32399-0795

Herbert S. Fecker, Division Director

Division of Real Estate

Department of Business and

Professional Regulation

400 West Robinson Street

Orlando, Florida 32802-1900

NOTICE OF RIGHT TO SUBMIT EXCEPTIONS

All parties have the right to submit written exceptions within

15 days from the date of this Recommended Order. Any exceptions

to this Recommended Order should be filed with the agency that

will issue the Final Order in this case.