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You can search the entire site. or go to the recent opinions, or the chronological or subject indices. State, Dept. of Commerce & Economic Development, Division of Corporations, Business & Professional Licensing v. Wold (5/18/2012) sp-6673

State, Dept. of Commerce & Economic Development, Division of Corporations, Business & Professional Licensing v. Wold (5/18/2012) sp-6673

        Notice: This opinion is subject to correction before publication in the PACIFIC  REPORTER . 

        Readers are requested to bring errors to the attention of the Clerk of the Appellate Courts, 

        303 K Street, Anchorage, Alaska 99501, phone (907) 264-0608, fax (907) 264-0878, email 

        corrections@appellate.courts.state.ak.us. 



                THE SUPREME COURT OF THE STATE OF ALASKA 



STATE OF ALASKA,                              ) 

DEPARTMENT OF COMMERCE,                       )       Supreme Court Nos. S-13901/13952 

COMMUNITY & ECONOMIC                          ) 

DEVELOPMENT, DIVISION OF                      )       Superior Court No. 1KE-08-00263 CI 

CORPORATIONS, BUSINESS &                      ) 

PROFESSIONAL LICENSING, and                   )       O P I N I O N 

BOARD OF CERTIFIED REAL                       ) 

ESTATE APPRAISERS,                            )       No. 6673 - May 18, 2012 

                                              ) 

                       Appellants and         ) 

                       Cross-Appellees,       ) 

                                              ) 

        v.                                    ) 

                                              ) 

KIM WOLD,                                     ) 

                                              ) 

                       Appellee and           ) 

                       Cross-Appellant.       ) 

                                              ) 



               Appeal from the Superior Court of the State of Alaska, First 

               Judicial District, Ketchikan, Trevor Stephens, Judge. 



               Appearances:      Robert C. Auth, Assistant Attorney General, 

               Anchorage,       and   Daniel   S.  Sullivan,   Attorney     General, 

               Juneau, for Appellants/Cross-Appellees.  Bruce E. Falconer, 

               Boyd,      Chandler     &    Falconer,     LLP,    Anchorage,      for 

               Appellee/Cross-Appellant. 



               Before: Carpeneti, Chief Justice, Fabe, and Stowers, Justices. 

                [Winfree and Christen, Justices, not participating.] 



               CARPENETI, Chief Justice. 


----------------------- Page 2-----------------------

I.	     INTRODUCTION 



                In   2008,   Alaska's   Board   of   Certified   Real   Estate   Appraisers   imposed 



professional   sanctions   on   an   appraiser   for   violations   of   the   Uniform   Standards   of 



Professional Appraisal Practice (USPAP).           The Board relied in large part on the views 



of a distinguished expert in Alaskan real estate appraisal who performed a "desk review" 



of the appraiser's work.      The expert concluded that the appraiser committed numerous 



violations of the USPAP.  Though we review the Board's findings with great deference, 



we conclude that none of the Board's findings of USPAP violations were supported by 



substantial evidence in light of the whole record.          We thus affirm the superior court's 



reversal of the Board's findings of USPAP violations, and reverse the single violation 



that the superior court affirmed. 



II.	    FACTS AND PROCEEDINGS 



        A.	     Facts 



                Kim Wold has been certified in Alaska as a general real estate appraiser 



since 1991.    Three of Wold's appraisals are the subject of this case: 



                (i)	   the appraisal of a residential property at 315 Copper Road in 

                       Ketchikan,      (the  "Copper     Road"    property),   which    Wold 

                       completed in 1997 and supplemented in 1998; 



                (ii)	  the appraisal of a partial interest in Entwit's Float, a marina 

                       facility in Ketchikan (the "marina" property), which Wold 

                       completed in 1998; and 



                (iii)	 the appraisal of a luxury residential property on Ellis Island 

                       in   Ketchikan     (the  "Ellis  Island"   property),   which    Wold 

                       completed in 2002. 



                1.	    The Copper Road (1997, 1998) and marina (1998) appraisals 



                Both the Copper Road appraisal and the marina appraisal were prepared by 



Wold for use in the divorce proceedings between Leif Entwit and Linda Entwit.  In order 



to estimate the market value of the Copper Road property, Wold performed an analysis 



                                                 -2-	                                          6673
 


----------------------- Page 3-----------------------

that involved making significant downward adjustments in value to four comparable 



properties. 



                After Wold completed his appraisal, Leif Entwit hired a local contractor, 



Garnet Dima, to inspect the Copper Road residence.  Dima found "signs of sagging" in 



the floor and estimated that correcting the problem would cost $25,000.  Wold issued an 



updated   appraisal,   lowering   his   estimate   of   the   property's   value   from   $115,000   to 



$77,500 based on the cost to cure the sagging floor as well as the risk associated with 



effecting the cure. 



                Wold's      marina    appraisal    relied  primarily    on   the  "cost   approach"     to 



determine valuation.  Linda Entwit's attorney hired another appraiser, Julie Dinneen, to 



review the marina appraisal. Dinneen's review criticized Wold's conclusion that marina 

improvements reflected "the highest and best use" of the property.1               Dinneen concluded 



that   Wold   had   violated   the   USPAP.      She   forwarded   her   review   to   the   Division   of 



Occupational Licensing (the Division). 



                When the Entwit divorce case went to trial, the court found that the Copper 



Road   property   had   a   value   of   $132,280   (as   opposed   to   Wold's   original   estimate   of 



$115,000   and   revised   estimate   of   $77,500)   and   the   marina   property   had   a   value   of 



$240,293 (as opposed to Wold's estimate of $150,000).  The court concluded that Wold 



"unquestionably took on the role of advocate for Leif's litigation position." 



                2.       The Ellis Island appraisal (2002) 



                Wold prepared the appraisal of the luxury Ellis Island residential property 



for use in pending litigation between neighbors.   Wold again used the cost approach to 



value the property, arriving at a rounded value of $2,100,000. 



        1       The Board ultimately found that Wold's "highest and best use" analysis did 



not violate the USPAP.        The issue is not part of the present appeal or cross-appeal. 



                                                   -3-                                                6673 


----------------------- Page 4-----------------------

                The opposing attorneys hired another appraiser, Vince Coan, to review 



Wold's Ellis Island appraisal.       Coan concluded that Wold's appraisal violated various 



provisions of the USPAP.        Coan forwarded his review to the Division. 



        B.      Proceedings 



                The Division assembled an investigative file of Wold's work and forwarded 



it to appraiser Alfred Ferrara for expert review.   In his 2003 reports, Ferrara concluded 



that Wold violated various USPAP rules.              In   2004, the Division filed an accusation 



against Wold with the Board of Certified Real Estate Appraisers.  The case was assigned 



to Administrative Law Judge (ALJ) David G. Stebing, who held hearings in December 



2005 and February 2006.         Before issuing a proposed decision, ALJ Stebing resigned. 



ALJ James T. Stanley replaced him. 



                After receiving and rejecting two proposed decisions by ALJ Stanley, the 



Board voted to decide the case themselves.  The Board took no additional evidence, but 



both parties had an opportunity to present additional written argument. The Board's final 



decision and order "agreed with the ALJ's conclusions regarding the facts of the case and 



the violations proven by the evidence, but altered the license discipline sanctions to more 



appropriately reflect the seriousness of the offenses and the retraining the Board believes 



to be necessary."   The Board found that Wold had violated the USPAP eight times, but 



found no violation on eleven other points.            The Board imposed sanctions including a 



formal reprimand, fines, and 109 hours of classroom training at the Appraisal Institute 



in Chicago, Illinois. 



                Wold appealed the Board's decision to the superior court in Ketchikan in 



2008.    On December 14, 2009, following briefing and oral argument, Superior Court 



Judge   Trevor   Stephens   reversed   seven   of   the   Board's   eight   findings   that   Wold   had 



violated   the   USPAP,   holding   that   these   findings   were   not   supported   by   substantial 



                                                  -4-                                            6673
 


----------------------- Page 5-----------------------

evidence.     In   May   2010,   the   superior   court   awarded   Wold   50%   of   his   reasonable 



attorney's fees. 



                The   State   appeals   the   superior   court's   partial   reversal   of   the   Board's 



decision.    Wold cross-appeals the superior court's partial affirmation of the Board's 



decision and the superior court's attorney's fees decision. 



III.    STANDARD OF REVIEW 



                As we stated in our first and only other opinion reviewing a decision of the 



Board   of   Certified   Real   Estate   Appraisers,   "[b]ecause   the   superior   court   sat   as   an 



intermediate court of appeal, we will independently review the merits of the [B]oard's 



administrative determination.        We review findings of fact in appeals of administrative 

decisions under the 'substantial evidence' test."2        "Substantial evidence is 'in light of the 



record as a whole, . . . such relevant evidence as a reasonable mind might accept as 

adequate to support a conclusion.' "3         "In determining whether evidence is substantial, 



. . . we must take into account whatever in the record fairly detracts from its weight."4 



                The substantial evidence test for administrative factual findings has its roots 



in Alaska's Administrative Procedure Act (APA), which presents the "scope of review" 



for administrative adjudication as follows: 



                The [reviewing] court may exercise its independent judgment 

                on the evidence.       If it is claimed   that the findings are not 



        2       Wendte v. State, Bd. of Real Estate Appraisers, 70 P.3d 1089, 1091 (Alaska 



2003) (footnotes omitted). 



        3       Lewis-Walunga v. Municipality of Anchorage , 249 P.3d 1063, 1069 (Alaska 



2011) (quoting Rockney v. Boslough Constr. Co. , 115 P.3d 1240, 1242 (Alaska 2005)). 



        4       Lopez v. Adm'r, Pub. Emps. Ret. Sys. , 20 P.3d 568, 570 (Alaska 2001) 



(quoting Hester v. State, Pub. Emps. Ret. Bd. , 817 P.2d 472, 477 n.8 (Alaska 1991) 

(Rabinowitz, C.J., dissenting)) (internal quotation marks omitted). 



                                                  -5-                                             6673
 


----------------------- Page 6-----------------------

                supported by the evidence, abuse of discretion is established 

                if the court determines that the findings are not supported by 



                (1) the weight of the evidence; or 

                (2) substantial evidence in the light of the whole record.[5] 



The Alaska APA applies to the decisions of state boards, including the Board of Certified 

Real Estate Appraisers.6 



               We "use the abuse of discretion standard to review an award of attorney's 



fees. . . .  Whether the court applied the proper legal analysis to calculate attorney's fees 

is a question of law we review de novo."7 



IV.     DISCUSSION 



               Alaska began licensing real estate appraisers in 1990, after Congress passed 



legislation in response to abuses in the lending industry that led to the savings and loan 

crisis in the 1980s.    Alaska also adopted the USPAP in 1990.8             This case is our first 



review of a disciplinary decision by the Board based on violations of the USPAP; it is 

also the Board's first use of the USPAP as the basis for such a decision.9 



        5      AS 44.62.570(c). 



        6      AS 44.62.330(a)(37); cf. Forth v. N. Stevedoring & Handling Corp., 385 



P.2d   944   (Alaska   1963)   (applying   substantial   evidence   test   under   Alaska   APA   to 

decision by Alaska Workmen's Compensation Board). 



        7       Weimer v. Cont'l Car & Truck, LLC, 237 P.3d 610, 613 (Alaska 2010) 



(footnotes omitted). 



        8      See AS 08.87.200(3) (1990). 



        9      In four memoranda of agreement, the Board has used the USPAP as the 



basis for imposing disciplinary sanctions. A memorandum of agreement is not a decision 

because it is not the result of a contested hearing and does not represent a determination 

of the issues presented.   It is a negotiated settlement agreement with a lesser significance 

                                                                                     (continued...) 



                                                 -6-                                          6673
 


----------------------- Page 7-----------------------

                The main points on appeal and cross-appeal concern whether the Board's 



findings that Wold violated the USPAP were supported by substantial evidence. 



        A.	     The Board's Finding That Wold Violated Standards Rule (SR) 1-1(b) 

                In The Copper Road Appraisal Was Not Supported By Substantial 

                Evidence. 



                Wold created a summary appraisal report for the Copper Road property in 



1997.    The report was commissioned for use in a divorce.              In order to determine the 



value   of   the   Copper   Road   property,   Wold   relied   partly   on  the   "sales   comparison 



approach."      This    approach    involves   deriving    a  value  for  the  subject   property   by 



comparing it to similar properties that have been recently sold, and making adjustments 



to the sale prices of those properties based on the differences between them and the 

subject property.10 



                Wold made downward adjustments to the sale prices of four comparison 



properties   in   order   to   arrive   at   his   estimation   of   the   Copper   Road   property's   value, 



$115,000. Wold's appraisal included an addendum noting, among other disclaimers, that 



his adjustments "often exceed established appraisal guidelines.               This is unavoidable 



given the limited sales data available." 



                The Board concluded, based on a review of the evidence related to the 



Copper Road property: 



                Mr. Wold violated SR 1-1(b) when he used comparable sales 

                that required unreasonably high adjustments.           For example, 

                the four other residential properties were adjusted downward 

                in   value   by   27%,   46%,   34%   and   23%.     All   of   the  four 



        9       (...continued) 



than a decision.    It yields sanctions or conditions acceptable to the Board, but does not 

have formal standing under AS 08.01.075(f). 



        10      See APPRAISAL INSTITUTE , THE APPRAISAL OF REAL ESTATE 297 (13th ed. 



2008) (defining sales comparison approach). 



                                                  -7-	                                          6673
 


----------------------- Page 8-----------------------

                 properties   were   more   valuable   than   the   subject   property. 

                 Inability to bracket[11]  a property is a substantial defect in an 

                 appraiser's reliance on the sales comparison approach.[12]  It 



                 may      be   true   that   better    comparable       properties     were 

                 unavailable; if true, this fact would need to be explained and 

                 justified in the report. 



                 Alaska Statute 08.87.200(3) states that a certified real estate appraiser may 



not fail to comply with the USPAP.              Standards Rule 1-1(b) of the 1995 edition of the 



USPAP stated that an appraiser must "not commit a substantial error of omission or 

commission that significantly affects an appraisal."13 



                 Though the Board offers no further explanation of its conclusions, nor 



citations to the record, the Board's conclusions echo those of Alfred Ferrara, the State's 



hired   reviewer   and   principal   expert   witness.       Ferrara   testified   to   having   appraised 



properties in Alaska for over 40 years, to having received the first appraisal license in the 



state,   to   having   served   two   terms   as   chair   of   the   Board,   and   to   being   a   designated 



member of the Appraisal Institute, which produces The Appraisal of Real Estate, a book 



that   both    parties   cite  frequently    and   that   Wold    recognized     as   the  "Bible"    of  the 



profession. 



                 Ferrara's written review of the Copper Road appraisal states the following: 



                 It   is   typical   and   virtually   required   in   residential   appraisal 

                 practice in Alaska and other states that the value of a property 



         11      As   the   Board's   decision   notes,   "bracketing"   means   "using   comparable 



properties with value both above and below the subject property."  See also APPRAISAL 

INSTITUTE , supra note 9, at 321 (defining bracketing). 



         12      The Board's decision cites here to Snowbank Enters., Inc. v. United States, 



6 Cl. Ct. 476, 485 (Cl. Ct. 1984), a pre-USPAP decision. 



         13      The    Board's     decision    misquotes     SR    1-1(b)   (1995)     as  prohibiting    "a 



substantial error or omission or commission."               (Emphasis added.) 



                                                     -8-                                               6673
 


----------------------- Page 9-----------------------

                 is bracketed with homes which have sold at prices both above 

                 and below the final concluded value.              It is unreasonable to 

                 assume that no other sales in Ketchikan below $145,000 were 

                 available   for   comparison   to   the   subject.     If   that   were   the 

                 situation,   then   it   may   be   that   residential   properties   do   not 

                 normally sell for as low a price as $115,000 and the appraisal 

                 is misstated. 



                         The adjustments themselves are exceedingly large and 

                 not adequately explained in the report.  The discussion of the 

                 adjustments in the addenda states adjustments were derived 

                 from paired sales analysis . . . however no such analysis was 

                 included in the appraisal. . . . 



                         . . . . 



                         In   summation,   the   sales   used   in   the   report   do   not 

                 appear to be representative of transactions which would be 

                 competitive to the subject in the Ketchikan market and aside 

                 from sale 4, are not likely the sales that would be used by 

                 most appraisers in valuing this property.            It is doubtful that 

                 these sales are indicative of the subject[']s value particularly 

                 due to the large and questionable adjustments made in several 

                 of the categories.  This results in an appraisal which does not 

                 appear to fairly represent the value of the property and which 

                 is misleading. 



                 Ferrara provides no citations to the appraisal literature nor to Alaska real 



estate market data in support of his conclusions. Ferrara's written review explicitly notes 



that Ferrara did not inspect the subject property.  During Ferrara's oral testimony on the 



Copper Road appraisal, he stated that he performed a "desk review," which is "a review 



of the paperwork that's been submitted to the appraisal and the supporting data." Ferrara 



later stated that the purpose of such reviews is to determine whether an appraisal is 



convincing "on its face." 



                 Ferrara's     oral   testimony    on   the  Copper     Road    appraisal   reflected     and 



expanded on the contents of his written review.  He conceded on cross-examination that 



                                                     -9-                                               6673
 


----------------------- Page 10-----------------------

he did not search the market for better comparables and had no personal information 



regarding the existence of any such properties.   But he continued to insist that it would 



be "unreasonable" and "illogical" for no sales to have occurred in Ketchikan during the 



relevant time period for under $115,000. 



                Despite Ferrara's reservations, he testified that if the choice had been his, 



he   would   not   have   filed   a   complaint   with   the   Division   based   on   the   Copper   Road 



appraisal. 



                The Board's decision raises two issues, which we address in turn.  First, the 



Board stated that "Mr. Wold violated SR 1-1(b) when he used comparable sales that 



required   unreasonably   high   adjustments."         The   Board's   reasoning   in   this   statement 



depends on there having been better comparables than the ones used by Wold.  But 



Ferrara's speculation that such comparables must have existed as a matter of logic or 



reason is not a sufficient basis for a reasonable mind to conclude that such comparables 

did exist as a matter of empirical fact.14      To the extent that the Board's finding that Wold 



violated     SR   1-1(b)   in  the   Copper    Road     appraisal   was    based   on   Wold's     use   of 



inappropriate comparable sales, we reverse that finding for a lack of substantial evidence. 



                 Second,     the   Board's    decision     recognizes     the  possibility    that  better 



comparable properties may not have been available, but states that "if true, this fact 



        14      Nor is it logical to conclude, as both the State and Ferrara suggest, that the 



absence of lower-priced comparables provides evidence that the Copper Road property 

might not have had a value as low as Wold's appraisal claimed.                    Ferrara testified that 

"[i]t'd be very unusual that this is the lowest-priced property in that town."   It is true that 

there can be only one lowest-priced property in any town, assuming all properties have 

different prices, and thus the lowest-priced property will by definition be unusual.  But 

it is also true that every town will have a lowest-priced property, and a highest-priced 

one.    Surely   appraisers   should   not   be   exposed   to   a   heightened   risk   of   professional 

sanction under the USPAP simply because they happen to be appraising an atypical 

property. 



                                                   -10-                                             6673
 


----------------------- Page 11-----------------------

would need to be explained and justified in the report."   Wold's addendum does, in fact, 



address     the  lack   of  better  comparables.      Moreover,      the  Board    made    clear   that  it 



considered   Wold's   addendum   and   found   it   "adequate   to   allow   the   intended   user   to 



understand   his   valuation."      The   Board's   decision      provides   no   analytical   basis   for 



concluding that Wold's addendum to the Copper Road appraisal provided an inadequate 



explanation of his choice of comparables. 



                Turning   to   the   record   as   a   whole,   we   note   that   Ferrara   dismissed   the 



explanation in Wold's addendum as "what we typically call a boiler plate," something 



that would "probably be in every appraisal that [Wold] performs in the community."  As 



Judge Stephens noted, Ferrara "cited no authorities in support of his claim that more 



explanation was required in this summary report to satisfy the requirements of USPAP." 



The State similarly offers no authorities in support of the claim that Wold's explanation 



of his choice of comparables was inadequate under the terms of the USPAP. 



                Moreover, when Ferrara and the State attempted to specify what additional 



explanations the USPAP required Wold to provide under the circumstances, they often 



ignored the explanations that Wold did provide.              For example, the State cites Ferrara's 



skepticism that a property one block away or half a mile away from the subject property 



could be $10,000 superior in location, and suggests that Wold should have provided 



some explanation for such adjustments.              In fact, Wold's addendum does provide an 



explanation for these adjustments, stating that the subject property's location was inferior 



to the location of three of the comparables "due to the subject's access off a gravel spur 



road    and   lack  of  homogeneous        surrounding     properties."    If   this  explanation    was 



inadequate under the standards of the USPAP, the State does not indicate how; in fact, 



the State does not acknowledge the existence of the explanation at all, despite Wold 



having drawn attention to the explanation to it during his testimony. 



                                                  -11-                                             6673
 


----------------------- Page 12-----------------------

                The substantial evidence standard reflects the prudence of deferring to a 



state professional board's special competence in recognizing violations of professional 



standards.    But we will not uphold the imposition of reputationally and economically 



damaging professional sanctions based on evidence that would not permit a reasonable 

mind to reach the conclusion in question.15        To the extent that the Board faulted Wold for 



his choice of comparables, the Board's violation finding was based on nothing more than 



speculation that such comparables existed.            To the extent that the Board accepted the 



possible   absence   of   better   comparables   and   faulted   Wold   for   failing   to   explain   his 



approach,   the   Board's   violation   finding   lacked   an   adequate   analytical   basis   in   the 



USPAP and failed to adequately address the explanations that Wold did provide.  We 



thus affirm the superior court's reversal of the Board's finding that Wold violated SR 1- 



1(b) in the Copper Road appraisal. 



        B.	     The Board's Finding That Wold Violated SR 1-1(c) In The Copper 

                Road Appraisal Update Was Not Supported By Substantial Evidence. 



                After Wold completed the summary appraisal report of the Copper Road 



property for Leif Entwit, Entwit hired the superintendent of a local contractor to inspect 



the property. The inspector, Garnet Dima, wrote in his one-page report that "[t]he house 



in question is showing signs of sagging in the floor which is equal to one inch to one 

inch . . . and one eighth in six feet depending on the location."16            Dima estimated that 



correcting the problem would require $25,000. 



                Based   on   Dima's   report,   Wold   issued   an   update   to   the   Copper   Road 



appraisal on April 11, 1998. The update states that Wold reviewed Dima's letter and had 



        15      See Wendte v. State, Bd. of Real Estate Appraisers, 70 P.3d 1089, 1091 



(Alaska 2003). 



        16      That is, the sagging is equal to one to one and one-eighth inches over a six- 



foot span. 



                                                  -12-	                                             6673 


----------------------- Page 13-----------------------

a phone conversation with him.     Wold revised his estimate of the value of the Copper 



Road property by deducting the $25,000 cost in Dima's estimate as well as $12,500 "to 



compensate for risk associated with effecting the cure, such as cost overruns and the 



potential that additional problems may be found that would increase the cost to cure." 



Wold's update includes various disclaimers, including that Wold relied on the expertise 



of Dima and his company.  Wold's work file also indicates that he watched a video that 



confirmed Dima's inspection. 



              When the Entwit divorce case went to trial, the court critiqued Wold's 



appraisal and rejected the update, concluding that the Copper Road property had a value 

of $132,280 rather than Wold's estimate of $77,500.17        The court stated that a civil 



engineer who testified at trial stopped short of endorsing the conclusion that there was 



serious settlement at the Copper Road residence. 



              The Board concluded: 



              Mr. Wold violated SR 1-1(c) when he blithely relied on a 

              contractor's very short letter to further reduce the estimated 

              value of the residence from $115,000 to $77,500.  Given that 

              the $115,000 valuation was derived using larger than normal 

              adjustments to comparable properties, a further reduction of 

              23% in estimated value requires more than a belief that the 

              contractor's reputation in the community was good. 



              Standards Rule 1-1(c) in both the 1997 and 1998 editions of the USPAP 



states that an appraiser must "not render appraisal services in a careless or negligent 



manner, such as a series of errors that, considered individually, may not significantly 



       17     As Wold notes, it was the court's critical comments in the Entwit divorce 



case that prompted the Division to investigate Wold's Copper Road appraisal.        Ferrara 

testified that he gave no weight to the court's comments in the Entwit case because "one 

attorney can be very good and convincing and can   convince a judge to make some 

rulings . . . that perhaps, [are] not balanced as [they] should be." 



                                            -13-                                      6673
 


----------------------- Page 14-----------------------

affect the results of an appraisal, but which, when considered in the aggregate, would be 



misleading." 



                As support for the Board's conclusion that Wold violated USPAP SR 1- 



1(c), the State points in large part to Ferrara's testimony.   Ferrara stated that "[i]t seems 



very unlikely that a home in this price range" - that is, at the low end of the market - 



"would be reduced in value to the extent shown in the update letter, particularly after the 



property was inspected by a Civil Engineer who does not share those same concerns as 



to settlement."  As Ferrara clarified:  "My thinking would be that if this were a $115,000 



dollar house that it would be unlikely that someone would really consider repairing a 



sagging floor unless this became a significant structural problem, which it didn't indicate 



that it was."   Ferrara's written review stated: 



                It is up to the appraiser to understand the nature of the claims 

                and   to   make   an   independent   assessment   of   the   issues   and 

                reflect the impact on the market value of the property.  If the 

                appraiser does not believe himself competent to make that 

                decision, it is required by the Competency provisions of the 

                Standards to obtain the necessary knowledge. 



                Again, Ferrara cites to no authority for the claim that Wold's investigation 



was inadequate under USPAP SR 1-1(c).              The State presents no evidence in the record 



that undermines the extensively-supported claim by Wold's principal expert witness, Dr. 



John Kilpatrick, that "Ferrara's statement here appears nowhere in USPAP, in the peer- 



reviewed literature, or in appraisal literature."        Nor does the State contest the accuracy 



of evidence cited by Wold to show the diligence with which he investigated Dima's 



report. 



                Instead,   the   State   focuses   on   a   brief   portion   of   Ferrara's   testimony   to 



suggest that in addition to whatever investigation Wold performed, he also "should have 



looked at houses that were below $100,000 to see what kind of physical infirmities they 



                                                  -14-                                             6673
 


----------------------- Page 15-----------------------

had and make comparisons from that standpoint."                But Ferrara provided no support in 



his testimony for the notion that the USPAP requires such an investigation.                    Ferrara's 



conclusions   also   appear   to   rest   at   least   in   part   on   factual   speculation,   such   as   his 



unsupported statement that according to his thinking "it would be unlikely" for someone 



to repair the sagging floor.      Wold testified that he believed the foundation would have 



to be repaired before the property could qualify for financing.              Ferrara's speculation to 



the contrary does not provide substantial evidence that Wold's belief   was incorrect, 



much less that Wold violated the USPAP by operating on the basis of his belief. 



                Viewed as a whole, the record fails to provide an analytical basis upon 



which   a   reasonable   mind   could   conclude   that   Wold   violated   USPAP   SR   1-1(c)   by 



relying on Dima's report as he did in the Copper Road appraisal update.  We thus affirm 



the superior court's reversal of the Board's finding on this count. 



        C.	     The Board's Finding That Wold Violated SR 1-1(a) In The Marina 

                Appraisal Was Not Supported By Substantial Evidence. 



                In   April   1998,    Wold    completed     his  appraisal    of  a  marina    facility  in 



Ketchikan.     Like the Copper Road appraisal, the marina appraisal was intended for use 



in the Entwit divorce.       The marina was originally constructed in the 1960s and was in 



poor condition by the time of Wold's report. 



                Wold's      appraisal   considered     both   the   cost  approach     and   the  income 



capitalization approach to valuing the property, but gave primary weight to the cost 



approach.      "In   the   cost   approach,   the   value   of   a   property   is   derived   by   adding   the 



estimated     value    of  the  site  to  the  current   cost   of  constructing    a  reproduction     or 



replacement for the improvements and then subtracting the amount of depreciation . . . 

in the structures . . . ."18 



        18      APPRAISAL INSTITUTE , supra note 10, at 142 (defining cost approach). 



                                                   -15-                                               6673 


----------------------- Page 16-----------------------

                The Board concluded, based on a review of the evidence related to the 



marina property: 



                Mr. Wold violated SR 1-1(a) when he did not use recognized 

                methods and techniques to produce a credible appraisal of the 

                marina . . . .  The explanation of why Mr. Wold used the cost 

                approach is inadequate.        Because cost and market value are 

                usually more closely related when properties are new, the 

                cost approach is valuable when estimating the value of new 

                or   relatively   new    construction.[19]   The     Entwit   marina    is 



                definitely not new or relatively new construction.            To apply 

                the   cost   approach   to   older   properties,   it   is   mandatory   that 

                adequate data be available to measure depreciation, and that 

                the data be fully explained. 



                Standards Rule 1-1(a) in both the 1997 and 1998 versions of the USPAP 



states   that   an   appraiser   must   "be   aware   of,   understand,   and   correctly   employ   those 



recognized methods and techniques that are necessary to produce a credible appraisal." 



                The State argues that Wold   violated the USPAP by relying on the cost 



approach   to   appraise   the   marina.   But   the   mere   use   of   the   cost   approach   was   not   a 

violation     of  the   USPAP.20       Indeed,     even    Ferrara,    the  State's    expert   witness, 



acknowledged that it was not a violation of the USPAP for Wold to use the cost approach 



on the marina.      Because the State offers no alternate authority for the conclusion that 



        19      The   Board   relies   on   APPRAISAL     INSTITUTE ,  THE     APPRAISAL       OF REAL 



ESTATE 354 (12th ed. 2001) to support this proposition. 



        20      As the State recognizes, "[t]he cost approach can be used to estimate the 



market value of special purpose properties." See APPRAISAL INSTITUTE , THE APPRAISAL 

OF REAL ESTATE 338 (11th ed. 1996). The State offers no argument against Kilpatrick's 

conclusion that the marina was in fact a special purpose property.                  Instead, the State 

attempts   to   undermine   this   conclusion   by   pointing   to   Wold's   failure   to   identify   the 

property as a special purpose property in the appraisal.             As discussed below, the State 

cites no authority for the notion that the USPAP required Wold to identify the marina 

explicitly as a "special purpose property" in his report. 



                                                  -16-                                             6673
 


----------------------- Page 17-----------------------

Wold's use of the cost approach was in itself a violation of the USPAP, we focus on the 



State's argument that Wold violated SR 1-1(a) "by not explaining why he used the cost 



approach." 



                 The State's argument that Wold's explanation was inadequate is in large 



part a response to Kilpatrick's suggestion that Wold's use of the cost approach was 



appropriate   because   the   marina   was   a   "special   purpose"   property.         However   such 



properties are defined, it is uncontested that the cost approach can be an appropriate 

approach   to   appraising   them.21      The   State   argues,   however,   that   Wold   should   have 



explicitly identified the marina as a "special purpose" property if this was Wold's basis 



for   applying   the   cost   approach.     But   the   State   cites   no   authority   for   the   claim   that 



wherever   the   cost   approach   is   used   based   on   a   property   being   special   purpose,   the 



property must be explicitly identified as such, even in a summary report such as the 



marina appraisal, in order to comply with USPAP SR 1-1(a).  The State's only support 



for this claim is Ferrara's testimony that "[y]ou would expect it to be mentioned" that a 



property was a special use property, particularly if a valuation approach was being used 

on that basis.22 



                 The State thus urges us to infer, from Ferrara's statement that "[y]ou would 



expect" the special purpose nature of the marina to be identified in the present context, 



the conclusion that Wold's failure to explicitly identify the marina as "special purpose 



property" violated the USPAP.           But one expert's statement of what he considers to be 



ordinary practice, without additional support, does not provide an adequate analytical 



        21       See supra note 20. 



        22       Moreover,   Wold's   appraisal   did   in   fact   state   that   the   cost   approach   is 



particularly applicable to property with older improvements "when the improvements are 

relatively specialized and are located in an area where there are limited comparable 

properties on the market." 



                                                   -17-                                              6673
 


----------------------- Page 18-----------------------

basis for identifying the lower bound of acceptable professional conduct as defined by 



the USPAP. 



                Because no reasonable mind could infer that Wold violated the USPAP 



solely on the basis of Ferrara's individual expectations, the Board lacked substantial 



evidence to find that Wold's explanation of his use of the cost approach violated SR 1- 



1(a) of the USPAP.       We affirm the superior court's reversal of the Board's finding. 



        D.	     The Board's Finding That Wold Violated SR 1-1(b) In The Marina 

                Appraisal Was Not Supported By Substantial Evidence. 



                In part of the marina appraisal, Wold made deductions to the estimated 



value   of   the   property   based   on  depreciation   inherent   to   the   improvements   on     the 



property, such as the pier, ramp, and floats.          Wold made deductions both for physical 



deterioration and "functional obsolescence." 



                The Appraisal of Real Estate presents functional obsolescence as one of 



three component parts of depreciation, along with physical deterioration and external 

obsolescence.23     The latest edition defines functional obsolescence as follows: 



                Functional obsolescence is caused by a flaw in the structure, 

                materials, or design of the improvement when compared with 

                the highest and best use and most cost-effective functional 

                design requirements at the time of appraisal.   A building that 

                was   functionally   adequate   at   the   time   of   construction   can 

                become   inadequate   or   less   appealing   as   design   standards, 

                mechanical systems, and construction materials change over 

                time.[24] 



        23	     APPRAISAL INSTITUTE , supra note 10, at 424-25. 



        24      Id.  at 434.  The State inaccurately cites an earlier edition of the book as 



stating that "[a] five part test is required to determine functional obsolescence."  In fact, 

the earlier edition states: "Figure 17.3 diagrams a procedure that can be used to calculate 

all forms of functional obsolescence . . . ."  APPRAISAL INSTITUTE , supra note 20, at 387 

                                                                                        (continued...) 



                                                  -18-	                                           6673
 


----------------------- Page 19-----------------------

                Wold's      marina     appraisal    notes    that   depreciation     inherent    to   the 



improvements        on    the  property     "includes    physical    deterioration     and    functional 



obsolescence."       After   describing   the   physical   deterioration   and   concluding   that   the 



depreciated      value   of  the  improvements       (approximately      $50,000)     is  less  than  the 



previously estimated land value of $127,000, the appraisal states: 



                Typically, improvement values exceed land value.                 Where 

                improvement values are substantially less than the land value, 

                such    improvements       are   deemed     to  represent   [an]   under 

                improvement        of  the  property    and   may    be   indicative   of 

                functional   obsolescence.       The   high   land   value   effectively 

                shortens the remaining economic life of the improvements. 

                Because of the imbalance of land and improvement values, a 

                functional obsolescence deduction of 50 percent is applied to 

                the physically depreciated value of the improvements. 



                The Board summarized the portion of Wold's marina appraisal dealing with 



depreciation as follows:         "Mr. Wold deducted $91,253 for the poor condition of the 



marina in his cost approach, and then proceeded to deduct an additional $24,569 for 



'functional obsolescence'; this is a double deduction for the same characteristic."  The 



Board   concluded:       "Mr.   Wold's   double   deduction   for   depreciation   and   functional 



obsolescence   violates   SR   1-1(b)   because   it   is   a   substantial   error   which   affects   the 



appraisal."    Standards Rule 1-1(b) in both the 1997 and 1998 editions of the USPAP 



states that an appraiser must "not commit a substantial error of omission or commission 



that significantly affects an appraisal." 



                The State suggests that Dinneen's testimony in the Entwit divorce case 



supports the Board's conclusion.          Dinneen testified that the marina "[is] just old and it 



hasn't been well-maintained in some spots," but that "I don't think that's a functional 



        24      (...continued) 



(emphasis added). 



                                                  -19-                                               6673 


----------------------- Page 20-----------------------

problem."      Functional   obsolescence,   Dinneen   testified,   is   "like    a  five-story   office 



building without an elevator."       Dinneen's written review of the marina appraisal made 



no   mention     of  Wold's    functional   obsolescence     analysis,   nor  did  she   state  in  her 



testimony in the record that Wold performed a double deduction. 



                Ferrara did not write in his review or testify that Wold performed a double 



deduction either, though his review does criticize Wold for identifying the obsolescence 



as "functional" rather than "external and economic."             Additionally, Ferrara criticized 



Wold's   depreciation   analysis   as   incomplete   and   unconvincing.        As   Wold's   appeal 



suggests, the notion that Wold performed a double deduction seems to derive from the 



statement of opinion - not a finding - by the judge in the Entwit divorce case.  The 



court   criticized   Wold's   explanation   of   functional   obsolescence   in   the   appraisal   as 



"tautological":    "[Wold] deducts functional obsolescence to determine the value of the 



improvements and then concludes from the disparity between the value of the land and 



the value of the improvements that there must be functional obsolescence." 



                The record does not support this interpretation of Wold's reasoning.  Wold 



began by deducting from the improvements for physical deterioration, not for functional 



obsolescence.     Wold then compared the land value to the value of the improvements, 



with the deduction for physical deterioration factored in, and noted that the land value 



was substantially greater than the post-deduction value of the improvements. Wold took 



this as an indication of functional obsolescence, and thus made a further deduction on 



that basis. 



                Whether or not Wold's inferences were appropriate, his reasoning does not 



represent a double deduction for the same characteristic.  The earlier judge and Dinneen 



may   be correct in suggesting that Wold's appraisal offers no description of the marina's 



functional obsolescence that fits a standard definition of that term.           (To use Dinneen's 



phrase, Wold offers no description in the appraisal of a feature of the marina that is "like 



                                                 -20-                                           6673
 


----------------------- Page 21-----------------------

a five-story office building without an elevator.")   But the Board did not find that Wold 



violated    the   USPAP      through   mislabeling     a  deduction    for  economic     or  external 

obsolescence as a deduction for functional obsolescence.25              The Board's finding of a 



violation    was    based   on   Wold    having    made     a  double    deduction    for  the   same 



characteristic.   This finding was not supported by substantial evidence. 



                We thus affirm the superior court's reversal of the Board's finding that 



Wold violated USPAP SR 1-1(b) by making a double deduction in the marina appraisal. 



        E.	     The Board's Finding That Wold Violated SR 1-1(a)-(c) In The Ellis 

                Island Appraisal Was Not Supported By Substantial Evidence. 



                In July 2002, Wold completed an appraisal of the Ellis Island property in 



Ketchikan. The property consists of a luxury single family residence, guest house, pump 



house, boat house, marine float, ramp, and piling.  The improvements and amenities are 



deluxe, including copper roofing on the main house and guest house.                   Using the cost 



approach,   Wold   estimated   the   value   of   the   buildings   and   improvements   at   roughly 



$2,100,000.      The   appraisal   states   that   the   sales   comparison   approach   was   not   used 



because "[n]o sales of luxury residences located on islands were found in the Ketchikan 



marketplace." 



                The Ellis Island appraisal was commissioned to play a role in litigation 



between neighbors that partly dealt with access rights.          The defendants in the litigation 



hired appraiser Vince Coan, a member of the Board, to review Wold's appraisal.  Coan 



forwarded his review to the Board because he concluded that Wold violated SR 1-1 by 



not including a sales comparison approach and SR 2-2(a)(xi) by preparing a "limited 



        25      "External" or "economic" obsolescence refers to a mismatch between a 



piece of property and the existing market, rather than an inherent mismatch between a 

piece of property and its intended purpose.  See THE APPRAISAL OF REAL ESTATE, supra 

note 10, at 442-44. 



                                                 -21-	                                            6673 


----------------------- Page 22-----------------------

scope appraisal in a self-contained format" but labeling it as a "a complete appraisal 



submitted in a self-contained report format."            We discuss the SR 2-2(a)(xi) violation 



below in Part IV.F. 



                The Board concluded, based on a review of the evidence related to the Ellis 



Island property: 



                Mr. Wold did violate SR 1-1(a).           Use of the cost approach, 

                only, to value residential property under the facts of this case 

                is not reasonable.  There is no dispute among the experts and 

                in   the   literature   that   correct   use   of   the   sales   comparison 

                approach will produce the most accurate results.             Use of the 

                sales    comparison      approach    requires    locating   comparable 

                property sales.     Mr. Wold apparently limited his   search to 

                high-end   island   properties   in   the   Ketchikan   area.   This   is 

                unreasonable given that higher priced, non island properties 

                in   the   Ketchikan     area   and   in  nearby    Southeast     Alaska 

                communities could be used.  Failure to exhaust the search for 

                comparable properties does not meet the USPAP requirement 

                that   the   appraiser   must    produce    a  credible   appraisal    by 

                correctly     using   the  best   recognized     method;    if  the  best 

                recognized method (sale comparison approach) is not used, 

                strong justification must be given.          Absent a much greater 

                demonstration   of   due   diligence,   use   of   the   cost   approach 

                method is inadequate to produce a credible appraisal. 



The Board also concluded that Wold violated SR 1-1(b) by failing "to   exercise due 



diligence and gather sufficient relevant and material information," which would have 



included "the sale of all high-end residential properties in Southeast Alaska."                 Finally, 



the Board concluded that Wold violated SR 1-1(c) by failing to "reasonably exhaust his 



search for the sale of comparable properties," which "translates to negligence in the 



conduct of this residential appraisal." 



                Standards Rule 1-1(a) in the 2002 edition of the USPAP continued to state 



that an appraiser must "be aware of, understand, and correctly employ those recognized 



                                                  -22-                                             6673
 


----------------------- Page 23-----------------------

methods and techniques that are necessary to produce a credible appraisal."                    Standards 



Rule   1-1(b)   also   remained   the   same,   stating   that   an   appraiser   must   "not   commit   a 



substantial   error   of   omission   or   commission   that   significantly   affects   an   appraisal." 



Standards Rule 1-1(c) was altered slightly in the 2002 edition of the USPAP.  It states 



that an appraiser must "not render appraisal services in a careless or negligent manner, 



such as by making a series of errors that . . . individually might not significantly affect 

the results of an appraisal, [but] in the aggregate affect the credibility of those results."26 



                 In sum, the Board's decision suggests that Wold's inadequate search, and 



his   consequent   reliance   on   the   cost   approach,   represented   a   failure   to   employ   the 



recognized methods necessary to produce a credible appraisal (in violation of SR 1-1(a)), 



a substantial error that significantly affected the appraisal (in violation of SR 1-1(b)), and 



negligence   (in   violation   of   SR   1-1(c)).    We   address   the   alleged   SR   1-1   violations 



regarding   the   Ellis   Island   appraisal   together   because   each   depends   on   the   Board's 



conclusion that Wold did not perform an adequate search for comparable properties. 



                We   assume   that   the   Board   based   its   conclusion   that   Wold   "apparently 



limited his search to high-end island properties in the Ketchikan area" on Coan's written 



review and his testimony, as well as Ferrara's review, his supplement to that review, and 



his testimony.      Coan's written review criticizes Wold's decision to exclude the sales 



comparison approach based on the lack of "sales of luxury residences located on islands 



. . . in the Ketchikan marketplace." 



                 It would be typical for appraisers to include developed high- 

                 end residential properties from Ketchikan and other areas in 

                 Southeast Alaska when estimating market value.  As part of 

                the review process, we queried other Southeast appraisers as 

                to the availability of market data for similar properties in the 



        26      Neither the State nor Wold contests the Board's use of the 2002 version of 



the USPAP in evaluating the Ellis Island appraisal, which was completed in July 2002. 



                                                   -23-                                                6673 


----------------------- Page 24-----------------------

                Southeast      area,  and   it  was   reported    to  us  that  market 

                information is available. I am personally aware of the Spring, 

                2001 purchase of an island residence in the Sitka area, which 

                was subsequently remodeled. 



                Coan testified that "one sentence saying we did not have sales of luxury 



residences on an island in Ketchikan is not adequate, in my opinion, to not consider a 



sales comparison approach." "I would have liked to have seen some comparables," Coan 



noted, before adding that he did not analyze the comparables that were sent to him as part 



of his desk review. 



                Ferrara testified that "looking for luxury residences on islands as the only 



basis for comparable data, I think was an incorrect process, and . . . leaving out sales of 



other luxury residences on waterfront properties . . . was an omission in the appraisal." 



Ferrara also testified:  "In the past 25 years of appraising for all different banks, federal 



government, FHA, PA and all kinds of places, I've never seen a residential appraisal that 



solely used a cost approach.       Ever." 



                But Wold testified that he did, in fact, conduct a search for comparables 



beyond "sales of luxury residences located on islands . . . in the Ketchikan marketplace." 



He   testified   that   he   examined   his   office's   comparable   sales   database   and   obtained 



information from others, including an appraiser in Sitka and an assessor in Juneau.  Both 



the appraiser and the assessor told Wold that they knew of no sales comparable to the 

Ellis Island property.27 



        27      In its reply brief, the State implies that the Board simply rejected Wold's 



testimony regarding his efforts to find comparables, instead relying on the disclaimer 

statement in the appraisal to conclude that Wold's search was limited to luxury island 

properties in the Ketchikan market. To the extent that this is an accurate characterization 

of the Board's reasoning, the Board's finding is not based on substantial evidence in light 

of the whole record. Wold testified in great detail regarding the steps he took to research 

                                                                                       (continued...) 



                                                 -24-                                            6673
 


----------------------- Page 25-----------------------

                Wold also persuasively argues that Coan's testimony fatally undermined 



Coan's   original,   written   claim   to   have   confirmed   the   existence   of   market   data   for 



properties   in   Southeast   Alaska   similar   to   the   Ellis   Island   property. One   of   Coan's 



sources   was   the   same   appraiser   in   Sitka   that   Wold   contacted.    But   whereas   Wold 



provided details about the nature of the Ellis Island property before asking whether there 



were comparables, Coan agreed in his testimony that he "simply asked [the appraiser] 



if he had comps for luxury homes in Sitka," or perhaps in Southeast Alaska generally. 



Coan also contacted another residential appraiser.   Coan agreed in testimony that when 



he wrote his review, "the only information [he] had" was from the two appraisers "that 



there were luxury or high-end homes in both Sitka and Ketchikan." 



                As for Coan's claim in the review that he was "personally aware of the 



Spring, 2001 purchase   of an island residence in the Sitka area," he testified that he 



learned of the sale at a cocktail party and discovered after submitting his review that the 



sale was for $610,000.         Wold testified that he investigated whether this property was 



comparable,   included   documentation   in   his   files,   and   concluded   -   along   with   the 



appraiser in Sitka - that it was not.           As Judge Stephens rightly noted, if Wold had 



included the $610,000 property as a comparable, it would have required even greater 



adjustments than the ones Ferrara criticized as a violation of the USPAP in the Copper 



Road appraisal. 



        27      (...continued) 



properties outside Ketchikan, and the State offers no basis for concluding that Wold's 

testimony was inaccurate.        Indeed, during cross-examination of Wold, the State asked 

him about an investigation of a comparable in Sitka that he performed.  Since Sitka is not 

in the Ketchikan marketplace, the State's own question indicates acceptance of the fact 

that   Wold   performed   research   outside   the   limits   suggested   by   the   disclaimer   in   the 

appraisal.    No reasonable mind could conclude on the basis of the record that Wold 

limited his search to luxury island residences in Ketchikan. 



                                                  -25-                                             6673
 


----------------------- Page 26-----------------------

                The evidence regarding the Ellis Island appraisal bears a strong structural 



resemblance to the evidence above that Wold did not perform an adequate search for 



comparables to the Copper Road property.   Just as Wold's appraisal of the Copper Road 



property presented it as an outlier on the low end of the real estate market in Ketchikan, 



so Wold's appraisal of the Ellis Island property presented it as an outlier on the high end 



of the Ketchikan market.        And just as Ferrara expressed strong skepticism toward the 



idea that there were no better comparables for the Copper Road property than the ones 



used by Wold, so Coan and Ferrara expressed strong skepticism toward the idea that 



there were no comparables for the Ellis Island property that would have been sufficient 



to allow Wold to use the sales comparison approach.   But like Ferrara in his criticism of 



the   Copper   Road   appraisal,   Coan   and   Ferrara   in   their   criticisms   of   the   Ellis   Island 

appraisal fail to provide any evidence sufficient to support their intuitions.28 



                Because no reasonable mind could conclude in light of the whole record 



that the State established by a preponderance of the evidence that Wold failed to perform 



an adequate search of comparables for the Ellis Island property, the Board's finding that 



Wold violated USPAP SR 1-1(a)-(c) in the Ellis Island appraisal was not supported by 



substantial evidence. We thus affirm the superior court's reversal of the Board's findings 



on these counts. 



        28      The State defends this lack of evidence by arguing that "it was not the 



Board's job to complete Wold's appraisal," and cites to a discussion of the professional 

standards for desk reviews.  But this professional standard does not address whether the 

State is required to produce more evidence in order to satisfy the evidentiary standard 

governing the Board's decisions.           It may be the case that desk reviewers are under no 

professional obligation to search out comparables before accusing someone of a USPAP 

violation; but this does not imply that such a desk review is adequate under the present 

circumstances to prove by a preponderance of the evidence that a USPAP violation took 

place. 



                                                  -26-                                            6673
 


----------------------- Page 27-----------------------

        F.	      The Board's Finding That Wold Violated SR 2-2(a)(xi) In The Ellis 

                 Island Appraisal Was Not Supported By Substantial Evidence. 



                 The superior court affirmed only one of the Board's violation findings:  the 



finding that Wold violated SR 2-2(a)(xi) by failing to adequately explain his rejection 



of   the   sales   comparison   approach   in   the   Ellis   Island   appraisal. Wold's   explanation 



consisted of the following statement:   "No sales of luxury residences located on islands 



were found in the Ketchikan marketplace.   Therefore, the sales comparison approach to 



value was not used." 



                 The Board's decision states:
 



                 Mr. Wold violated SR 2-2(a)(xi) because he failed to explain
 

                 adequately his departures from the requirements of SR 1, e.g.,
 

                 if the appraiser rejects the sales comparison approach in a
 

                residential     appraisal,    the   departure     must   be   adequately
 

                 explained.     
 



                 SR 2-2 in the 2002 edition of the USPAP states:
 



                 Each written real property appraisal report must be prepared
 

                under   one   of   the   following   three   options   and   prominently
 

                 state which option is used: Self-Contained Appraisal Report,
 

                 Summary       Appraisal   Report,   or    Restricted    Use   Appraisal
 

                 Report.
 



                 (a)	    The    content    of  a  Self-Contained      Appraisal Report 

                         must     be  consistent    with    the  intended     use  of   the 

                         appraisal and, at a minimum: 



                         . . . 



                         (xi)	   state and explain any permitted departures from 

                                 specific requirements of STANDARD 1 and the 

                                 reason for excluding any of the usual valuation 

                                 approaches . . . . 



                 Wold's cross-appeal argues that his one-sentence explanation for not using 



the sales comparison approach was sufficient for the requirements of SR 2-2(a)(xi). 



                                                   -27-	                                             6673
 


----------------------- Page 28-----------------------

                 As Wold suggests, the Board's decision on this count appears to have been 



based on the following reasoning:            (l) comparable sales data existed that could have 



allowed Wold to use the sales comparison approach; (2) the sales comparison approach 



was therefore applicable to the Ellis Island appraisal; (3) by not employing the sales 



comparison approach, Wold was making a "departure" from the requirements of SR 1; 



(4) under SR 2-2(a)(xi), Wold was thus required to "state and explain" this departure. 



                 But we concluded in the previous section that the record lacked substantial 



evidence of comparable sales data, which could have allowed Wold to use the sales 



comparison approach.  If adequate comparables did not exist, then the sales comparison 



approach was inapplicable to the Ellis Island property and Wold's failure to use the sales 



comparison approach was not a departure from the requirements of SR 1.  Wold cannot 



have   violated   SR   2-2(a)(xi)   by   failing   to   explain   his   departure   from   SR   1   if,   as   we 



concluded, no departure took place. 



                 As Wold's cross-appeal suggests, this "leaves only the question of whether 



Wold   adequately   stated   and   explained   why   he   was   not   using   the   sales   comparison 



approach."      The   State's   own   primary   expert   witness,   Ferrara,   testified   that   Wold's 



explanation   for   his   decision   not   to   use   the   sales   comparison   approach   "was   not   a 



violation."    Wold's primary expert witness, Kilpatrick, reached the same conclusion. 



Even   Coan   indirectly   suggested   in   his   testimony   that   if   there   were   no   comparable 



properties, the sales comparison approach would have been inapplicable, and Wold's 



decision not to use it would not require any more explanation than the brief explanation 



Wold provided. 



                 Based     on  our   review    of  the  record   as  a  whole,    including     the  above 



testimony, we do not find substantial evidence in support of the conclusion that Wold 



violated USPAP 2-2(a)(xi) by not providing a more detailed explanation of why he did 



                                                   -28-                                              6673
 


----------------------- Page 29-----------------------

not employ the sales comparison approach in the Ellis Island appraisal.  We thus reverse 



the superior court's affirmation of the Board's decision on this count. 



        G.      Other Issues 



                1.     Negligence under AS 08.87.200(1) 



               The State includes a brief defense of the Board's finding that Wold violated 

AS 08.87.200(1), which prohibits negligence by appraisers.29               We agree with Judge 



Stephens's conclusion that because the negligence finding receives no explanation in the 



Board's decision apart from the explanation of Wold's USPAP violations, it must depend 



entirely on them.      Because we have reversed all of the Board's violation findings, we 



reverse the Board's finding that Wold violated AS 08.87.200(1) as well. 



               2.      Excessive sanctions 



               Because we have reversed all of the Board's violation findings, the State's 



argument on appeal that the Board's original sanctions against Wold were not excessive 



is moot, and we decline to reach it. 



               3.      Attorney's fees 



               Because we have reversed the superior court's finding that Wold violated 

SR 2-2(a)(xi), we remand to the superior court for a new calculation of attorney's fees.30 



        29     AS 08.87.200 states: 



               A certified real estate appraiser may not 



                (1) act negligently or incompetently or fail without good 

               cause to exercise reasonable diligence in developing an 

                appraisal, preparing an appraisal report, or communicating 

                an appraisal. . . . 



        30     In light of our remand, we decline to reach the issue of whether Judge 



Stephens abused his discretion by awarding Wold 50% of the reasonable attorney's fees 

he necessarily incurred. 



                                                -29-                                          6673
 


----------------------- Page 30-----------------------

V.     CONCLUSION 



              For the foregoing reasons, we AFFIRM the superior court on all points 



except the superior court's upholding of the Board's finding that Wold violated SR 2- 



2(a)(xi) in the Ellis Island appraisal. On that point, we REVERSE the superior court. 



We REMAND to the superior court for a new consideration of attorney's fees in light 



of this decision. 



                                            -30-                                       6673
 

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