An appraisal is an opinion of value used for real-estate-related financial transactions. Appraisals are required by a state licensed or certified appraiser for most transactions above $250,000. An appraiser’s report will typically include the type of property inspection, approaches to value required, and any lender-specific requirements.
The National Association of REALTORS® represents approximately 25,000 state-licensed and certified appraisers throughout the country. NAR’s Responsible Valuation Policy states that “persons who perform appraisals of real property shall be licensed or certified by their respective state regulatory agency and the appraisal shall be conducted in accordance with standards established in the Uniform Standards of Professional Appraisal Practice (USPAP).”
An appraisal is an important part of the home buying process because it assures the lender the property has adequate collateral to make the loan. NAR closely monitors federal legislative and regulatory issues related to appraisals. NAR has long advocated for an independent appraisal process and enhanced education requirements that allow appraisers to produce the most credible appraisal reports possible.
What is the fundamental issue?
Over the past year, NAR members have identified several valuation issues impacting real estate transactions. Most concerns are related to appraisals, including a perceived shortage of appraisers, the increased use of automated or alternative valuation methods, and the challenge of attracting new appraisers to the business.
I am a real estate professional. What does this mean for my business?
Appraiser Shortages: Appraisers are leaving the profession at the same time that entry of new appraisers is dwindling. Entrepreneurial opportunities for appraisers are disappearing and many are concerned with over-regulation in the field. There are also barriers to entry, such as education requirements, that could be affecting incoming appraiser numbers.
Automated or Alternative Valuation Methods: There is much debate on the role of appraisals and their contribution to the safety and soundness of the mortgage lending industry, while at the same time there is an increased reliance on AVMs for valuation purposes. Fannie Mae and Freddie Mac are exploring the use of programs that replace traditional appraisals with data driven valuations in certain, lower risk transactions.
Federally Related Transactions: The current federal de minimus level for requiring an appraisal, rather than an alternative valuation method, in a federally related mortgage transaction is $250,000. There is debate on increasing that threshold to $500,000 to reduce unnecessary burdens on lenders. However, many in the industry, including NAR, are concerned that a reduction in the de minimus would have a negative effect on safety and soundness in the housing market.
Appraiser Qualifications: It is becoming increasingly difficult to attract new entrants into the appraisal profession and the Appraisal Qualifications Board (AQB) is exploring alternative tracks to gaining the experience necessary to sit for the licensing exam.
REALTORS® support and encourage credible, independent valuations of real property because valuations are critical to the health of the overall real estate industry.
A trustworthy valuation of real property ensures the real property value is sufficient to collateralize the mortgage, protects the mortgagor, allows secondary markets to have confidence in the mortgage products and mortgage backed securities, and builds public trust in the real estate profession.
NAR closely monitors federal legislative and regulatory issues related to valuations. There is currently no legislation impacting the appraisal issues outlined above.
Past Legislative Action
On November 16, 2016, the House Financial Services Committee, Subcommittee on Housing and Insurance, held a hearing entitled: “Modernizing Appraisals: A Regulatory Review and the Future of the Industry.” The hearing focused on concern over a shortage of appraisers working in the field, improving the ability to appeal an appraisal while maintaining safety and soundness, concerns with over-regulation as a result of Dodd-Frank, and the regulatory oversight framework of the appraisal industry. NAR submitted a statement for the record.
Past Regulatory Activities
On January, 26, 2015, Fannie Mae made Collateral Underwriter (CU), an appraisal risk-assessment tool, available to lenders. NAR members were concerned that this could add time to the appraisal process and force appraisers to use lower-value, lower-quality comps. Fannie Mae, however, feels that the tool is superior to current lender check-lists and engagement letters and that it will prevent some of the call-backs appraisers receive from underwriters for additional or lower comps. NAR has watched the roll-out of CU closely and have asked members to give NAR feedback about issues that may arise.
On June 9, 2015, five regulatory agencies issued a final rule requiring states to register Appraisal Management Companies (AMCs). NAR submitted comments on the proposed rule and is generally supportive of the rule. It is critical that States ensure that AMCs provide quality services in connection with valuing a consumer’s principal dwelling as security for a consumer credit transaction. The rule went into effect on August 10, 2015.
On September 14, 2015, new sections of the Federal Housing Administration (FHA) Single Family Housing Policy Handbook related to appraisals came into effect. The section entitled Appraiser and Property Requirements for Title II Forward and Reverse Mortgages includes policies specific to appraiser actions, including: property eligibility requirements; requirements for appraisers when performing appraisals; and the reporting of appraisal results. FHA’s supplemental Single Family Housing Appraisal Report and Data Delivery Guide also came into effect.
On July 1, 2016, the AQB implemented changes to the requirements for Supervisory Appraisers, as previously advocated by NAR. Supervisory Appraisers must be state certified appraisers in good standing for a minimum of three years prior to supervising, but may supervise Trainee Appraisers in any jurisdiction they are in good standing, even if they have been certified in that jurisdiction for less than three years.
On September 30, 2016, following concerns brought up by NAR, FHA revised the Single Family Housing Policy Handbook. FHA removed the language that an appraiser “must operate all conveyed appliances and observe their performance,” and replaced it with “must note all appliances that remain and contribute to the market value.” FHA also provided a clear definition of which items are considered “appliances” for the purpose of an FHA appraisal. NAR continues to monitor the impact the Single Family Housing Policy Handbook is having on appraisers and the appraisal industry.
On October 24, 2016, Fannie Mae introduced Day 1 Certainty™ which offers lenders freedom from representations and warranties on appraised values through Collateral Underwriter® and enhanced waivers of property inspection requirements on refinances. The program went into effect on December 10, 2016, and NAR is currently assessing the impact on home transactions and valuations. In November 2016, Freddie Mac also confirmed that they will be introducing a data driven valuation program in spring 2017.
As of August 18, 2017, Fannie Mae allows lenders to receive a Property Inspection Waiver (PIW) on certain one-unit principal residence and second home purchase transactions with loan to value ratios up to 80%, rather than a tradition in-person appraisal. Home value is determined through Fannie Mae's data based valuation methods. Fannie Mae will require that the property in question have a prior appraisal in electronic format that has been analyzed by Fannie Mae's Collateral Underwriter®.
As of September 1, 2017, Freddie Mac will utilize their automated collateral evaluation (ACE) to determine home value for certain purchase transactions, rather than a traditional in-person appraisal. Freddie Mac uses data from multiple listing services and public records as well as their own data of historical home values to determine collateral risks. Homes must have an 80% or lower loan to value, be a one unit single-family residence, and the borrower’s primary residence. Prior appraisals on the property are not required.
Real Property Valuation Committee
Appraisal Information Resources for NAR Members
Members of NAR enjoy appraisal education benefits, GAA and RAA designations, an online referral network, as well as representation on the Real Property Valuation Committee and the Real Property Valuation Forum. The Realtors Property Resource® (RPR®) is also available to NAR members. Members who take advantage of educational benefits and advanced valuation tools will be better positioned in the industry to succeed in their respective markets.
NAR's Appraiser Independence page provides NAR's position on appraiser independence, background on the issues, and resources for communicating with appraisers.
Appraisers are sometimes asked by lenders and AMCs to include distressed transactions as comparable sales, to complete the appraisal in unreasonable and unrealistic time spans, and comply with a scope of work not justified by the fee being offered. NAR believes this interferes with appraiser independence, causing harm to the real estate recovery, and harm to consumers.2
In February 2012, NAR released its Responsible Valuation Policy, which supports and encourages credible, independent valuations of Real Property.
Residential Appraisal Process: FAQs for Agents was developed by NAR’s Real Property Valuation Committee for agents who are interested in educating prospective homebuyers about appraisals. NAR has found that confusion persists about appraisal regulations, especially those that affect how real estate agents and their clients communicate with appraisers. Frequently asked questions include “Can I speak to the appraiser?” and “What kind of information should I provide to the appraiser?”
REALTOR® Magazine provided a webinar about appraiser/agent communications on Jan. 12, 2012, with Anna Ruotolo, Vice President of Business Development in the Mortgage Banking Division of OPES Advisors. Ruotolo explained that the law prohibits agents from pressuring an appraiser to arrive at a certain value, but there’s nothing in the law that prohibits the two from talking and sharing information.
Appraisal Management Companies (AMCs)
An Appraisal Management Company (AMC) works with lenders and appraisers to facilitate the ordering, tracking, quality control, and delivery of appraisal reports. Please read NAR's issue brief to find frequently asked questions and answers about Appraisal Management Companies.
NAR supports the regulation of AMCs through the Financial Institutions Reform and Recovery and Enforcement Act (FIRREA), with state implementation and enforcement. NAR opposes the use of indemnification clauses by AMCs and will pursue legislative and regulatory efforts to require AMCs to retain competent and qualified appraisers.
NAR supports a more standard process to request a reconsideration of value if the original value opinion is not credible. Better communication could help a real estate broker or salesperson understand whether an appraisal is credible. Also, any AMC that is violating USPAP should be reported to the appropriate authority. Good AMCs should want the bad ones out of business.
1 The Appraisal Foundation, A Guide to Understanding a Residential Appraisal (Washington, DC), 3, www.appraisalfoundation.org
2 NAR Statement on Appraiser Independence, April 2011
3 Data on appraisal issues are from a monthly survey for the Realtors® Confidence Index, posted at www.nar.realtor