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 the increased use of automated or alternative valuation methods, a perceived shortage of appraisers, and the challenge of attracting new appraisers to the business.
I am a real estate professional. What does this mean for my business?
Automated or Alternative Valuation Methods: Many in the housing industury, including NAR, support the role of appraisals and their contribution to the safety and soundness of the mortgage lending industry. However, there is an increased reliance on AVMs for valuation purposes, as evidenced by the decisions of both Fannie Mae and Freddie Mac to allow data driven valuations, rather than traditional in-person appraisals, for certain, lower risk purchase transactions. NAR is supportive of technological advancements that support the housing market, but has some concerns with the use of automated valuations in purchase transactions.
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.
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 a proposal by the federal banking agencies to raise the threshold to $400,000 to reduce unnecessary burdens on lenders. However, many in the industry, including NAR, are concerned that raising the threshold 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. In an effort to bring more qualified trainees into the profession, the Appraisal Qualifications Board (AQB) revised the Real Property Valuation Criteria to allow for more flexibility in fulfilling the college-level education requirements for appraisers and reducing the number of experience hours in early 2018.
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.
Current Regulatory Action
On December 3, 2018, NAR submitted comments to the National Credit Union Administration (NCUA) in response to a proposal to raise the threshold for requiring an appraisal in commercial real estate transactions to $1,000,000 from the current level of $250,000. NAR believes an increase to $500,000 would be appropriate at this time. This would align the NCUA policy with that of the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, and the Federal Deposit Insurance Corporation.
On February 5, 2019, NAR submitted comments to the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, and the Federal Deposit Insurance Corporation (collectively “the Agencies”) on a the threshold for requiring an appraisal in commercial real estate transactions to $400,000 from the current level of $250,000. NAR urged the Agencies that any appraisal threshold be tied to an area's real estate market, and that a national appraisal threshold level is inappropriate given the wide discrepancy in home values across the country. Specifically, NAR suggested the agencies set the appraisal threshold level to 50 percent of the GSE conforming loan limits. This would allow high value areas more room for other forms of valuations without putting undue risk in many other markets that would no longer require an appraisal for the majority of home sales.
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.
On April 4, 2017, Michelle Bradley, the 2016 NAR Real Property Valuation Committee Chair, testified before the House Committee on Veterans' Affairs – Economic Opportunity Subcommittee at a hearing entitled “Assessing VA Approved Appraisers And How To Improve The Program For The 21st Century.” The hearing focused on the Department of Veterans Affairs (VA) Home Loan Guaranty Program and concerns with long wait times to schedule a VA appraisal and a potential shortage of appraisers, especially in very rural areas.
Past Regulatory Activities
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.
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.
On February 1, 2018, the Appraisal Qualifications Board (AQB) adopted changes to the Real Property Appraiser Qualification Criteria at a public AQB meeting in Washington, DC. The changes include flexibility in education requirements, with the Licensed Residential certification no longer requiring a Bachelor's degree. The Certified Residential certification education requirements may be fulfilled through a Bachelor's degree in any field or an Associate's Degree and/or 30 credit hours completion in relevant subjects. Licensed Residential appraisers wishing to become Certified Residential appraisers may substitute five years of work experience for the education requirements. In addition, experience hours for all levels of appraiser credentials have been reduced.
On April 2, 2018, the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, and the Board of Governors of the Federal Reserve System (collectively the Federal Banking Agencies) agreed with prior comments sent by NAR and issued a final rule increasing the appraisal threshold for commercial real estate Federally Related Transactions from $250,000 to $500,000. Commercial transactions that do not meet the new $500,000 threshold must still obtain an evaluation of the real property that is consistent with safe and sound banking practices.
On May 22, 2018, Fannie Mae and Freddie Mac, at the direction of the Federal Housing Finance Agency, announced a multi-year initiative that will explore options and make recommendations regarding changes to the Uniform Appraisal Dataset (UAD) and uniform appraisal reporting forms. As part of a greater appraisal process modernization, both Freddie Mac and Fannie Mae will be looking at ways to support emerging technologies and data updates over the next few years. Fannie Mae and Freddie Mac are working closely with NAR and other stakeholders in this process, including holding engagement sessions with REALTORS® and NAR staff.
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?”
Charlie Lee, from NAR Legal Affairs gave us a Window to the Law: Working with Appraisers video in Dec. 2018, in which he discussed the regulatory background of appraiser independence rules, the different roles of appraisers and real estate agents, and then covered some best practices.
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.
On May 24, 2018 NAR Real Property Valuation Committee Chair Rebecca Jones and Vice Chair David Griffith talked about NAR's appraiser independence policy and a paper published by the Federal Housing Finance Agency in May on appraisal management companies and appraisals they order.
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