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, allegations of discrimination in the appraisal process, and the challenge of attracting new and diverse appraisers to the business.
I am a real estate professional. What does it mean for my business?
Automated or Alternative Valuation Methods: Many in the housing industry, 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.
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. The AQB is now exploring alternative methods to provide trainee appraisers with the required education, including exploring virtual property inspections and partnerships with other educational institutions.
Allegations of Discrimination in the Appraisal Process: Over the past two years there has been a large increase in media stories outlining discrimination in the appraisal process. A few studies seem to confirm there might be an issue with bias in the appraisal process, particularly as it relates to the choice of comparable sales based on the race of the homeowner/seller. Freddie Mac released a study in Fall 2021 based on their own appraisal data that suggests a property is more likely to receive an appraisal lower than the contract price if it is in a minority tract. Further research into actual appraisal reports and assessment of fair housing complaints is expected. The Biden Administration has taken a large interest in this issue and created the Interagency Task Force on Property Assessment Valuation Equity, or PAVE, led by Department of Housing and Urban Development Secretary Marcia Fudge. In addition, states are also developing policies related to the concern of discrimination in the valuation process. NAR takes all allegations of discrimination seriously and supports a full vetting of the issue. NAR urges any entity attempting to address or change the valuation process ensure appraisers and their representatives are included in the review and development process of any new standards, to ensure that the real estate market remains safe and secure in terms of determining the value of properties.
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.
Past Legislative Action
On June 20, 2019, the House Financial Services Committee, Subcommittee on Housing, Community Development and Insurance, held a hearing entitled "What’s Your Home Worth? A Review of the Appraisal Industry." The hearing focused on recent research suggesting homes in majority black neighborhoods are valued at roughly half the price as homes in neighborhoods with no black residents. NAR is actively exploring this issue and working with partner organizations to ensure fairness in home valuations.
On May 20, 2019, U.S. Rep. Brad Sherman (D-CA) introduced the H.R. 2852 Homebuyers Assistance Act of 2019, legislation that would allow licensed residential appraisers the ability to conduct appraisals on FHA properties. Appraisers would be required to obtain specific educational requirements in order to perform the FHA appraisals. The bill passed the House of Representatives on September 10, 2019. NAR supported this bill.
On June 5, 2019, U.S. Sens. John Thune (R-S.D.) and Jon Tester (D-Mont.) introduced the Federal Housing Administration (FHA) Appraiser Eligibility Expansion Act (S. 1722), legislation that would give licensed residential appraisers the ability to conduct appraisals on FHA properties. The bill would increase the pool of appraisers who are eligible to conduct appraisals on FHA properties, but would not place additional education, training, or competency requirements on any appraiser that is currently conducting FHA appraisals, nor would it place additional requirements on appraisers not wishing to conduct FHA appraisals. NAR supported this bill.
On July 5, 2019, Rep. Wm. Lacy Clay (D-MO) introduced H.R.3619, Appraisal Fee Transparency Act of 2019. The bill adds trainee appraisers to the National Registry of Appraisers, allows the Federal Financial Institutions Examination Council's Appraisal Subcommittee to adjust annual registry fees for appraisal management companies, requires the disclosure of appraisal fees in the case of an appraisal coordinated by an appraisal management company, allows nonprofit organizations and institutions of higher education to receive certain grants, and adds a designee of the Department of Veterans Affairs to the Appraisal Subcommittee. The bill passed the House of Representatives on September 19, 2019.
Current Regulatory Activities
On February 26, 2021, NAR submitted comments to the Federal Housing Finance Agency's (FHFA) Request for Information on Appraisal-Related Policies, Practices, and Processes (RFI). NAR provided input on several of the questions posed by FHFA in the RFI, focusing mainly on concerns related to risk in the valuation space, the role of technology, and discrimination in appraisals and other valuation products. In general, NAR believes a traditional, in-person appraisal continues to provide the most comprehensive and thorough opinion of value for a real estate transaction. NAR also supports innovation in the valuation field and allowances for various forms of appraisal type depending on the need of the transaction. Continued work in improving the valuation field must ensure fair and sound appraisal practices and processes.
Past Regulatory Activities
On September 27, 2019, 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”) adopted a final rule increasing the threshold for requiring an appraisal in residential real estate transactions from $250,000 to $400,000. Federally related transactions under $400,000 will require an evaluation, rather an a full appraisal, to determine value of the real estate in question. A federally related transaction is a non-Fannie Mae or Freddie Mac transaction and a non-federal financed transaction, such as loans under the Federal Housing Administration, the Rural Housing Service or the Department of Veterans Affairs.
On July 18, 2019, The National Credit Union Administration (NCUA) Board issued a final rule increasing the threshold below which appraisals are not required for commercial real estate transactions from $250,000 to $1,000,000. The rule also incorporated into the regulations Section 103 of the Economic Growth, Regulatory Relief, and Consumer Protection Act of 2018. This will exempt from appraisal requirements certain federally related, rural real-estate transactions valued below $400,000 if no state-certified or state-licensed appraiser is available.
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.
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 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.
Real Property Valuation Committee
Appraisal and Valuation: The Basics
Home Appraisals: Your Key to a Successful Refinance (Investopedia, Mar. 12, 2021)
Appraisal Institute Taking Steps to Root Out Racial Bias (The Real Deal, Mar. 4, 2021)
NAR Comment to FHFA on Appraisals (National Association of REALTORS®, Mar. 1, 2021)
Federal Regulators Want to Overhaul Home Appraisals – Here’s How That Could Hurt Both Buyers and Sellers (Market Watch, Jan. 8, 2021)
What You Should Know about Real Estate Valuation (Investopedia, Mar. 3, 2020)
It’s Official: Appraisals are no Longer Required on Some Home Sales of 400,000 and Under (HousingWire, Oct. 8, 2019)
Appraisers to Brokers: Work with Us (RISMedia, Aug. 10, 2019)
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