Agencies Issue Proposed Rule on Minimum Requirements for Appraisal Management Companies

Six agencies released a Joint Release “Agencies Issue Proposed Rule on Minimum Requirements for Appraisal Management Companies”. The release, and its attached Proposed Rule, list five AMC requirements that participating States must enforce, as well as six broad powers the States must have related to monitoring, disciplining, and reporting.

The Joint Release also points out to States that participation is not mandatory; non-participation by a State would bar appraisal management companies from doing business in that State related to federally-related transactions.

Read the Joint Release and the Proposed Rule. The Proposed Rule contains instructions for comment.

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WASHINGTON— Six agencies today issued a proposed rule that would implement minimum requirements for state registration and supervision of appraisal management companies (AMCs). An AMC is an entity that serves as an intermediary between appraisers and lenders and provides appraisal management services.

In accordance with section 1124 of Title XI of the Financial Institution Reform, Recovery, and Enforcement Act of 1989, as added by section 1473 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, the minimum requirements in the proposed rule would apply to states that elect to establish an appraiser certifying and licensing agency with the authority to register and supervise AMCs.

The proposed rule would not compel a state to establish an AMC registration and supervision program, and there is no penalty imposed on a state that does not establish a regulatory structure for AMCs. However, an AMC is barred by section 1124 from providing appraisal management services for federally related transactions in a state that has not established such a regulatory structure.

Under the proposed rule, participating states would require that an AMC:
Register in the state and be subject to its supervision;
Use only state-certified or licensed appraisers for federally related transactions, such as real estate-related financial transactions overseen by a federal financial institution regulatory agency that require appraiser services;

Require that appraisals comply with the Uniform Standards of Professional Appraisal Practice;
Ensure selection of a competent and independent appraiser; and
Establish and comply with processes and controls reasonably designed to ensure that appraisals comply with the appraisal independence standards established under the Truth in Lending Act.

The proposed rule also would require that the certifying and licensing agency of a participating state have certain authorities, including the authority to:

Approve or deny initial AMC registration applications and applications for renewals;
Examine the AMC and require the AMC to submit relevant information to the state;
Verify that the appraisers on the AMC’s appraiser network or panel hold valid state certifications or licenses;

Conduct investigations of AMCs to assess potential violations of appraisal-related laws;
Discipline an AMC that violates appraisal-related laws; and

Report an AMC’s violation of appraisal-related laws, as well as disciplinary and enforcement actions, and other pertinent information about an AMC’s operations to the Appraisal Subcommittee of the Federal Financial Institutions Examination Council.

The proposed rule would provide participating states 36 months after its effective date to implement the minimum requirements. An AMC that is a subsidiary of a financial institution and regulated by a federal financial institution regulatory agency is required by section 1124 and the proposed rule to meet the same minimum requirements as other AMCs, although such an AMC is not required to register with a state.

In conjunction with the proposal, the Federal Deposit Insurance Corporation is proposing to rescind appraisal regulations promulgated by the former Office of Thrift Supervision (OTS). The OTS appraisal regulations are duplicative of the FDIC’s appraisal regulations in Part 323. Similarly, in a separate rulemaking, the Office of the Comptroller of the Currency is rescinding appraisal regulations promulgated by the former OTS.

The proposal is being issued jointly by the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the Consumer Financial Protection Bureau, the Federal Housing Finance Agency, and the National Credit Union Administration.

The Federal Register notice is attached. The agencies are seeking comments from the public on all aspects of the proposal. The public will have 60 days to review and comment on the proposal and the proposed Paperwork Reduction Act analysis. Publication of the proposal in the Federal Register is expected shortly.

Attachment: Minimum Requirements for Appraisal Management Companies – PDF
Media Contacts:
OCC Stephanie Collins (202) 649-6870
Federal Reserve Susan Stawick (202) 452-2955
FDIC Greg Hernandez (202) 898-6984
CFPB Sam Gilford (202) 435-7673
FHFA Corinne Russell (202) 649-3032
NCUA Ben Hardaway (703) 518-6333

PR-21-2014

This article was first published at FDIC.org

Key Parts of Residential Appraisal Reports Colorado

Not too long ago I was at a school event for my youngest daughter when I started talking to one of the fathers that I knew. During our conversation he mentioned that they were going through the process of refinancing their home and had just received the appraisal back. He shared a little sheepishly that he couldn’t make heads or tails out of it and wondered why the darn thing was so confusing. It reminded me that for someone who doesn’t look at these reports day in and day out they can be a little difficult to understand.

Residential appraisal reports can be quite complex; crammed full with comprehensive market information and different methods for estimating and analyzing value. Sometimes it can be cumbersome to try to sift through all of the information when the average homeowner just wants to get to the bottom line: How much is my home worth?

While the appraisal for a refinance or purchase is used by (and written for) the lender, the document is oftentimes read by the buyers, sellers, and real estate agents. Appraisals are generally performed using similar approaches, regardless of the kind of residential property or which party employs the appraiser (such as for agents or homeowners, for pre-listing appraisals). Appraisers operate in locations they recognize. This provides functioning expertise of any local factors that might influence the value of a property.

The report will include specific attributes of the property and of the surrounding neighborhood. The report will note any damage or recent improvements to the home. There will be maps of the subject property location, as well as the comparable properties’ locations. A perimeter house sketch and pictures of the property are typically included. There will also be pictures of houses that have recently sold in the neighborhood. These are the comparables or “comps”. These recent sales are used to help establish value by analyzing recent sales of similar houses.

A typical appraisal, whether written on a Fannie Mae form for lending or a general purpose form for legal, pre-listing, or other uses, will include the following information:

The Subject: The subject area contains a description of the property including physical street address, legal description, county parcel number, and other identifying information.

The Contract: For a purchase, a summary of the signed purchase contract is provided. Federal regulations require that the lender provide a copy of the contract to the appraiser.

Neighborhood: This section describes characteristics, boundaries, and market conditions of the area and notes the one-unit housing trends. A reader will find information related to increasing, stable, or declining values. In many appraisals, there will also be attachments with further analysis of the market.

Site: The site section of the report covers the physical dimensions of the lot, zoning, nature of the utilities, and flood zone.

Improvements: Sometimes people misunderstand the word “improvements” – it basically means the structure or structures on the property. The lot was improved by putting a house upon it. So the type of house, description, year built, condition, quality, features, square footage, and other characteristics will be detailed in this section.

Sales Comparison Approach: This approach to value is commonly given the most weight in the valuation for residential properties. Here is where I will grid and analyze recent sales of comparable properties in the neighborhood and then make adjustments to the property being appraised. For example, if a comp is bigger than the subject, a negative adjustment may be made; if it is inferior in condition, a positive adjustment may be made. These positive and negative value adjustments are made considering a variety of comparable factors like age, condition, square footage, baths, lot size, and other characteristics that impact marketability and value.

Reconciliation: The sales comparison approach, the cost approach, and/or the income approach (if developed) are reconciled into a final value. If those other two approaches are not used, the final value opinion is established using only the sales comparison approach.

Of course, these are just a few of the key areas of an appraisal report. I always remind people that the appraisal report is an essential document – whatever its intended use is – and a user of the report really needs to take the time to read it, ask questions, and confidently understand it.

Check out some of our Video Tutorials to learn more about Appraisal Report

You may also check some of Josh’s Decoding Tutorials:

Uniform Appraisal Dataset Format for Garage and Ports

Uniform Appraisal Dataset for Location, View, and Design/Style

Enforcing Customary and Reasonable Fees

There are a lot of issues affecting the appraisal industry today, but one of the biggest is Customary and Reasonable fees. The payment of unreasonably low fees by predatory clients has the potential of hurting not just appraisers, but the financial industry as a whole. Everywhere we look – HUD, the States, Interagency Guidelines, Fannie Mae, Dodd-Frank – there have been moves to set it right, so that fee is not the determining factor in engaging appraisers. I’ve thought about this for years and am vocal about appraisers charging what we are worth, but now that the CFPB adopted the Federal Reserve C & R Rules virtually word-for-word, I think it is time appraisers set the record straight from a regulatory perspective.

Enforce C&R Fees

I originally wrote a lengthy letter to be sent to the Agencies, but it was just too complicated and not focused enough. I sought out feedback from a variety of folks and solicited the help of some industry veterans to help me craft a C & R Petition. The petition is hosted at Appraisal Buzz.

I hope appraisers will discuss this issue with one another, send it to peers, and post the link to appraiser sites, so we can reach a large audience.

Let me be clear: I know there is no one simple solution, and a petition alone is not the only move appraisers can be making. But revisiting, correcting, or repealing the C & R Rules is one important step on the regulatory side of this issue.

There several fronts that need to be addressed such as knowing how much our time is worth and looking at the time spent on each appraisal, the scope of work, quality, and other factors. And my favorite, which I use every day:

Fee too low? Just say ‘no’. (I don’t accept mini-fees in my business.)

With the current lack of enforcement of the C & R provision in Dodd-Frank, the entire intent of the law is being thrown out the window. But beyond that, low fees are driving good appraisers out of the business and out of the lending appraisal arena altogether.

I encourage every appraiser to take a few minutes to read the petition and pass it along to peers. With a strong response I believe the appraisal community can and will have a voice.

In 2010 when I first looked into the C & R Rules issued by the Federal Reserve, one of the first justifications shared with me regarding the loophole was that there were no fee surveys available to lenders and AMCs to enable them to “measure” C & R fees, which even at that time was not correct. Appraisers can also complete a fee survey at the site (separate from the petition) and together with other fee studies out there in the industry, will eliminate the claims that there is insufficient data or that there are no comments from the appraisal community.

Thanks for reading!

Take a look at, discuss, sign, and share the petition to the CFPB.

Appraisals vs Evaluations – Tapping “New” Source of Business

by Joshua Walitt

There’s been a good deal of interest lately about Evaluations: who is writing them, and more importantly, who is not writing them and missing out on potential valuation business. Evaluations are those valuation reports that banks can use, under the Interagency Guidelines and in certain lending situations, which don’t require but do allow the engagement of appraisers. Here’s how to tap this “new” source of business.

Strictly speaking, the minimum requirements for completing an Evaluation do not meet federal requirements for completing an appraisal, as laid out in the Uniform Standards of Professional Appraisal Practice (USPAP). If appraisers are required to meet USPAP, can they prepare Evaluations? If appraisers can prepare USPAP-compliant evaluations, what are the reporting requirements, and given what is required, does it even make sense to add Evaluations to your list of services? Answers to follow!

Evaluations: Yes You Can

There should be no confusion: appraisers CAN write Evaluations today. USPAP does not prevent appraisers from preparing Evaluations, no matter what you’ve read or heard.

The issue is that most appraisers (except in North Carolina, Virginia, and Tennessee) are held to USPAP requirements when producing Evaluations. In other words, an appraiser producing an Evaluation report must meet two different sets of requirements; the report must not only meet the Federal requirements for an Evaluation, but also the requirements of USPAP. Consequently, each appraiser has to weigh whether doing Evaluations is worth the time and effort.

Interestingly, the gap between the reporting requirements of an Appraisal and an Evaluation has decreased due to the 2010 revision of the Interagency Guidelines. The revision brought expanded requirements for the content of an Evaluation. Evaluations, often regarded as the “lower-quality” cousin of an appraisal, now must contain descriptions of the inspection, analyses and supporting information used in valuing the property. Compare it to a Restricted-Use Appraisal, where the appraiser can briefly state the appraisal methods, techniques and conclusions – providing fewer details in the report itself.

How many banks in your community order Broker Price Opinions (BPOs) or have minimally-trained individuals completing Evaluations? With the banks needing to raise the bar for Evaluations, appraisers are well-suited to produce reports that meet the new expanded requirements. Why? It is logical to assume that the quality of work will be higher when prepared by appraisers (as compared to real estate agents or bank employees), in general, because appraisers are non-biased, trained valuation experts with no interest in the transaction.

Opponents might claim this legislative approach lowers the bar for the lending industry’s collateral valuation protocols, at a time when we should be raising it. As noted, however, the 2010 Interagency Guidelines require more of an Evaluation than they did in the past, including more written support and detail than even some portions of a USPAP Restricted-Use Appraisal. So the question is not whether appraisers can do Evaluations, but whether they make sense from a business perspective.

Appraisals vs Evaluations

To know whether Evaluations make sense for your practice, you must first understand what you’re required to do. The core components that we would generally expect to find in any reliable valuation report are required for both an Evaluation and a Restricted Use Appraisal. For example, we find the mutual elements of the identification of the property, the estimate of value, the value date, and the inclusion of information regarding analyses, support and other data in both types of reports. But these overlapping components only go so far.

An Evaluation’s requirements lack several items including an estimate of exposure time, citation of the source of the market value definition, Statement of Use and User Restrictions, identification of the report type, and inclusion of specific signed certifications – all of which must be included for the report to be called an Appraisal.

Conversely, a Restricted-Use Appraisal allows brief statements regarding certain information, analyses, and property characteristics, whereas an Evaluation requires a more-thorough account of those items.

Think of it like this: an Evaluation is a cup of coffee with sugar required; a Restricted-Use Appraisal is a coffee with cream required. The key is to make your cup of coffee with cream and sugar included – so both sets of requirements are satisfied.

Giving the Client What They Want

The banks, per the Interagency Guidelines, need at least an Evaluation. The appraiser, per USPAP, must prepare at least an Appraisal. The focus isn’t on what label you put at the top of the page – in the end, the content will reveal the type of report. (But, yes, USPAP does require a formal identification of the report type.)

So, the question shouldn’t be can you provide Evaluations to banks because you surely can. Instead, we should ask ourselves, “Do I understand the requirements for developing and writing these reports?”; “For what properties will I write Evaluations?” and “What Scope of Work choices do I have?”

Pricing

Know that I am a full-fee appraiser. I charge fees that fairly compensate me for the time and effort necessary to produce a quality report –I don’t accept the mini-fees that some companies offer. So I don’t expect to get all the Evaluation business in my area, nor do I expect that I will accept every Evaluation assignment offered. I have produced Evaluations and know it is unlikely they will make up the bulk of my work. (I perform rent studies too, and they also do not make up the bulk of my business but they do round out the range of products I offer.)

The fact that some banks are already engaging appraisers for this type of assignment dismisses the argument suggesting appraisers will never be asked to provide Evaluations. But an appraiser is guaranteed to receive no Evaluation assignments if they don’t offer the product or never ask for the business.

Doing it By the Book (USPAP)

As you prepare to produce Evaluations, don’t look to any article – including this one – for an exhaustive list of requirements. Go to the sources yourself: read the 2010 Interagency Guidelines and USPAP Standards 1 and 2. Don’t rely on a class, an existing pre-printed form, or the work samples of others to instruct you. Instead, produce your own thorough list of the necessary elements and then make sure your process and form are sufficient. The Appraisal Institute’s Guide Note 13 is a good outline, but don’t simply cut-and-paste it – confidently understand if the process that you design is adequate or not.

A good reminder, applicable to so many appraisal issues, often comes up at our office’s monthly meetings: “We’re all independent appraisers– so we all need to make our own decisions.”

Accept/Decline Parameters

Do you accept every assignment that is offered to you? Probably not, and it will be no different with Evaluation assignments. With the somewhat more-abridged nature of the Evaluation (compared to a Summary Appraisal used in the industry), you might find an Evaluation is not appropriate (or cost effective) for complex assignments.

For example, will you accept Evaluation assignments for properties having log construction, four acres, one bedroom, fully-below-grade, an atypical design, or in a market area that has limited recent sales? In many markets, these characteristics can indicate a complex property, where the necessary scope of work to produce a reliable report will need fuller – and probably more time-consuming – development and reporting.

Also, be aware that you’re not the only party needing to make important decisions. Within the Guidelines, banks are specifically instructed that:

BPOs and AVMs in and of themselves are not acceptable as Evaluations

Selection of the valuation method (Evaluation or Appraisal) should not be based on the lowest fee, and atypical, or complex, properties may require an upgrade from an Evaluation to an Appraisal.

So, how will you determine and communicate your own “accept/decline parameters” to your client, regarding assignments they offer you? What product upgrade will you offer your client in cases of complex properties which are not suited for the Evaluation product? The Interagency Guidelines instruct the bank that upgrades from Evaluations to Appraisals will likely need to meet Summary Appraisal report requirements. Not only does this decision making process protect the bank, it also provides a fail-safe for your time and your fee.

Fees are influenced by a variety of factors, and invariably some fees will be inadequate for the amount of work required for a particular product. On a regular basis already, many appraisers are countering or declining mini-fee assignments, and Evaluations will be no different. Appraisers are good at valuing properties, but are they all good at valuing their own work.

Scope Choices

We’ve all heard someone claim that USPAP is too restrictive, but in general, the Standards are actually quite broad in their allowances. So, when you approach new and existing clients regarding the Evaluation product you offer, you’re going to have scope questions to answer, including the following:

What type of subject inspection will you make?

a desk inspection using a prior appraisal or MLS, within a certain timeframe,
a from-street personal inspection,
an inspection performed by someone else,
or another type of inspection?
What will the reporting of the value be?
a single-point dollar figure,
a range,
or a relative figure?
Will the sales grid have adjustments that are-

quantitative,
or qualitative?
What type of inspection will you complete for the comps?

personal from the street,
or the MLS and public data only?
As always, in the end, the final scope of work choices are yours, to ensure you are producing a reliable report for the bank’s use.

Making Things Happen

An article in the current edition of Working RE magazine suggests a permanent solution to the Appraisal vs. Evaluation question is to enact legislation which authorizes appraisers to write Evaluations by exempting them from meeting USPAP requirements on these reports (Appraiser Evaluations-Why Not?, pg. 16). While it’s true this solution would end the debate, appraisers in the 47 states without such legislation don’t have to wait to go after this business. USPAP does not prohibit appraisers from producing Evaluations but appraisers do have to decide if it is worth their time and effort. Choose to offer Evaluations to your clients today and run the numbers to see if it is the right fit for your business.

Editor’s Question: What are your experiences doing Evaluations?

This article was originally posted at Working RE.

5 Guidelines to Hire the Right Real Estate Appraiser as an Expert Witness

Many legal cases revolve around real estate. These cases can stem from disputes over jointly-owned real estate, tax issues, estates, probate, wills, and trusts just to name a few. Frequently, property valuations play a key role in these cases. Maybe it is a divorce or will, and one party is disputing the value of a property pertaining to a division of assets; or a dispute regarding a buyout in jointly-owned real estate. There are many possible scenarios, but in all cases an attorney will need a real estate appraiser as an expert witness. But not all appraisers are appropriate as experts or qualified to testify in court. So what qualities should an attorney look for when you hire the right real estate appraiser to provide expert testimony?

The Importance of Expert Witnesses

In Colorado, legal disputes over real estate can be resolved through trial. The plaintiff and the defendant present their arguments. Depending on the type of trial, these arguments are heard by either a jury or a judge as an objective party. Now with all the possible cases that can come before a judge and jury it would be impossible for them to be knowledgeable in all subjects being tried. In such a case one or both sides will call in an expert witness to clarify the evidence for the judge and jury. An expert witness is a person considered to have credible knowledge in a specific field and provides his specialized viewpoint to determine whether the evidence shared in court is accurate.

Guidelines for Selecting a Right Real Estate Appraiser as an Expert Witness

So what should attorneys look for in an expert? I recommend following these guidelines to ensure that you select the best real estate appraiser for the case.

1. Experience

When it comes to legal cases, there is no better criterion than experience. Real estate disputes can be complicated issues to handle, so you want to select an appraiser who has spent a number of years working in the real estate industry. The appraiser should have conducted thousands of appraisals for various types of properties in. The appraiser should also be considered an expert in his field by other local members of his profession and the industry at large. It is also desirable if the appraiser has experience in providing expert testimony in similar cases.

2. Knowledge of the area in question

To be an expert witness in a trial concerning property valuation, a real estate appraiser must be knowledgeable about their profession and about the geographic area in question. Say you were trying a case in Montrose County Superior Court in western Colorado. You wouldn’t hire an appraiser from New York to be your expert witness. They might be an extremely qualified appraiser, but without an intimate knowledge of the area in question they would be all but useless to you in providing expert testimony. You’ll need an appraiser with experience servicing the city or county of the disputed property in your case.

3. Honesty and objectivity

An expert is there to aid the court in identifying whether a piece of evidence has material bearing on the case and is permissible in court. To do this, the expert witness must be straightforward and unbiased at all times. The expert witness must be well-prepared and well-researched, providing honest information about the case. The appraiser must have the capability to answer unanticipated questions from either side in the case.

4. Professionalism

Attorneys want an expert who is highly dependable. The real estate appraiser’s professional reputation must be beyond reproach otherwise the credibly of their testimony might be called into question and possibly discredited.

5. Good communication skills

Attorneys need an expert that talks confidently and can provide clarity to complex principles before either a judge or a jury. They need an expert who comes off as knowledgeable but not a know-it-all. This is especially important in jury trials where verdicts can be swayed by the likeability of a witness.
While this list is not exhaustive, an attorney should have great success in their trial by using these five guidelines when you hire the right real estate appraiser as an expert witness.

The above statements are for informational purposes only and not for the purpose of providing legal advice. You should contact your attorney to obtain advice with respect to any particular issue or problem. The opinions expressed at or through this article are the opinions of the individual author and may not reflect the opinions of the firm or any individual attorney.