Tag Archives: Appraisal Institute

2 MORE STATES JOIN THE NON-USPAP EVALUATION WORLD!!!

June 6, 2019 – Most importantly, my thanks to all past and present Veterans on this 75th Anniversary of D-Day.  I visited Normandy and Omaha Beach last year.  So serene.  Humbling.  One of my wife’s uncles was in the second wave that landed at Omaha Beach.  He didn’t tell anyone that until a few months before he died in his 90’s.  The Greatest Generation rarely talked about the War.  But, they saved the World.  Literally.  We owe those young men everything.  God Bless them all and our Country.

Per the Appraisal Institute’s Appraiser News Online, 2 more states will allow licensed/certified appraisers to perform non-USPAP Evaluations.  As predicted, this is the year for this to finally take off across our country.

If you are an appraiser in adjacent states, you should start a campaign to get your state to pass a similar law.  Else, you are missing out on a ton of business!  I hope North and South Carolinas wake up and join the movement.  Soon, the entire Southeastern USA will allow appraisers to perform non-USPAP Evaluations.  Following is from the AI:

ALABAMA

Alabama enacted legislation, effective May 29, allowing state-licensed appraisers to perform evaluations for federally regulated financial institutions.
HB 304 states that appraisers “shall not be subject to any provision” of the state’s appraiser licensing law when performing an evaluation that includes a disclaimer stating it is not an appraisal, and the requirements for a licensed real estate appraiser to comply with the Uniform Standards of Professional Appraisal Practice do not apply.
Additionally, the law clarifies that evaluations are “governed by federal law and rules of the federal financial institution regulatory agencies, and not the board.”
LOUISIANA
Louisiana Gov. John Bel Edwards on May 30 signed HB 340, legislation that allows appraisers in the state to provide evaluations for federally insured depository institutions. The law takes effect Aug. 1.
The legislation states that appraisers are not prohibited by the state’s appraiser licensing law from providing evaluations to federally regulated institutions in accordance with “federal law, regulation or the guidance for evaluations established by the federal financial institutions regulatory agency of the depository institution.”

OREGON – WELCOME TO THE NON-USPAP EVALUATION WORLD

May 23, 2019 – Licensed appraisers will finally be allowed to perform non-USPAP Evaluations for financial institutions.  I like how the State makes it clear that Evaluations are not even real estate appraisal activity.  Strong statement.  Below is from the Appraisal Institute:

SB 109 will allow state-licensed and state-certified appraisers to provide evaluations to financial institutions beginning Jan. 1.
The new law clarifies that a person who is licensed or certified as an appraiser is not engaged in real estate appraisal activity when providing an evaluation that includes a required disclaimer and are not required to, but may choose to, comply with the Uniform Standards of Professional Appraisal Practice when providing evaluation services to financial institutions. Providing evaluations is not considered a real estate appraisal activity, and therefore appraisers are not subject to the jurisdiction of the Oregon Appraiser Certification and Licensure Board.
SB 109 also clarifies that financial institutions may utilize evaluations provided by third parties, and such activity does not constitute real estate appraisal activity. Currently, an evaluation is only exempt from the definition of “real estate appraisal activity” if it is prepared by the financial institution.
In testimony supporting the legislation, the Coalition of Oregon Real Estate Appraisers stated, “We believe Oregon’s citizens and financial institutions would be best served and protected by allowing appraisers to perform evaluation services.” COREA concluded, “We are not opposed to qualified non‐appraisers performing evaluations, however, [sic] we strongly feel that it is in the best interest of Oregonians that those most qualified to perform evaluations (appraisers) not be prohibited from doing so.”

2019 – THE YEAR EVALUATIONS BREAK THROUGH

April 19, 2019 – It has been exactly 25 years that I have been campaigning for non-USPAP Evaluations to be performed by licensed/certified appraisers.  Most of the time it has been a one-man campaign.  Thankfully, times have changed and appraisers have come around to the need for Evaluations.

It looks like this year will see many States pass the requisite law to allow its most qualified valuers to finally perform non-USPAP Evaluations.  If your State isn’t mentioned below, I encourage you to take action.  For almost 30 years, non-appraisers have been doing all the Evaluation work in your State.   With Evaluation volume about 4x-6x that of Appraisal volume think how much business you have missed out on:(

The following are from the Appraisal Institute:

Utah Allows Appraisers to Perform Evaluations for Federally Regulated Lenders
Utah Gov. Gary Herbert on March 26 signed SB 140, legislation that allows state-licensed and state-certified appraisers to perform evaluations for federally regulated financial institutions.
Under the new law, appraisers who provide evaluations in compliance with the Interagency Appraisal and Evaluation Guidelines are exempt from compliance with the Uniform Standards of Professional Appraisal Practice. Appraisers will sign the evaluations, certifying that they comply with the IAEG. However, they must still abide by the basic elements of USPAP’s Ethics, Competency, Scope of Work and Recordkeeping rules. This concept has been advanced by several Appraisal Institute chapters in recent years.
The legislation takes effect May 14.
• Evaluations
Alabama (HB 304) Louisiana (SB 42) and Oregon (SB 109) are considering bills that will amend appraiser licensing laws so that appraisers can perform for financial institutions evaluations that do not comply with the Uniform Standards of Professional Appraisal Practice when not required by federal law. If the laws pass in these states, they will join Florida, Georgia, Illinois, Indiana, Tennessee, Utah, and Virginia in allowing appraisers to perform these services.

 

RESIDENTIAL APPRAISAL THRESHOLD INCREASE – MUCH ADO ABOUT NOTHING

February 1, 2019 – The Federal Reserve, the Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency proposed raising the residential appraisal threshold from $250,000 to $400,000.

The Appraisal Institute and numerous other groups are opposing this increase.  That is understandable.  But, the hyperbole that these organizations and appraisers put out there is no different than the Fake News problem.

Based on my experience of over 25+ years in banking, I estimate that less than one-hundredth of 1% of residential appraisals will be affected.  Probably less than that.

GSEs are responsible for 90%-95% of residential loans and, thus, residential appraisals.  All such loans are exempt from FIRREA.  So, the Federal Agencies can increase the residential threshold from $250,000 to $1 Trillion and it wouldn’t be noticed by 99%+ of   residential appraisers!  Also, it will have no effect on the national economy.

For the most part, the only residential properties that stay under FIRREA are second/vacation homes, model homes in subdivisions, and rental homes (e.g. an investor rents 20 houses around a city).   Some ‘regular’ house loans remain under FIRREA – this is when the bank does not sell the loans to the secondary market.  Banks typically don’t keep many of these loans on their books.  But, yes, they do keep some.

Appraisers just need to keep an eye on the GSEs.  They are the ones who make decisions that affect the entire residential appraisal industry in a significant way.  Don’t worry about the FIRREA issue at hand.  As they say, it is a nothing burger:)

The Mann

UP TO 6 STATES NOW, WELCOME TO THE CLUB FLORIDA

May 25, 2017 – Six states now permit licensed appraisers to perform non-USPAP Evaluations.  In those six states, licensed appraisers are finally on a level playing field.  44 states to go.  We might already have another state in the group, but some legal confirmation is needed.  And Virginia is actually delayed a year as they need to change the definition of Evaluation.  But, we are headed in the right direction.  The following is from the Appraisal Institute (but, it omits Indiana which does have this law):

Florida Makes Significant Changes to Appraiser Licensing Law

Florida Gov. Rick Scott on May 23 signed HB 927, legislation that makes significant changes to the state’s appraiser licensing law and requires appraisal management companies to comply with federal minimum requirements for registration and oversight. The law takes effect Oct. 1.

The Appraisal Institute and the Region X Government Relations Committee advocated for two key improvements to the state’s appraiser licensing law, and those provisions were incorporated into the bill.

The first provision defines an “evaluation” as a “valuation permitted by any federal financial institutions regulatory agency for transactions that do not require an appraisal” and clarifies that a state-licensed appraiser may perform an evaluation. Currently, appraisers in Florida are prevented from providing evaluations that are not in full compliance with the Uniform Standards of Professional Appraisal Practice even though federal requirements only call for compliance with the Interagency Appraisal and Evaluation Guidelines.

Evaluation services in the state have been provided by non-appraisers, such as brokers and salespersons, accountants, architects, financial analysts and data providers, all of whom do not have to meet the same licensing and standards compliance requirements as appraisers. State-licensed appraisers will now be able to perform services on these same terms in compliance with federal requirements. Florida joins Georgia, Illinois, Tennessee and Virginia in allowing appraisers to perform evaluations.

The second provision clarifies that the Florida Real Estate Appraiser Board has the authority to adopt rules allowing for the use of standards of professional practice other than USPAP for “nonfederally related transactions.” Such transactions include appraisal assignments for portfolio monitoring, financial reporting, litigation, tax and consulting, among other areas. The law requires appraisers using development and reporting standards other than those contained in USPAP to comply with USPAP Ethics and Competency Rules and other requirements adopted by the Board by rule. The law clarifies that any valuation work performed per standards other than USPAP cannot be used to satisfy the experience requirements for any Florida appraiser credential.

In 2015 and 2016, the FREAB undertook a rulemaking proceeding that would have allowed the use of standards other than USPAP if additional standards “meet or exceed” USPAP. The provisions in HB 927 remove that arbitrary threshold and grant much broader authority to FREAB to consider standards other than USPAP. Further rulemaking proceedings will need to be undertaken by FREAB to fully implement this new provision.

The Region X Government Relations Committee, under the leadership of Chair Wesley Sanders, MAI, advocated for this legislation, meeting with the state’s Department of Business and Professional Regulation about these two provisions. Additionally, AI professionals in Florida participated in Region X’s ValuEvent on Feb. 14 in Tallahassee, meeting with many legislators to urge support for the provisions.

View a copy of HB 927.

The Mann

MY CAMPAIGN TO BRING SUSTAINABLE VALUE TO AMERICA IS LOOKING GOOD

October 18, 2016 – As I mentioned in my very first post on this blog, one of my goals is to get Mortgage Lending Value (MLV) adopted in the USA.  Between new bank regulatory guidelines (specifically CECL) and the proposed Basel IV, things are looking good for Long-Term Sustainable Value (LTSV) being adopted here.

Since 2009, I have made it known that my 10-year goal was to get MLV/LTSV used by American banks and to eliminate the use of Market Value as currently defined.  Market Value may not be eradicated, but the use of MLV/LTSV will greatly reduce future loan losses and market volatility.

The following is from the October 17, 2016 edition of the Appraisal Institute’s Washington Report and State News.  I have placed in bold the wording that makes it clear that prices that exceed value (like what is occurring currently in almost all markets and property types in America) are to be adjusted downward accordingly.  It is great to see the World recognize the difference between price and value.  It will be better when the American valuation industry has to recognize this, also.

7 years into this….in 3 more years I might need to move on to another long-term goal.

Planned Basel IV Includes Valuation Provision
The banking sector is on high alert as the Basel Committee on Bank Supervision expects to finalize its new accord (Basel IV) by the end of the year, the Appraisal Institute reported Oct. 17. The Second Consultation Document, which was released for comment in March, pays significant attention to real estate risk requirements, including real estate valuation.
The so-called “Basel Accords” are issued by the Bank for International Settlements and establish regulatory capital requirements that bank regulatory agencies around the world have committed to following.
For exposures secured by real estate, the accord proposes to use the loan-to-valuation ratio as the main driver for risk-weighing purposes, and to use a three-category classification (from less risky to risky) as follows:
  • General treatment for exposures secured by real estate where repayment is not materially dependent on rent/sale of the property;
  • A more conservative treatment for exposures secured by real estate where repayment is materially dependent on cash flows (i.e. rent/sale) generated by the property. Specialized lending (corporate) exposures assigned to “income-producing real estate” under the IRB approach would be classified under this category; and
  • A conservative, flat-risk weight for specialized lending real estate exposures defined as “land acquisition, development and construction” (i.e. loans for unfinished property that meet the definition of specialized lending).
The proposed accord also includes the most extensive commentary relating to real estate valuation of any current accord, and includes a provision directly relating to market value:
Value of the property: the valuation must be appraised independently using prudently conservative valuation criteria. To ensure that the value of the property is appraised in a prudently conservative manner, this value must exclude expectations on price increases and must be adjusted to take into account the potential for the current market price to be significantly above the value that would be sustainable over the life of the loan. National authorities should provide guidance setting out prudent valuation criteria where such guidance does not already exist under national law. If a market value can be determined, the valuation should not be higher than the market value.
These market value constructs appear consistent with current bank regulatory requirements in the U.S., with one exception. The “life-of-loan” concept is new to U.S. bank regulatory requirements and could be interpreted to include “long-term sustainable value,” which is found in accords used in other parts of the world, including Europe.
As noted, the Basel IV accords are expected to be finalized in the coming months. U.S. banking trade organizations such as the American Bankers Association have called on banking regulatory agencies to release a notice of proposed rulemaking for any changes to the risk capital requirements to help avoid piecemeal application and increased complexity. Once finalized, expect implementation of Basel IV provisions in the U.S. to take considerable time.

 

 

AN INDEPENDENT REVIEW OF YOUR BANK REVIEWS

August 8, 2016 – I attended the Appraisal Institute’s national conference in Charlotte, NC a few weeks ago.  One of the sessions was about compliance and a topic was called ‘Quality Assurance Reviews – Review of the Review.’

I believe I may have performed the first ever independent review of a bank’s staff reviews back in 2014.  In March, 2015, The RMA Journal published my article on the topic.  It is titled ‘What’s New In Appraisal Review’ and you can get to it on the Articles page of this web site.  (NOTE:  I call these Quality Control Audits (QCAs), but the task is the same regardless of the name.)

One of the slides at the AI session said ‘In layman’s terms, a Real Estate Assurance Review is a third party review, performed by a reviewer not tied to the institution’s review department, of an institution’s reviewer’s review of a real estate appraisal.  This type of external review allows for a variety of credibility checks for the institution, as well as for the governmental banking regulation authorities.’

One of the slides asks the questions ‘How can my institution justify the additional cost?’  In my Chief Appraiser days at two $100+ Billion institutions this question was presented more than once a year by senior management.  How can we recover the expense of the appraisal department?  How can we get borrowers to pay the internal review fee your department is charging the lending groups?

I can see all of the Chief Appraisers reading this and nodding their head and saying yep I do this ever darn year!  As I tried to explain to senior management, the appraisal department can pay for itself many times over by saving the bank a single large loan loss.  e.g. I remember one of my reviewers finding a $4 million error in an ARGUS cash flow.  That paid for the cost of my department for 4 years right there.  And I am sure my staff found many more errors that saved the bank millions of dollars.

In one of my Quality Control Audits for a regional bank, I found a single appraisal report that was approved by the reviewer, but had a $10 million error in it!  I found many other overlooked errors in the millions of dollars.  The cost of a QCA/QAR is nominal in comparison to not doing one.

It is not just about approving erroneous appraisal values.  A QCA/QAR is also about seeing if your internal policies and procedures are being followed.  If they aren’t, you will have a lot of fun answering to bank examiners and internal audit about why not.  Read my RMA Journal article to see the common issues I encounter.

You can try to do this internally.  But, you likely lack the resources.  My experience is it takes 10-12 hours per review – remember, you have to review the review AND the appraisal report.  Only then can you know if the reviewer missed anything.

Not many of us ever have enough staff to just do our day jobs.  Much less try to now perform reviews of reviews.  Outsourcing this task is the way to go.  Also, it provides an independent view of your staff.

Let me answer two questions I often get asked.  Yes, a QCA/QAR can be performed remotely.  This reduces the cost.  No, every review does not need to be checked.  A well-thought out sampling should let you know if there are any areas of concern.

Lastly, this does not apply to just banks/credit unions with internal review staff.  This applies to financial institutions that use Appraisal Management Companies (AMCs).  It would be prudent to know in advance of your next bank examination or internal audit if your appraisal review process is going to get high marks or has issues you can start addressing asap.

My focus is commercial real estate, so the above is mainly about that.  I am sure there are many advanced ways of addressing the quality of residential appraisal reports and residential reviews.

Please contact me if you are in need of a QCA/QAR!

 

THE DICTIONARY OF REAL ESTATE APPRAISAL, 6TH EDITION

October 26, 2015 – Per the Appraisal Institute’s web site:

http://www.appraisalinstitute.org/the-dictionary-of-real-estate-appraisal-6th-edition/

The Appraisal Institute is proud to present the sixth edition of The Dictionary of Real Estate Appraisal and grateful to the dozens of practicing appraisers who contributed to its development. This new edition features

  •  5,000+ dictionary entries
  • 1,250 revised definitions
  • 450 new terms

Also included are new and revised glossaries to help real property valuers understand the language of related professionals in architecture and construction; mathematics and statistics; environmental contamination; agriculture, forestry, soils, and wetlands; and green building. Other addenda contain information on real estate organizations; important US government agencies, legislation, and programs;  significant US Supreme Court decisions; and useful measures and conversions.