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Standards of Valuation Practice

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Appraisal Institute Standards of Valuation Practice

Valuers' Code of Professional Ethics

Summary

This legislation will allow state certified appraisers to use standards of valuation practice, other than the Uniform Standards of Professional Appraisal Practice (USPAP), when performing appraisals for non-federally related, non-mortgage lending transactions.  This legislation will allow appraisers to effectively and efficiently meet their client’s needs while maintaining the highest levels of appraiser ethics and competency and preserving the public trust.

What is the existing law?

Existing law provides for the licensure and regulation of real estate appraisers and vests the duty of enforcing and administering that law in the state appraiser regulatory agency. 

State certification as an appraiser is mandatory if an appraiser performs appraisal services for federally related transactions, which are real estate related financial transactions that are regulated by one or more of the federal bank regulatory agencies (Federal Deposit Insurance Corporation, Federal Reserve, the Office of the Comptroller of the Currency, National Credit Union Administration, or the Consumer Financial Protection Bureau). 

In many states, a person who does not wish to provide real estate appraisal services for any FRT, including for such purposes as litigation, tax, financial reporting, etc. may voluntarily obtain, but is not required to obtain, a state appraiser certification.

However, once a person is state licensed or certified, any work or service performed by that person (including non-federally related real estate appraisals) must be performed in accordance with USPAP, and is subject to regulation and oversight by the state appraiser regulatory agency.  Compliance with USPAP is not required by a person who is performing real estate appraisal services but is not a state certified appraiser.

There are currently no state alternatives to compliance with USPAP for state certified appraisers that are performing appraisals for non-federally related transactions.

What would this legislation do?

This legislation will allow a state certified appraiser to perform an appraisal in accordance with standards of valuation practice that have been submitted to, and approved, by the agency for use when performing appraisal services for any non-federally related purpose.

A licensee wishing to perform non-federally-related real estate related appraisal activity must state within the body of the appraisal report the standards of valuation practice utilized in the development and reporting of the appraisal. 

What won’t this legislation do?

This legislation will not:

  • Change any of the state requirements enacted in accordance with the federal Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA) and amendments thereto, including the requirements that appraisals for federally-related transactions (FRTs) be performed by state-licensed or state-certified appraisers in compliance with USPAP;
  • Prohibit an appraiser from choosing to utilize USPAP to perform an appraisal for a non-federally related, non-mortgage lending purpose; 

Why is this legislation needed?

Appraisers have identified many problems with USPAP that impact their ability to perform appraisal services for non-federally related purposes in an effective and efficient manner that meets the needs of their clients.  Alternate standards of valuation practice have been developed by public and private entities that provide the same assurances that the information being provided by the appraiser is credible and reliable, and that the appraiser is independent, impartial and objective.

  • Rules vs. Principles - USPAP has become a rules-based, rather than principles-based, set of standards.  When performing an appraisal assignment, an appraiser must go through a series of very detailed steps, similar to a checklist, to ensure that their appraisal is in compliance with every nuance of each USPAP Rule, Standards and Standards Rules, and Statements on Appraisal Standards. The USPAP rules related to real property appraisal assignments are now approximately 165 pages in length.  By comparison, the Appraisal Institute’s Standards of Valuation Practice, which will provide the same assurances to the users of appraisal services regarding credibility and competence as USPAP, are only 5 pages in length.  There have been many instances where appraisers offering testimony in courts of law have been disqualified as expert witnesses for minor deviations from USPAP that have no material impact on their value conclusion.  In addition, some appraisers have had disciplinary action taken against them for minor violations of USPAP that are unrelated to their ability to ethically and competently perform an assignment and to obtain credible assignment results.
  • Standards vs. Methodologies – Many of USPAP’s Standards are in fact valuation methodologies, which should be left to the expertise of the valuation professional.  The Advisory Opinions of USPAP, which are an enforceable part of USPAP, contain extensive methodological information that is unnecessary to ensure that the analyses, opinions, and conclusions of an appraiser are meaningful and not misleading.
  • Mortgage Lending Focus - USPAP was developed in response to the savings and loan crisis of the late 1980’s to institute appraisal standards for mortgage lending transactions.  Development of USPAP is funded and partially overseen by the federal Appraisal Subcommittee, which is made up of representatives from the federal financial institutions regulatory agencies.  The provisions of USPAP are geared primarily towards meeting the appraisal needs of financial institutions involved in mortgage loan origination.
  • Meeting Client Needs – Often, users of appraisal services have needs for real estate appraisals that are performed according to national or international valuation standards.  There is little, if any, flexibility within USPAP to allow appraisers to meet the needs of a diverse clientele.  Take, for example, a Canadian financial institution that is considering financing the development and construction of an office building in the United States.  The institution’s regulators require that an appraisal of the subject property be performed in accordance with the Canadian Uniform Standards of Professional Appraisal Practice (CUSPAP).  Currently, a U.S. state certified appraiser cannot legally complete this assignment due to the requirements for the U.S. appraiser to comply with USPAP.  So, the Canadian financial institution must have this assignment completed by a Canadian appraiser operating in the U.S.  This results in lost business for U.S. appraisers who may be competent and qualified to complete appraisal assignments in accordance with CUSPAP. 
  • Compliance Costs - A significant portion of an appraiser’s time is spent ensuring compliance with USPAP’s mundane Rules, Standards and Standards Rules, Statement on Appraisal Standards and Advisory Opinions Rules, rather than completing the research and analysis necessary to ensure credible assignment results.  The amount of time necessary to complete the average appraisal assignment has significantly increased due to USPAP’s bureaucratic requirements.  The additional time that it takes to ensure compliance with USPAP has had an impact on the ability of appraisers to competitively price their services.  For instance, a utility company that is considering the purchase of a parcel of real estate for a pipeline or transmission line is faced with a decision whether to use a competent and qualified real estate appraiser that is subject to oversight and regulation by the agency but that commands a higher fee due to USPAP compliance costs, or to use an unlicensed party that may not be competent or qualified, and is not subject to regulation and oversight by any governmental agency.  
  • USPAP is Constantly Changing - The Appraisal Standards Board modifies USPAP every two-years, sometimes only to make minor changes.  This results in a constantly moving target for appraisal practitioners, and is typically done for no other reason than for the publisher of USPAP to sell copies of the new edition, and to justify requiring appraisers to attend a seven-hour USPAP continuing education class. 

What are the benefits of permitting appraisers to use Standards of Valuation Practice?

This legislation will allow state certified appraisers to be better able to meet client needs for reliable opinions of the value of real estate.  The use of alternate standards of valuation practice will continue to ensure that real estate valuations for non-federally related purposes are: 1) credible and reliable; 2) performed by appraisers who are independent, impartial and objective; and 3) performed by appraisers who comply with the highest principles of ethics and competence.

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