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Third Quarter 2016

Third Quarter 2016

July 15, 2016

The Appraisal Institute’s Washington Report and State News quarterly e-newsletter is intended to summarize AI’s recent federal and state legislative, regulatory and related activities in representing the interests of Designated Members, Candidates for Designation, Practicing Affiliates and Affiliates. 

ON THE HILL                                                                                

House Financial Services Committee Chairman Jeb Hensarling, R-Texas, on June 15 unveiled the Financial CHOICE Act, which is new legislation that would repeal and replace the Dodd-Frank Act, eliminate taxpayer bailouts of financial institutions and provide regulatory relief for community financial institutions.
 
Congress passed the Dodd-Frank Act in 2010 to improve accountability and transparency in the financial system, and to put an end to banks considered “too big to fail.” Numerous rules still are being written by regulators, and many real estate and banking industry groups have expressed concern about regulatory overreach. 
 
The House Financial Services Committee plans to hold several hearings on the Financial CHOICE Act this summer and fall. 
 
The Appraisal Institute on July 14 submitted a comment letter on the Financial CHOICE Act, writing that appraisal regulatory modernization should be included in the bill and that a section relating to bank examination requirements should be reconsidered because it raises safety and soundness concerns. 
 
The Appraisal Institute on May 2 joined the American Bankers Association, the National Association of Home Builders, the National Association of Realtors and The Appraisal Foundation in calling on Congress to hold a hearing this year on the future of appraisal regulation.
 
The groups noted that the federal regulatory structure for real estate appraisal essentially has been untouched since enactment of the Financial Institutions Reform, Recovery and Enforcement Act of 1989 and that the most recent Congressional committee hearing devoted to appraisal oversight was four years ago. 
 
The organizations wrote to the chair and ranking members of the Senate Banking, Housing and Urban Affairs Committee and the House Financial Services Committee, in addition to leaders of the relevant subcommittees. Read the Senate letter and the House letter.
 
The letter noted: “With the marketplace rapidly changing, we believe that it is appropriate for the Committee to review how well the current relationship of Federal versus State responsibilities is serving consumers and market participants, as well as promoting competition in the marketplace.”
 
The groups asked Congress to focus on topics including the current appraisal regulatory framework, appraisal information systems, the impact of the recent regulatory reforms on the appraisal profession, and the availability of qualified appraisers, particularly in rural areas.
 
The letter noted that each organization holds its own unique views on appraisal regulation and related issues. However, it stated: “We believe that it is in the best interests of the profession to publicly share concerns and identify areas of common ground. Therefore, we stand ready to work with the Committee to develop a vision of appraisal regulation that serves consumers by promoting a competitive marketplace for high quality appraisals.”
 
More than 100 Appraisal Institute professionals went to Capitol Hill May 26 to urge congressional support for the modernization of the appraisal regulatory process, the Appraisal Institute reported.
 
Attendees of AI’s annual Leadership Development and Advisory Council Conference, held May 25-27 in Washington, lobbied lawmakers to hold hearings on appraisal regulation as no legislation has been introduced to address modernization or the regulatory burdens that appraisers face.
 
The Appraisal Institute believes that legislation is vital because the ranks of real estate appraisers have significantly declined in recent years, and AI research projects a further decline in the appraiser population over the next five to 10 years. 
 
Key issues the Appraisal Institute want to see addressed:
  • Federal regulation. Appraisers are regulated by the states, but they also face significant federal oversight and constantly evolving standards and qualifications — is direct federal oversight necessary? 
  • State-by-state portability. Appraisers often work in multiple states and in doing so they face increased regulatory obligations, including state-by-state background checks for renewals, reciprocity licenses and temporary practice permits in many situations.
  • Uneven playing field. Where appraisals are not required by federal law, many states allow valuation services to be provided by individuals who may not be held to the same standard as appraisers. Rigid appraisal standards restrain appraisers from providing competing services for which they are the most qualified to perform.
  • “Recipe” approach to appraisal. Appraisal “methods and techniques” should not be developed as a set of homogenous rules, and the valuation profession does not need additional rules and real estate industry stakeholders deserve better than to have all markets treated as the same.
  • Federal agency rules. Numerous rules affecting valuation professionals have been issued by federal agencies since the passage of the Dodd-Frank Act. Such rules merit congressional oversight. 
Earlier this year, the Appraisal Institute released key principles for modernizing the appraisal regulatory structure. Those principles would: 
  • Align appraisal regulation with the regulatory structures recently enacted by Congress for other industries, such as insurance and mortgage origination, a move that would address the issue of multistate licensing through technology or a common licensing platform. 
  • Explore a nationwide platform or portal for valuation professionals, those who use appraisal services and state regulators that would be used to process license applications and renewals to eliminate redundancies and regulatory burdens. 
  • Provide clear audit processes for state appraiser regulatory agencies, which would allow them to focus on licensing administration and enforcement.
  • Establish a common platform to improve the sharing of information among state regulatory agencies. 
  • Improve appraisal quality by re-engaging highly qualified real estate valuation professionals. 
  • Authorize financial institutions to engage valuation professionals with designations and credentials that exceed minimum licensing requirements. 
  • Establish appropriate levels of oversight and reasonable limitations for entities authorized by Congress, which is consistent with previous congressional action.
In related news, Rep. Blaine Luektemeyer, R-Mo., chairman of the House Financial Services Committee Subcommittee on Housing and Insurance, was the keynote speaker at LDAC. Luektemeyer noted how important it is for Congress to continue to engage with appraisers and said he hopes to hold a hearing on issues of concern to the valuation profession. AI’s Washington office is working with Luektemeyer to schedule such a hearing. 

IN THE AGENCIES                                                                       

The Appraisal Institute on June 9 submitted a letter to the Federal Housing Administration clarifying its concerns about the Single Family Housing Policy Handbook, 4000.1.
 
In its letter, AI noted that it has received generally positive feedback about the handbook from students who attended AI’s FHA Appraising for Valuation Professionals seminar, but suggested a couple areas where the handbook could benefit from additional clarification. AI expressed concerns about direct endorsement underwriting processes, appraiser assistance at HUD Homeownership Centers and the need to reassess FHA Appraiser Roster requirements relative to demonstrated understanding of the FHA appraisal requirements. 
 
Read an AI-produced information sheet on examples of new FHA Handbook 4000.1 protocols
 
The Appraisal Institute on July 1 said that it is working on guidance for valuation professionals after hearing numerous concerns from AI professionals about appraisal management company requests that raised questions as to whether appraisers are contractors or employees.
 
Multiple concerns involved an AMC requesting a contract appraiser to inspect a property by a certain date, with the concern centering on the stipulation of an inspection date establishing a level of control consistent with a W-2 employee. 
 
Several agencies are involved in the review of contractor vs. employee issues, including the IRS and the U.S. Department of Labor, as well as state revenue and unemployment agencies. Each review is case-specific and subject to a holistic review of circumstances, which will show some cases lean toward contractor status with others leaning toward employee status. 
 
Appraisers can file a request with the IRS to have it review contractor/employee status. Once filed, the IRS may contact the company in question so appraisers should note that such contact can impact their relationship with an AMC. Appraisers also can consult counsel for remaining legal and tax questions. 
 
The U.S. Department of Labor announced May 18 its final rule updating regulations in the Fair Labor Standards Act that likely will impact real estate appraisal firms and operations, including some commercial real estate firms that rely heavily on salaried employees. 
 
The final rule updates regulations determining which white-collar, salaried employees are entitled to the FLSA’s minimum wage and overtime pay protections. Specifically, the rule increases the salary threshold for white-collar, salaried workers who are entitled to overtime from the current $455 per week (or $23,660 for a full-year worker) to $913 per week (or $47,476 for a full-year worker). The final rule will take effect Dec.1, which gives employers six months to prepare. Additionally, the final rule does not make any changes to the duties test for executive, administrative and professional employees. 
 
The increase in the salary threshold from $23,660 to $47,476 may push some appraisers to non-exempt status because they cannot satisfy both the salary basis test and duties test. 
 
AI is developing additional guidance on the final rule as it relates to real estate appraisals. AI has confirmed with the DOL that each employer-employee relationships is case-specific, and the DOL said it does not intend to review or determine whether or not real estate appraisal is classified as a “learned profession,” such as nursing, accounting or law.  
 
Appraisal firm owners and managers can find more information by reviewing Guidance for Private Employers and a Q&A from DOL Webinars or by contacting the DOL Wage and Hour Division.
 
The U.S. Department of Agriculture’s Rural Business-Cooperative Service on June 3 released its final rule that makes changes to its Business and Industry Guaranteed Loan Program to improve program delivery, clarify regulations and reduce delinquencies. The final rule takes effect Aug. 2. 
 
Of special interest to appraisers, the final rule raises the appraisal requirement threshold from $100,000 to $250,000 on all collateral to be released, and the requirement for a current appraisal for collateral to be liquidated will increase from $200,000 to $250,000. The $250,000 threshold is consistent with Office of Management and Budget guidelines set forth in OMB Circular A-129.
 
In a joint comment letter that the Appraisal Institute and the American Society of Farm Managers and Rural Appraisers submitted in November 2014, the organizations cautioned the USDA about raising the appraisal threshold due to “reported concerns with the quality of appraisals prepared for lenders participating in the B&I program, which are often engaged with turnaround time and price at the forefront and minimally reviewed by USDA lenders.” AI recommended coupling any threshold increase with requirements related to appraisal review. 
 
The USDA included in the final rule one of the recommendations AI mentioned in its comment letter, namely that the USDA should “require B&I lenders to follow their primary regulator’s policies relating to Appraisals and Evaluations below the appraisal threshold” in situations where an appraisal isn’t required and the USDA relies on the lender’s evaluation of the collateral. 
 
The Federal Aviation Administration on June 21 released regulations for drone usage, including issuing aircraft weight and flight restrictions. Commercial operators will need to be vetted by the Transportation Security Administration and have to pass an aeronautical knowledge exam at an FAA-approved test center. 
 
Many valuation professionals see considerable opportunities for commercial uses for aerial drone technology, including marketing appraisal services, accessing areas that are difficult-to-reach on a structure or property and making remote structural measurements.
 
View the Appraisal Institute’s 2015 comment letter to the FAA. (login required) 
 
The Land Trust Alliance on June 8 expressed concern about promoters using hyper-inflated conservation donations as a tool for selling tax deductions to wealthy investors, which could undermine the organization’s ability to conserve land.  
 
The Appraisal Institute is asking its professionals to read about concerns relating to partnerships, as additional IRS scrutiny of conservation easements is likely, as noted in the blog.
 
AI and the LTA last October signed a Memorandum of Understanding to work together on education, training and enforcement matters. 
 
The Appraisal Institute on July 8 urged individuals interested in entering the valuation profession to look at the Appraiser Apprentice Program administered by the U.S. Department of the Interior’s Office of Valuation Services. The program provides aspiring appraisers with a pathway toward state certification and appraisal designation. 
 
The DOI’s program is structured so that apprentices are assured of obtaining the required appraisal education and experience in a sequential process within the context of the Uniform Appraisal Standards for Federal Land Acquisitions. Educational requirements are provided in classes offered by nationally recognized appraisal organizations such as the Appraisal Institute, with the three-year education term focused on the curriculum typical for obtaining a state certification. 
 
Apprentices are full-time federal employees and enjoy all the benefits of federal employment while pursuing certification and designation. The program requires a commitment of three years with a further commitment to continue employment within the federal government. 
 
Read more about the Appraiser Apprentice Program and contact Anne Renaud-Wilkinson, MAI, AI-GRS, Supervisory Team Lead Appraiser for more information. 
 
The U.S. Department of Energy's Better Buildings Initiative on May 26 announced a partnership with CoStar Group to expand the visibility of energy-efficient buildings in the U.S. and to promote the benefits of energy efficiency for building owners and occupants. As outlined in a Memorandum of Understanding, DOE and CoStar Group will jointly support the following initiatives:
  • Display building energy efficiency information in CoStar Group's online property databases
  • Perform new, cutting-edge research to evaluate the impact of energy efficiency and sustainability on real estate valuation; building operating income and expenses; and tenant health, comfort, and productivity, among other topics
  • Promote Better Buildings and the solutions of market-leading Better Buildings partners.

STANDARDS SETTERS                                                               

The Appraiser Qualifications Board of The Appraisal Foundation on June 24 adopted changes to the Real Property Qualification Criteria, altering the minimum requirements for supervisory appraiser qualification. 
 
Under the new minimum requirements, appraisers can become supervisory appraisers once they’ve been state-certified in any jurisdiction for three years. Previously, supervisory appraisers were required to be state-certified in the jurisdiction in which a trainee appraiser practices for a minimum of three years. The change took effect July 1. 
 
In announcing the change, the AQB stated, “Because the AQB sets the minimum requirements, state appraiser regulatory agencies having requirements that exceed AQB Criteria will remain in compliance, since the July 1, 2016 change does not exceed current requirements.” 
 
This change is unlikely to have any significant impact because nearly all states enacted legislation and regulation to adopt the requirement that supervisory appraisers be certified in their jurisdiction for a period of three years when the AQB adopted changes to the criteria in December 2011. Those changes took effect Jan. 1, 2015. States will have to amend their laws and regulations for the new criteria changes to have any effect. 
 
Review the AQB’s changes regarding supervisory appraisers.
 
In related news, the AQB at its June 24 meeting reviewed the more than 300 written comments it received in response to its May 18 first exposure draft of Proposed Changes to the Real Property Appraiser Qualification Criteria. The Appraisal Institute submitted comments on June 17. (Log-in required)
 
The exposure draft suggests additional changes to the criteria, focusing on five specific areas:
  1. Alternative track for licensed residential to certified residential
  2. Practical applications
  3. Alternative experience
  4. “Trainee” nomenclature
  5. Three-year supervisory residency requirement
The Appraisal Institute stated in its comments on the exposure draft, “TAF and the AQB should reevaluate its programming as it relates to the business and regulatory climate imposed on appraisers” and that “The goal should be to avoid adding more layers of rules (e.g., background check requirements without efficient means for processing such requirements) and new regulatory regimes and liabilities (codified methodology).” AI also stated, “TAF and its boards should focus their attention to TAF’s core mission of establishing minimum appraiser qualifications and standards, and to remove unnecessary and inappropriate regulatory burdens on appraisers.”
 
The AQB said that most of the exposure draft comments it received focused on a possible alternative track for experienced licensed residential appraisers who lack a four-year degree but want to move to the certified residential level. The AQB has extended the comment deadline to July 31. 
 
The AQB said it would host a webinar on Aug. 25 to review and discuss the comments. Once all the feedback on the exposure draft has been reviewed, the AQB will determine whether one or more additional exposure drafts will be necessary. 
 
If any of the proposed changes are adopted, states will once again have to change their laws and regulations to implement the new AQB minimum criteria. 
 
View the AQB’s first exposure draft on Proposed Changes to the Real Property Appraiser Qualification Criteria.

IN THE STATES                                                                            

The Supreme Court of North Carolina on June 10 unanimously affirmed a lower court’s ruling that the North Carolina Department of Transportation effectively takes away property rights and initiates eminent domain when it records a corridor protection map under the state’s Map Act. As such, property owners are due just compensation. 
 
North Carolina’s Map Act authorizes the NCDOT to file official roadway maps that list properties in the path of a proposed roadway in order to create a “protected corridor.” The NCDOT had refused to pay owners just compensation for the harms that result from having their properties listed in a protected corridor, including the inability to develop or make improvements to the properties. 
 
Property owners argued that corridor protection maps and related development restrictions are an exercise of the NCDOT's eminent domain power entitling them to just compensation. The NCDOT had argued that corridor protection maps are more like basic planning or zoning activities, and therefore no compensation was owed. 
 
 
Minnesota Gov. Mark Dayton on May 23 signed into law SF 2665, legislation that makes several changes to the state’s existing appraiser licensing and appraisal management company registration law, which originally was enacted in 2010.
 
The new law changes definitions to clarify that entities utilizing employee appraisers to complete appraisal assignments are not AMCs. The law also clarifies that entities with more than 15 independent contractor appraisers in Minnesota or more than 25 contractor appraisers in two or more states are AMCs and therefore subject to the state’s AMC registration and oversight law.
 
The new law also will require AMCs operating in Minnesota to compensate appraisers at a rate that is reasonable and customary, and to pay appraisers within 30 days or otherwise face disciplinary action by the state’s Department of Commerce. 
 
Additionally, the Minnesota law eliminates a provision in the state’s appraiser licensing and certification law that had permitted the Minnesota Department of Commerce to charge appraisers the costs of an investigation even if the investigation found no violations on the part of the appraiser.
 
The Colorado Division of Real Estate currently is conducting a review of the Board of Real Estate Appraiser rules to assess the continuing need for and the appropriateness and cost-effectiveness of the regulations. 
 
The review will help officials determine if the rules should continue in their current form, be modified or get repealed. Among the issues under consideration:
  • Necessity of the rules
  • Effectiveness of the rules
  • Clarity of the rules
  • Efficiency of rules implementation and enforcement
  • Whether the rules overlap or duplicate other agency, federal, state or local government rules
  • Whether the rules can be amended to provide flexibility, reduce regulatory burdens or reduce unnecessary paperwork or steps
  • Whether a cost-benefit analysis was performed by the applicable rule-making agency or official in the principal departments
  • Whether the rules provide adequate safety, health and welfare for the state and its residents
An Appraisal Institute review of the minutes from a May 3 meeting of the Enforcement Oversight Committee of the Oregon Appraiser Licensing and Certification Bureau indicates that the ALCB continues to believe — incorrectly — that missing an appraisal due date is an actionable violation of the Oregon appraiser licensing law. 
 
The ALCB previously issued an alert to appraisers in Oregon indicating that missing an appraisal due date violated the Uniform Standards of Professional Appraisal Practice.
 
A Q&A released Feb. 10 by the Appraisal Standards Board of The Appraisal Foundation refuted the ALCB belief stating, “Assignment due dates are contractual obligations but are not assignment conditions under USPAP. Turnaround times and similar items are business practice issues and are outside the scope of USPAP.” 
 
The ALCB meeting minutes stated, “Although late reports are not a USPAP violation, it might be a statute violation such as negligence or fraud” and continued, “According to legal counsel, the public needs to be protected and [it] won’t be a problem going to a hearing with this problem.”
 
The Indiana Court of Appeals ruled May 16 that an appraiser has no duty of care to a seller after he or she appraises a house for much less than the proposed purchase price. The court upheld summary judgment for the appraiser in a case where the seller alleged negligence, fraud and slander of title. The case is BSA Construction LLC v. Jimmie E. Johnson, 49A02-1506-CT-749.
 
BSA Construction entered into an agreement to sell residential real estate to Lilia Lopez. Lopez received financing from Bank of America pending a final appraisal, which was done by Jimmie Johnson of LandSafe. The purchase price was agreed at $60,000, but Johnson only appraised the property for $50,000 and Bank of America denied financing. 
 
BSA claimed Johnson owed them a duty of care on negligence principles, but the court disagreed, ruling that Johnson’s duty of care was to the bank that hired him, not BSA. “In an arms-length transaction like the one here, we cannot conclude that Johnson had any duty to serve two masters with conflicting interests. Whether Johnson was bound by or aware of the code of ethics of a professional association, or knew that a poor appraisal might be associated with the real estate for some period of time, does not change the fundamental arrangement of the duties at issue here,” Judge L. Mark Bailey wrote for the panel. “Johnson’s duty was to the bank and as a matter of law cannot — because of the contradictory interests at issue — have extended to BSA.”
 
Louisiana Gov. John Bel Edwards on May 26 signed into law HB 804, legislation that clarifies that appraisal management companies are required to compensate appraisers in accordance with the reasonable and customary fee provisions contained in federal law. The law also gives the Louisiana Real Estate Appraisal Board the authority to collect from AMCs the required National Registry Fees.
 
Also in Louisiana, the state’s Real Estate Appraisers Board on June 20 promulgated several new rules applicable to AMCs, including one that prohibits AMCs from requiring appraisers to sign an indemnification agreement. Additionally, the rules state that the LREAB can take action against an AMC or any person who owns or participates in the business of an AMC if the AMC fails to notify the board within 10 days of any disciplinary action imposed against the AMC, its owners or employees in any state. The rule also requires AMCs to pay appraisers within 30 days after the date on which the appraiser provides the completed report to the AMC. Finally, the rules require appraisers and appraisal firms performing services for AMCs to disclose in the appraisal certification the compensation that was paid to the appraiser or the appraisal firm. 
 
The Illinois General Assembly on May 31 completed action on HB 3333, a bill that would create an Appraisal Management Recovery Fund to be used in lieu of the existing surety bond. This fund will be used to provide restitution to Illinois state-credentialed appraisers when they have not been paid by a failed AMC but have obtained a final judgment from a court. The fund will be subsidized by a fee (up to $500) that each AMC operating in Illinois has to pay until such time as the fund reaches $500,000. Once that amount is reached, the fee will no longer be imposed unless claims are paid. 
 
The Appraisal Institute on June 28 sent Gov. Bruce Rauner a letter urging him to sign the bill. Read AI’s letter.
 
Work continues in Massachusetts on HB 4399, legislation that would enact a comprehensive registration and oversight program for appraisal management firms operating in the commonwealth.
 
Legislation currently pending in Michigan would change the way the state’s Tax Tribunal would be required to consider property tax assessment appeals. HB 5578 would require the MTT to conduct its own appraisal of the subject property and include comparable properties that have the same highest and best use.
 
The bill was introduced in repose to the “dark store” phenomenon in which large big box stores see lower than expected property valuations because the value is based on comparable sales of other properties instead of true cash value. The bill, which has passed the House and is pending in the Senate, is supported by the Michigan Municipal League, the Michigan Townships Association and the Michigan Association of Counties. 
 
Legislation in New Jersey that would regulate appraisal management companies passed the Assembly and will now be considered by the Senate. Further amendments to A 1973, the Appraisal Management Company Registration and Regulation Act, are pending.
 
North Carolina Gov. Pat McCrory on June 30 signed into law SB 600, legislation that requires appraisal management companies operating in the state to compensate appraisers at a reasonable and customary rate in accordance with federal law. AMCs that violate the reasonable and customary fee compensation requirements would be subject to disciplinary action by the North Carolina Appraisal Board.
 
Legislative action in Pennsylvania that would bring the state into compliance with Appraiser Qualifications Board requirements is nearing completion. SB 1270 would allow the State Board of Certified Real Estate Appraisers to consider criminal history record information only “to the extent required by standards and regulations for the qualifications of appraisers promulgated by the AQB when deciding whether to grant or renew an appraiser credential.” Previous versions of the bill would have required applicants to undergo fingerprint-based background checks, but those provisions were removed at the request of the Coalition of Pennsylvania Real Estate Appraisers. 
 
South Carolina Gov. Nikki Haley on June 5 signed into law HB 5023, legislation that makes changes to the state’s appraiser licensing and certification law.
 
The law will require that two of the four appraisers on the South Carolina Real Estate Appraisers Board must be certified general appraisers and one must be a certified residential appraiser. The law also exempts from the state appraiser licensing requirements “an employee of a lender in the performance of appraisals or valuations with respect to which federal law or regulations does not require a licensed or certified appraiser.” The exemption does not apply to third party contractors. Lastly, the law will allow the Board to issue both public and private reprimands to appraisers who are the subject of disciplinary action by the Board. 
 
The South Dakota Department of Labor and Regulation on July 8 held a hearing on proposed amendments to the state’s appraiser licensing and certification rules. The rules under consideration would allow appraisers to submit appraisals for compliance review midway through the experience hours required to upgrade to a higher level of licensure or certification. They also would introduce the term “Allegation of Non-Compliance” to note the first step to initiate an investigation, replacing the term “noncompliant.”

 MEETINGS OF NOTE                                                  

Appraisal Institute staff attended the CRE Finance Council Conference, June 13-15, in New York. The meeting brought together leaders in all sectors of the commercial real estate finance industry to address such issues as securitization, balance sheet lending, specialty lending and investing. Several AI Designated Members attended the conference. 

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