California Gov. Gavin Newsom on Sept. 18 signed AB 5
, legislation that reclassifies some workers as employees rather than independent contractors for the purposes of state wage and hour laws. The law takes effect Jan. 1.
While provisions of the law are designed to ensure that workers in the gig economy receive overtime pay, sick leave, unemployment insurance and other benefits, independent fee appraisers, especially those who work for valuation firms and appraisal management companies, may also be affected.
The intent of the law is to codify the findings of the Supreme Court of California in the case of Dynamex Operations West Inc. vs. Superior Court of Los Angeles. In this case, the court rejected the existing method of classifying a worker (the Borello test) and established a new, three-part test (the ABC test) to determine if a worker is an employees or an independent contractor.
Under the Borello test, the right to control the means and manner by which work is performed is the most important factor to consider when classifying a worker as an independent contractor. Under the ABC test, a worker can be classified as an independent contractor when:
A) The worker is free from the control and direction of the employer in connection with the
performance of the work; and
B) The worker performs tasks that are outside the usual course of the hiring entity's business;
C) The worker is customarily engaged in an independently established trade, occupation or
business of the same nature as the work performed for the hiring entity.
All three parts of the ABC test must be satisfied for a worker to be classified as an independent contractor.
The legislation includes a lengthy list of occupations and professions that are exempt from the ABC test, including lawyers, accountants and real estate brokers and salespersons. However, there is no exemption for independent fee appraisers engaged by valuation firms or AMCs. There is an allowance for a “bona fide business-to-business contracting relationship” if an entity formed as a sole proprietorship, partnership, limited liability company, limited liability partnership or corporation provides services to another business and the service provider can satisfy the business operation requirements.
Fee appraisers and entities that engage appraisers are advised to review the provisions of the legislation to determine what impact, if any, they have on those engagements. Independent fee appraisers and their employers may be able to structure their engagements to meet the requirements for a “bona fide business-to-business contracting relationship.” However, the penalties and potential liability for misclassification of workers are substantial and may be applied retroactively.
California Gov. Gavin Newsom on Oct. 8 signed AB 1482
, legislation that establishes statewide rent control. When the law takes effect Jan. 1, the state will start to regulate annual rent increases, limiting them to 5%, plus the local rate of inflation. The law applies to multifamily buildings once they reach 15 years old.
Critics of the legislation argue that it could affect the value of existing multifamily properties and discourage new construction
Colorado, Illinois and Ohio are among the states that have reconciled waiver valuation restrictions with appraiser licensing laws. Other states are currently attempting to do so. Here, the Appraisal Institute addresses the issue of valuation waivers and explains how appraisers can provide them.
The federal Uniform Relocation Assistance and Real Property Acquisitions Policies Act, known as the Uniform Act, requires state and federal agencies that are engaged in the acquisition of real property for projects receiving federal funding to have the properties appraised prior to negotiations with the owners.
However, the legislation allows for a waiver valuation in two instances:
1. When property is donated and the donor releases the agency from its obligation to appraise the
2. When property is purchased and the acquiring agency determines an appraisal is unnecessary
because the transaction is uncomplicated and the value of the property is estimated to be $10,000
or less. A federal agency funding a project may exceed the $10,000 threshold — up to a maximum
of $25,000 — if the agency offers the property owner the option to have the property appraised.
A waiver valuation is not an appraisal and typically cannot be prepared by an appraiser because it is not required to comply with the Uniform Standards of Professional Appraisal Practice. Because an agency is required to obtain a waiver valuation prepared by an individual who has “sufficient understanding of the local real estate market,” waivers typically are prepared by federal or state agency employees who have completed a minimum level of appraisal training and have demonstrated competence in completing valuations for use in real property acquisitions by government agencies.
However, many state appraiser licensing laws contain an exemption from licensing requirements for employees of federal, state or local government agencies, so those employees are not required to be licensed to provide an opinion of the value of real estate — appraisal or waiver valuation. They also are not required to comply with USPAP because the preparers are not required to hold a state-issued appraiser credential.
There might be circumstances where an agency has to utilize an appraiser, but since most state laws require credentialed appraisers to comply with USPAP, they are prohibited from providing waiver valuations. Some states have attempted to address this issue with appraiser licensing laws, which clarify that an appraiser may provide a waiver valuation and not be subject to other licensing law provisions, including the requirement to comply with USPAP.
Examples of state laws applicable to appraisers who provide waiver valuations:
Colorado - 12-10-602. Definitions
(c) "Appraisal,” "appraisal report” or "real estate appraisal" do not include a federally authorized waiver
(b) "Real estate appraiser" or "appraiser" does not include:
(VI) A right-of-way acquisition agent, an appraiser who is licensed and certified pursuant to this
part 6, or any other individual who has sufficient understanding of the local real estate market to be
qualified to make a waiver valuation when the agent, appraiser, or other qualified individual is
employed by or contracts with a public entity and provides an opinion of value that is not
represented as an appraisal and when, for any purpose, the property or portion of property being
valued is valued at twenty-five thousand dollars or less, as permitted by federal law and 49 CFR
Illinois - 225 ILCS 458/5-5 Necessity of license; use of title; exemptions
(e-5) For the purposes of this Act, valuation waivers may be prepared by a licensed appraiser
notwithstanding any other provision of this Act, and the following types of valuations are not
appraisals and may not be represented to be appraisals, and a license is not required under this Act
to perform such valuations if the valuations are performed by (1) an employee of the Illinois
Department of Transportation who has completed a minimum of 45 hours of course work in real
estate appraisal, including the principals of real estate appraisals, appraisal of partial acquisitions,
easement valuation, reviewing appraisals in eminent domain, appraisal for federal aid highway
programs and appraisal review for federal aid highway programs and has at least 2 years’
experience in a field closely related to real estate;
Ohio - 5501:2-5-06 Real property acquisition
(a) When an appraisal is determined to be unnecessary, the agency shall prepare a waiver
valuation. Persons preparing or reviewing a waiver valuation are precluded from complying with
standard rules 1, 2, 3 and 4 of the "Uniform Standards of Professional Appraisal Practice" (USPAP),
as in effect in the 2018-2019 edition, as promulgated by the Appraisal Standards Board of the