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Q2 2021 Washington Report

June 30, 2021

The Appraisal Institute’s Washington Report and State News quarterly e-newsletter summarizes 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.

  1. House Approves Real Estate Valuation Fairness Legislation
  2. House Passes Legislation Addressing FHA Appraisals
  3. President Biden Directs HUD Secretary to Create Interagency Initiative on Appraisals
  4. IRS Resolving Large Number of Conservation Easement Cases
  5. Appraisal Subcommittee Announces Diversity and Equity Initiatives 
  6. MISMO Releases Updated Commercial Appraisal Dataset
  7. Risk-based Capital Change May Result in More Life Insurer CRE Investment
  8. Appraisal Institute Seeks Sponsors for Appraiser Diversity Initiative Program
  9. Texas Enacts Limitations on Lawsuits Against Appraisers
  10. Texas and Minnesota Pass Measures Permitting Appraiser Evaluations
  11. Minnesota Mandates Valuation Bias Training; Adjusts Distance Education Requirements
  12. Michigan Rule Allows Supervisory Appraisers to Have More Than 3 Trainees
  13. 6 States Clarify Their Required Experience Hours for PAREA Acceptance
  14. Maryland Enacts ‘Appraisal Gap’ Program to Aid Affordable Housing Development
  15. State Legislatures Continue Work on Valuation-related Measures
 

ON THE HILL                                                                                

The House Financial Services Committee on April 20 approved HR 2553, the Real Estate Valuation Fairness and Improvement Act, legislation that would establish an interagency task force to analyze federal collateral underwriting standards and guidance, and provide resources for promoting diversity within the valuation profession. The bill now moves to a full House vote, but no date has been set.
 
Introduced by Reps. Emanuel Cleaver, D-Mo., and Ritchie Torres, D-N.Y., the Real Estate Valuation Fairness and Improvement Act would form a task force consisting of stakeholders who would identify best practices and help develop more consistent policies and procedures for the agencies and entities that regulate residential and commercial real estate valuations. Items under review could include appraisals; automated valuation models; the procedures for managing reconsideration of value by consumers; and common collateral underwriting challenges, such as energy-efficient housing and inactive markets.
 
The legislation also would direct the task force to study potential racial disparities within lending and valuation, and investigate any barriers to entry that disproportionally effect minorities from starting a career as a valuation professional — the minimum requirements established by the Appraiser Qualifications Board will be explored. The legislation also would direct the Appraisal Subcommittee to establish a program to make grants available to state agencies, nonprofit organizations and institutions of higher education to promote diversity and inclusion within the valuation profession.
 
The Appraisal Institute backs this legislation, and submitted its letter of support to House Financial Services Committee Chairwoman Maxine Waters and Ranking Member Patrick McHenry in March.
 
 
The House on May 18 passed HR 3008, the Homebuyer Assistance Act, legislation reintroduced by Reps. Brad Sherman, D-Calif., and Van Taylor, R-Texas, that would amend the National Housing Act and allow state-licensed appraisers to perform appraisals for mortgages insured by the Federal Housing Administration. The legislation would require compliance with existing appraiser education requirements.
 
A previous version of the bill was introduced in the last Congress and passed the House, but did not receive a vote in the Senate. House Financial Services Committee Chairwoman Maxine Waters is working with Sherman and Taylor to help advance this version of the legislation.
 
The Appraisal Institute supports HR 3008 because it addresses long-standing concerns about the implementation of pre-existing FHA appraisal requirements, which differ from those of Fannie Mae and Freddie Mac and the conventional market.
 

IN THE AGENCIES                                                                       

President Joe Biden on June 1 pledged to address the Black wealth gap and disparities in housing by having secretary of Housing and Urban Development, Marcia Fudge, lead an interagency initiative focused on inequity in residential appraisals.
 
Few details about the initiative have been released, but the White House said the effort “will seek to utilize, quickly, the many levers at the federal government’s disposal, including potential enforcement under fair housing laws, regulatory action, and development of standards and guidance in close partnership with industry and state and local governments, to root out discrimination in the appraisal and homebuying process.”
 
It is believed the interagency initiative is based in part on provisions in HR 2553, the Real Estate Valuation Fairness and Improvement Act, which calls for the creation of an interagency task force to analyze federal collateral underwriting standards and guidance. 
 
 
The IRS this year is expected to resolve a significant number of court challenges regarding tax deductions for conservation easements, with settlement offers involving the payment of taxes, interest and penalties.
 
IRS Commissioner Chuck Rettig told lawmakers in May that the crackdown was focused on about 28,000 taxpayers and that $21 billion in allegedly exaggerated easement deductions from 2016 through 2018 is being challenged. The IRS also created a new office that targets entities promoting abusive tax shelters, especially ones luring investors to undeveloped land and pushing individuals to donate easements to land trusts.
 
 
The Appraisal Subcommittee on June 4 announced two initiatives to address concerns about diversity and racial equity in the valuation profession. One involves a comprehensive census/survey of stakeholders in the valuation profession and the other involves a comprehensive and independent review of the Uniform Standards of Professional Appraisal Practice and the Real Property Appraiser Qualification Criteria.
 
The ASC is allocating up to $150,000 to fund the census/survey, which will include appraisers, appraisal management companies, lenders, state regulators, and fair housing and lending authorities. The project is intended to produce statistically valid data on demographics within the valuation profession and provide a trend analysis that will help the ASC better understand the profession’s short-, medium- and long-term needs.
 
The ASC is earmarking $250,000 to review USPAP and AQB Criteria to ensure they support and promote fairness, equity, objectivity and diversity in both appraisals and in the training and credentialing of appraisers.  
 
The ASC will work with the Council on Licensure, Enforcement and Regulations to develop a scope of work and budget for both initiatives, and CLEAR will manage the process and any organization conducting the research. CLEAR has a three-year cooperative agreement with the ASC to undertake research on appraisal and AMC regulatory processes.
 

AT THE STANDARDS SETTERS                                 

The real estate finance industry standards group MISMO on June 17 announced the availability of its updated Commercial Appraisal Dataset standard and accompanying package of resources to help facilitate an exchange of appraisal information across the commercial real estate finance industry. 
 
The dataset achieved “Candidate Recommendation” status, meaning it was thoroughly reviewed by industry participants, including the Appraisal Institute, and multiple Designated Members served on the review committee. 
 
The package includes the stand-alone Commercial Appraisal Dataset specification along with several additional resources to facilitate adoption and use, including an implementation guide, logical data dictionary, reference model schema and a multifamily case study.
 

WITHIN THE INDUSTRY                                              

The American Council of Life Insurers on May 27 approved risk-based capital charges for life company investments in real estate. Specifically, the Council’s Life Risk-Based Capital Working Group adopted changes that will reduce the risk-based capital factors for direct real estate investment from 15% to 11% and indirect real estate investment from 23% to 13%. The charges apply to year-end 2021 reporting.
 
The action was taken to better align capital requirements with risk, which should serve as guidance to life insurance companies when making real estate investment and capital allocation decisions and likely give them greater exposure to commercial real estate. 
 
The Working Group deferred consideration of a proposal to adjust risk-based capital factors to reflect a portion of the difference between book value and market value while it reviews compliance concerns.   
 
 
The Appraisal Institute, in collaboration with Fannie Mae and the National Urban League, announced on June 3 that it is seeking sponsors for the Appraiser Diversity Initiative.
 
The Appraiser Diversity Initiative was created to attract new entrants to the valuation profession, facilitate their entry into the field and foster diversity within the appraisal community. 
 
The Appraiser Diversity Initiative seeks to create relationships and partnerships with sponsors for the benefit of ADI participants; sponsorships fund workshops and other activities that educate aspiring appraisers on the necessary requirements to become an appraiser and on the career opportunities within the profession. ADI participants are awarded scholarships that support their completion of the base requirements needed to become an appraiser. The sponsorship program maximizes the ADI’s reach through private sector organizations, such as valuation firms, financial institutions, technology companies and associations, among others.
 
Three sponsorship levels are available:
  • Supervisor Sponsors
  • Adviser Sponsors
  • In-kind or Workshop Sponsors
Sponsors will enter into a one-year separate written agreement with the Appraisal Institute that details the sponsorship terms and conditions. Applications are accepted on a rolling basis. Learn more and apply.

IN THE STATES                                                            

Texas Gov. Greg Abbott on June 6 signed HB 1939, legislation that limits the time an appraiser can be civilly sued after an appraisal is completed. It takes effect Sept. 1. 
 
The law requires lawsuits for damages or other relief against appraisers and valuation firms be filed no later than two years after discovery of the facts on which the legal action is based or five years after the date that the appraisal or appraisal review was performed. Lawsuits alleging fraud or breach of contract are not subject to these limitations. 
 
HB 1939 was championed by the Foundation Appraisers Coalition of Texas, which consists of members of the Appraisal Institute’s Texas chapters and other professional appraisal organizations. 
 
 
New legislation in Minnesota and Texas allows appraisers in those states to perform evaluations. An evaluation is an estimate of the value of real property that is provided to a federally regulated financial institution for use as part of a real estate-related financial transaction for which an appraisal is not required by federal law. 
 
Minnesota Gov. Tim Walz signed SF 1020 on May 6, and the law takes effect Aug. 1; Texas Gov. Greg Abbott signed HB 2533 on June 15, with the law taking effect immediately.  
 
Evaluations performed by appraisers in Minnesota and Texas must be done in accordance with the federal Interagency Appraisal and Evaluation Guidelines, and must contain a disclosure that the evaluation is not an appraisal performed in accordance with the Uniform Standards of Professional Appraisal Practice. 
 
A total of 13 states now allow appraisers to perform evaluations.
 
Minnesota Gov. Tim Walz on May 6 signed SF 1020, legislation that, in addition to allowing evaluations as noted above, will require all appraisers in the state to complete continuing education on valuation bias. 
 
As defined in the legislation, valuation bias means “to explicitly, implicitly or structurally select and apply data to an appraisal methodology or technique in a biased manner that harms a protected class as defined by the Fair Housing Act of 1968.” 
 
Appraisers in Minnesota who received their license prior to Sept. 1, will have until Aug. 31, 2023, to complete their required CE. An appraiser who obtains their license after Sept. 1, will have two years from the date in which they receive their license to complete the required course. 
 
The legislation also includes a provision that aligns Minnesota’s requirements for pre-licensing and continuing education delivered over the internet with those established by the Appraiser Qualifications Board in the Real Property Appraiser Qualification Criteria.
 
 
The Michigan Department of Licensing and Regulatory Affairs on May 18 adopted a rule that allows supervisory certified appraisers to have more than three real estate appraiser trainees. 
 
In order to exceed the three-trainee maximum as established by the Appraiser Qualifications Board, a supervisory certified appraiser must have been licensed for more than five years and must obtain approval from the Michigan DLRA. A supervisory certified appraiser is permitted to have up to six trainees at one time, with no more than three of those trainees having less than one year of experience. A supervisory certified appraiser must provide the DLRA with a mentoring plan for each trainee and prepare and maintain trainee progress reports.
 
 
California, Colorado, Iowa, Montana, Ohio and Pennsylvania have clarified the number of experience hours that can be satisfied via completion of an Appraisal Qualifications Board-approved Practical Applications of Real Estate Appraisal program. 
 
In California, an aspiring appraiser can receive credit for 50% of the experience hours required for both the Licensed Residential and Certified Residential credentials. 
 
Colorado, Iowa and Montana stated that completion of the respective PAREA programs can be utilized to satisfy 100% of the required experience hour requirements for Licensed Residential and Certified Residential, as well as 50% of the experience hours required to obtain the Certified General credential. 
 
Lawmakers in Ohio proposed a rule that would allow applicants completing a Licensed Residential program to satisfy up to 100% of the experience hour requirements for Licensed Residential, 67% for Certified Residential and 33% for Certified General. Applicants completing a Certified Residential program would receive up to 100% of the required experience hours for both Licensed Residential and Certified Residential and 50% of the hours required for Certified General. 
 
The Pennsylvania Board of Real Estate Appraisers clarified that completion of a PAREA program can be utilized to satisfy 25% of the experience hour requirements for Certified Residential and 15% of the requirements for Certified General. 
 
Fifteen other states have fully adopted Real Property Appraiser Qualification Criteria by reference, so  candidates for a certified general credential should be able to utilize completion of an AQB-approved PAREA program to satisfy up to 100% of the experience hour requirements for both the Licensed Residential and Certified Residential credentials. 
 
The states that incorporate the RPAQC by reference are Arizona, Iowa, Louisiana, Michigan, Minnesota, Mississippi, Montana, New Jersey, North Carolina, North Dakota, Oklahoma, Rhode Island, Tennessee, Texas and Vermont.
 
 
Maryland Gov. Larry Hogan on May 30 signed HB 1239 and SB 859, legislation that creates the Appraisal Gap from Historic Redlining Financial Assistance Program. The law took effect July 1.
 
The program offers financial assistance to affordable housing developers working in low-income census tracts to help close the appraisal gaps that occur in historically redlined neighborhoods. Developers are eligible to receive funds from the state’s Department of Housing and Community Development to cover any differences in the cost to build or redevelop a residential property and the appraised value of the property. 
 
 
While more than half of the state legislatures have wrapped up their work for the year, the legislatures in 20 states are in session, and several are considering appraisal-related measures. 
  • California is considering AB 948, legislation that contains multiple provisions related to appraisal bias, including one that would require including a notice in all sales contracts and loan documents that any appraisal must be unbiased and not influenced by improper or illegal considerations. Additionally, the state’s Bureau of Real Estate Appraisers would have to add a check box to its complaint form for use by individuals who believe their appraisal is below market value; BREA is required to collect and report demographic data regarding complaints that allege low valuations. The legislation would make it a violation of the licensing law for appraisers to base their opinions of value on any of the generally recognized protected characteristics, and make it a violation of the California Fair Employment and Housing Act for appraisers to discriminate on the basis of any of the generally recognized protected characteristics. Additionally, the legislation would require appraiser pre-licensing education to include one hour of instruction in “cultural competency” and continuing education to include two hours of “elimination of bias” training and one hour of “cultural competency” education. 
  • Illinois is reviewing HB 93, a measure that would make it illegal for appraisers to “discriminate when preparing a comparative market analysis for residential real estate,” enable an aggrieved party to sue an appraiser in civil court and make the act of discrimination an actionable disciplinary matter for the Illinois Department of Financial and Professional Regulation.
  • New Jersey is debating AB 5185, legislation that would prohibit appraisers and appraisal management companies from discriminating in the valuation of residential property on the basis of the race, creed, color or national origin of the property buyer or seller. The legislation would authorize the state’s Appraisal Board to suspend or revoke the license, certification or registration of an appraiser or an AMC that is found to have engaged in discriminatory conduct, or to levy a fine or civil penalty against them. Additionally, appraisers and AMCs would be required to provide property sellers with a document informing them of the opportunity to report any suspicion of a discriminatory appraisal. 
  • Pennsylvania is considering HB 1255, a bill that would create a statute of limitations on actions to recover damages from appraisers. Civil lawsuits against appraisers would have to be filed within one year from a person’s discovery of the act or omission giving rise to the action and no later than five years from the date the appraisal was performed. 
  • Wisconsin introduced AB 340 and SB 341, companion bills that would limit the time an individual has to initiate a lawsuit for damages against a licensed or certified real estate appraiser to five years from the date an appraisal report was submitted to a client. The limitation would not apply to an appraiser “who commits fraud or concealment in the performance of real estate appraisal services.”

 

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