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Washington Report & State News

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. Easement Legislation Removed from ‘Build Back Better’ Plan
  2. IRS Issues Manual on Penalties and Incorrect Appraisals
  3. TAF Fair Housing Report Released; PAVE Report Due Soon
  4. Fannie Mae Adopts ANSI Standard for Square Footage Measurements
  5. Pennsylvania Statute of Repose Takes Effect in Late February 
  6. Connecticut Finalizes Evaluation Rules for Federally Regulated Financial Institutions
  7. South Dakota Proposes Rules for PAREA and an Experience Training Program
  8. State Legislative Sessions in High Gear; Numerous Valuation Issues Under Consideration
 

ON THE HILL                                                                                

The Charitable Conservation Easement Program Integrity Act (HR 4164/S 2256) is bipartisan legislation  that targets abusive conservation syndications. It is under consideration in Congress but is no longer being considered as part of the Biden administration’s “Build Back Better” plan. 
 
The legislation seeks to impose a limitation on tax deductions for qualified conservation contributions made by certain partnerships if the amount of the contribution is more than 2.5 times the sum of each partner's relevant basis in the partnership. This limitation would also apply to other pass-thru entities, such as S corporations. 
 
Several tax provisions have been removed from the plan in hopes of reaching consensus for the total package, and supporters continue to advance it in Congress. 
 
 
IN THE AGENCIES                                                                       
 
The IRS in October made changes to its Penalty Handbook and Penalties Applicable to Incorrect Appraisals. Appraisers who conduct work for the IRS are strongly encouraged to familiarize themselves with the procedures outlined in the manual, which, among other things, defines how a 6695A penalty would be applied against appraisers. Also addressed are issues surrounding the issuance of a Letter 4477, audit appointment meetings and the “more likely than not” exception.
 
 
The National Fair Housing Alliance, under contract by the Appraisal Subcommittee and the Council on Licensure, Enforcement and Regulation, on Jan. 19 released its report on whether the Uniform Standards of Professional Appraisal Practice and Appraiser Qualifications Criteria support or promote fairness, equity, objectivity and diversity in both appraisals and the training and credentialing of appraisers.
 
The findings and recommendations are far reaching and address appraisal standards, appraiser qualifications and mortgage processes and procedures; some recommendations will require legislative action.
 
“The report acknowledges that enhanced standards and greater diversity within the profession are critical elements in addressing equity and rooting out bias in appraisal, and we agree,” said Appraisal Institute President Jody Bishop, MAI, SRA, AI-GRS. 
 
The report recommends that consumers be considered intended users of appraisal reports under USPAP, that TAF develop guidance around reconsideration of value policies and procedures related to communications with consumers, that an emphasis be placed on fair housing education, and that several governance issues be reviewed, including the makeup of the ASB and AQB to how proposals are exposed and ultimately adopted.
 
Another report, this one from the Property Appraisal and Valuation Equity Task Force, known as PAVE, is expected soon and its findings and recommendations will be reported to President Biden by late February or early March. The findings are expected to address consumer disclosures and appeals processes, diversity efforts within the valuation profession, education and the appraisal regulatory structure.
 
The Appraisal Institute has participated with the PAVE Task Force through both listening sessions and meetings with White House and agency staff. AI has also engaged with congressional oversight offices because the task force is expected to issue several recommendations that would requiring congressional action. 
 
Combined, the two reports are expected to set the stage for an active regulatory and legislative year for the valuation profession. 
 
Beginning April 1, Fannie Mae will require appraisers to report a property’s gross living area and non-gross living area for appraisals involving interior and exterior inspections by using the American National Standard for Single-Family Residential Buildings, Square Footage Method of Calculating, ANSI Z765-2021. This standard was last updated in May. 
 
Historically, Fannie Mae’s Selling Guide has not required the use of a specific measurement standard, but this mandate will establish a standard for measuring, calculating and reporting living area. Additionally, all sketches for property footprints and floor plans must be computer-generated, indicate all dimensions necessary to calculate gross living area and other areas (such as a garage or basement) and show the calculations so it’s clear how the gross living area was tallied. 
 
Fannie Mae hopes its new requirement will create alignment across market participants, provide a professional and defensible method for appraisers to calculate living area and allow transparent and repeatable results for the users of an appraisal report.
 
A significant period of transition is expected, and appraisers likely will have to do more rigorous research and analysis to comply with the new requirement. Analysis of subject properties with comparable sales information probably will not readily align with information in the MLS and tax records; a small number of MLS systems have adopted the ANSI standard. 
 
The Appraisal Institute maintains a seminar on the ANSI standard, which has been updated to include the Z765-2021. The updated seminar is pending state approvals. 
 
Find more information in Fannie Mae Selling Guide B4-1.3-05, Improvements Section of the Appraisal Report, and B4-1.2-01, Exhibits for Appraisals.

IN THE STATES                                                            

Pennsylvania Gov. Richard Wolf on Dec. 2 signed HB 1255, legislation that establishes an appraiser-specific statute of repose that takes effect Feb. 20. Pursuant to this new law, an action to recover damages against an appraiser must be brought within five years of the date on which the appraisal was conducted. The repose period does not apply to actions brought against appraisers by individual property owners as part of a cash purchase of residential property or to actions where there is evidence of fraud or intentional misrepresentation.
 
 
Appraisers in Connecticut may now perform evaluations for federally regulated financial institutions when an appraisal is not required, according to new rules that were finalized by the Connecticut Department of Consumer Protection on Sept. 30. Evaluations may be prepared outside the scope of the Uniform Standards of Professional Appraisal Practice and in accordance with the Interagency Appraisal and Evaluation Guidelines.
 
 
The South Dakota Department of Labor and Regulation on Sept. 20 proposed new rules regarding virtual education, the Practical Applications of Real Estate Appraisal, known as PAREA, and a new Experience Training Program.
 
Under the proposed rules, aspiring appraisers may utilize both Appraisal Qualifications Board-approved PAREA programs and the ETP as alternative methods for completing the experience requirements necessary to obtain appraiser credentials. 
 
The ETP is a new program authorized by the South Dakota legislature in 2021 that allows aspiring appraisers to obtain the requisite qualifying education and experience hours under the supervision of one or more trainers who are engaged by the DLR. The ETP is intended to address the shortage of certified appraisers in the state willing to take on trainees. 
 
 
The legislatures in 36 states, the District of Columbia, Guam, the Northern Mariana Islands and the U.S. Virgin Islands are now in session. The Appraisal Institute’s Washington office continues to work with its chapters, regions and state coalitions to help shape public policy affecting AI professionals and the valuation profession. 
 
Legislative activity so far this year includes:
 
  • Illinois is considering HB 4410, legislation that would create a Real Estate Valuation Task Force charged with identifying specific causes of racial disparities in appraisals; evaluating whether barriers to entry to the valuation profession disproportionately effect minorities; and establishing “specific definitions for limited or inactive housing markets in which comparable sales are limited or unavailable … and establish greater flexibilities and guidance for appraisals conducted in such markets, such as the ability to consider market evidence for similar properties in other geographic areas.”
  • Indiana is reviewing HB 1326, a bill that would require appraisers in the state to complete one hour of instruction in cultural competency training and at least one hour of instruction in implicit bias training as part of their initial qualifying education and as a condition for license renewal. The bill also makes it illegal for anyone to “make an excessively low appraisal or influence or attempt to influence another person to make an excessively low appraisal of the value of the real estate based on race, color, religion, sex, disability, familial status or national origin.” It would also prohibit excessively low appraisals based upon the demographic makeup of the neighborhood in which a property is located.
  • Nebraska is considering LB 706, legislation that would authorize the use of Appraisal Qualifications Board-approved Practical Applications of Real Estate Appraisal programs, known as PAREA, to satisfy the experience hour requirements for licensure.
  • Virginia is debating HB 284, a measure that would require the Virginia Real Estate Appraisal Board to ensure that appraisers complete at least two hours of fair housing courses as part of their appraiser continuing education. 
  • Wisconsin is reviewing SB 341 and AB 340, companion bills that would require any civil actions against real estate appraisers commence within five years of the date that an appraiser submitted the appraisal report to their client. The limitations do not apply to actions alleging fraud or concealment in the performance of appraisals.

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