An appraisal is an opinion of value used for real-estate-related financial transactions. Appraisals are required by a state licensed or certified appraiser for most transactions above $250,000. An appraiser’s report will typically include the type of property inspection, approaches to value required, and any lender-specific requirements.1
The National Association of REALTORS® represents approximately 30,000 state-licensed and certified appraisers throughout the country. NAR’s Responsible Valuation Policy states that “persons who perform appraisals of real property shall be licensed or certified by their respective state regulatory agency and the appraisal shall be conducted in accordance with standards established in the Uniform Standards of Professional Appraisal Practice (USPAP).”
An appraisal is an important part of the home buying process because it assures the lender the property has adequate collateral to make the loan. NAR closely monitors federal legislative and regulatory issues related to appraisals. NAR has long advocated for an independent appraisal process and enhanced education requirements that allow appraisers to produce the most credible appraisal reports possible.
Appraisal Management Companies (AMCs)
An Appraisal Management Company (AMC) works with lenders and appraisers to facilitate the ordering, tracking, quality control, and delivery of appraisal reports. Please read NAR's issue brief to find frequently asked questions and answers about Appraisal Management Companies.
NAR supports the regulation of AMCs through the Financial Institutions Reform and Recovery and Enforcement Act (FIRREA), with state implementation and enforcement. NAR opposes the use of indemnification clauses by AMCs and will pursue legislative and regulatory efforts to require AMCs to retain competent and qualified appraisers.
Several states are taking legislative action to regulate AMCs; however, some states have inadequate resources to adequately enforce these regulations.
NAR supports a more standard process to request a reconsideration of value if the original value opinion is not credible. Better communication could help a real estate broker or salesperson understand whether an appraisal is credible. Also, any AMC that is violating USPAP should be reported to the appropriate authority. Good AMCs should want the bad ones out of business.
NAR's Appraiser Independence page provides NAR's position on appraiser independence, background on the issues, and resources for communicating with appraisers.
Appraisers are sometimes asked by lenders and AMCs to include distressed transactions as comparable sales, to complete the appraisal in unreasonable and unrealistic time spans, and comply with a scope of work not justified by the fee being offered. NAR believes this interferes with appraiser independence, causing harm to the real estate recovery, and harm to consumers.2
In February 2012, NAR released its Responsible Valuation Policy, which supports and encourages credible, independent valuations of Real Property.
Some appraisers are using foreclosures, short sales, and run-down properties as comparable homes, and are not making adjustments for market conditions, transaction characteristics, or the condition of the property. Sometimes this is attributed to lender or AMC-imposed time limitations or to appraisers lacking local expertise who don’t have full access to local data from a multiple listing service. Other times, appraisers are required to provide as many as 8-10 comparable sales, which can force the use of distressed properties as comps.
The level of distressed sales is trending down. As distressed inventory is cleared from the market over the next two years, it should help correct the problem of using distressed sales as comps.3 Also, appraisers increasingly have access to automated valuation models (AVM) or Computer Assisted Mass-Appraisal (CAMA) models. The technology can help appraisers to support opinions about markets that are recovering.
REALTOR® Magazine provided a webinar about appraiser/agent communications on Jan. 12, 2012, with Anna Ruotolo, Vice President of Business Development in the Mortgage Banking Division of OPES Advisors. Ruotolo explained that the law prohibits agents from pressuring an appraiser to arrive at a certain value, but there’s nothing in the law that prohibits the two from talking and sharing information.
The webinar provided questions that agents can legally ask of appraisers when they arrive at a property. Ruotolo also discussed information agents can provide appraisers about the property as well as documenting discrepancies in the assessors’ valuation. Productive communication could go a long way in heading off inaccurate appraisals.
Appraisal Information Resources for NAR Members
Members of NAR enjoy appraisal education benefits, GAA and RAA designations, an online referral network, as well as representation on the Real Property Valuation Committee and the Real Property Valuation Forum. The Realtors Property Resource® (RPR®) is also available to NAR members. Members who take advantage of educational benefits and advanced valuation tools will be better positioned in the industry to succeed in their respective markets.
1 The Appraisal Foundation, A Guide to Understanding a Residential Appraisal (Washington, DC), 3, www.appraisalfoundation.org
2 NAR Statement on Appraiser Independence, April 2011
3 Data on appraisal issues are from a monthly survey for the Realtors® Confidence Index, posted at www.realtor.org