Topic 16.1: Regulation of Appraising – FIRREA

Learning Objectives

After successfully completing this topic, you will be able to
• describe federal and state regulations pertaining to appraising, and
• explain what the Uniform Standards of Professional Appraisal Practice (USPAP) is and how it affects the appraisal process of real property.

Appraisal Foundation

In 1989, the U.S. Congress enacted the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA), which authorized The Appraisal Foundation as the source of appraisal standards and appraiser qualifications.

The Foundation performs its work through
• The Appraiser Qualifications Board, and
• The Appraisal Standards Board.

Appraisal Qualifications Board

The Appraiser Qualifications Board (AQB) establishes minimum qualifications for state-certified appraisers and promotes uniform examinations for certification. Additionally, the AQB has established voluntary Personal Property Appraiser Qualification Criteria.  

Appraisal Standards Board

The Appraisal Standards Board (ASB) sets the minimum standards for appraisals, known as the Uniform Standards of Professional Appraisal Practice(USPAP). 

Appraisal Subcommittee

The Appraisal Subcommittee (ASC) is responsible for monitoring the individual states in the licensing and certification of real property appraisers.  In addition, it maintains a national database of state-certified appraisers who may perform appraisals in federally-related transactions.  

Federally-Related Transactions

To prepare an appraisal that will be used in a federally related transaction, a person must be a state-certified appraiser.

State-certified residential appraisers 

A state-certified residential appraiser is qualified to appraise one to four residential units without regard to value or complexity. This classification does not include the appraisal of subdivisions.

State-certified general appraisers

A state-certified general appraiser is qualified to appraise all types of real property.

Requirements for federally related transactions

A “federally-related transaction” is any real estate-related financial transaction which a federal regulatory agency regulates that requires the services of an appraiser. Any transaction involving the sale, lease, purchase, investment in or exchange of real property, including interests in property, or the financing or refinancing, or the use of the property as security for a loan is covered, as well as financial transactions involving Fannie Mae, Freddie Mac, FHA and VA. All appraisals for federally-related transactions must be written by a certified appraiser and conform to USPAP.  

Uniform Standards of Professional Appraisal Practice (USPAP)

The USPAP sets the standards and requirements for the valuation of real property. USPAP is used by many other countries around the world and was the basis for the International Valuation Standards (IVS). The Appraisal Standards Board (ASB) maintains USPAP, and issues updates in January of even numbered years.

The Ethics Rule is to promote and preserve public trust. Within the Ethics Rule are the Conduct, Management, and Confidentiality Sections.

Appraisers must:
• perform assignments with impartiality, objectivity, and independence, and without accommodation of personal interest,
• must not perform an assignment with bias,
• must not advocate the cause or interest of any party or issue,
• must not accept an assignment that is contingent on the value of the property,
• must protect the confidential nature of the appraiser-client relationship, and
• must not disclose a value to anyone other than the client and any other intended users.

The Ethics Rule of USPAP

Although the ASB writes, amends, and interprets USPAP, the Board does not enforce USPAP.  The Federal government has mandated that the states enforce real property appraiser compliance to USPAP.  

Appraisal Service of Real Estate

Parts I and II, Chapter 475

Florida’s license law includes appraising as one of the 8 services of real estate. This allows real estate licensees to perform appraisals for a fee. There are several requirements for real estate licensees performing appraisals, including

  1. the appraisal may not involve a federally related transaction,
  2. licensees may not represent themselves as certified or licensed appraisers unless they are licensed or certified under Chapter 475, part II, and
  3. licensees who prepare appraisals must comply with the USPAP.

Sales associates should not prepare appraisals without the express consent and supervision of the broker. Fees for preparing appraisals can be collected only by a broker.

Comparative Market Analysis (CMA)

Most real estate professionals prepare a CMA before listing a house.

A much more common valuation technique used by most real estate licensees when listing or selling real estate is the preparation of a comparative market analysis (CMA). The CMA helps sellers to set listing prices and buyers to decide on the amount to offer for a property. There are several other CMA facts to remember
• The CMA may not be called an appraisal. It is an opinion of value.
• Licensees are permitted to charge a fee for preparation of a CMA. The fee must be paid to the broker.
• Licensees need not conform to USPAP when preparing a CMA.

Broker Price Opinion (BPO)

Licensees are often called upon by lenders or owners to provide a broker’s price opinion (BPO) of the value of real property.
• The BPO cannot be called an appraisal.
• The licensee may charge a fee for preparing a BPO. The fee must be paid to the broker.
• The licensee need not comply with the USPAP when preparing a BPO.