Appraisal & Valuation (2024)

Advocacy

What is the fundamental issue?

Over the past year, NAR members have identified several valuation issues impacting real estate transactions. Most concerns are related to appraisals, including allegations of discrimination in the appraisal process, the increased use of automated or alternative valuation methods, a perceived shortage of appraisers, and the challenge of attracting new and diverse appraisers to the business.

I am a real estate professional. What does it mean for my business?

Allegations of Discrimination in the Appraisal Process: Over the past several years there has been a large increase in media stories outlining discrimination in the appraisal process. A few studies seem to confirm there might be an issue with bias in the appraisal process, particularly as it relates to the choice of comparable sales based on the race of the homeowner/seller. Freddie Mac released a study in Fall 2021 based on their own appraisal data that suggests a property is more likely to receive an appraisal lower than the contract price if it is in a minority tract. Further research into actual appraisal reports and assessment of fair housing complaints is expected. The Biden Administration has taken a large interest in this issue and created the Interagency Task Force on Property Assessment Valuation Equity, or PAVE, led by Department of Housing and Urban Development Secretary Marcia Fudge. In addition, states are also developing policies related to the concern of discrimination in the valuation process. NAR takes all allegations of discrimination seriously and supports a full vetting of the issue. NAR urges any entity attempting to address or change the valuation process ensure appraisers and their representatives are included in the review and development process of any new standards, to ensure that the real estate market remains safe and secure in terms of determining the value of properties.

Automated or Alternative Valuation Methods:Many in the housing industury, including NAR, support the role of appraisals and their contribution to the safety and soundness of the mortgage lending industry. However, there is an increased reliance on AVMs for valuation purposes, as evidenced by the decisions of both Fannie Mae and Freddie Mac to allow data driven valuations, rather than traditional in-person appraisals, for certain, lower risk purchase transactions. NAR is supportive of technological advancements that support the housing market, but has some concerns with the use of automated valuations in purchase transactions.

Appraiser Shortages:Appraisers are leaving the profession at the same time that entry of new appraisers is dwindling. Entrepreneurial opportunities for appraisers are disappearing and many are concerned with over-regulation in the field. There are also barriers to entry, such as education requirements, that could be affecting incoming appraiser numbers.

Appraiser Qualifications:It is becoming increasingly difficult to attract new entrants into the appraisal profession. In an effort to bring more qualified trainees into the profession, the Appraisal Qualifications Board (AQB) revised the Real Property Valuation Criteria to allow for more flexibility in fulfilling the college-level education requirements for appraisers and reducing the number of experience hours in early 2018. The AQB is now exploring alternative methods to provide trainee appraisers with the required education, including exploring virtual property inspections and partnerships with other educational institutions.

NAR Policy

REALTORS®support and encourage credible, independent valuations of real property because valuations are critical to the health of the overall real estate industry.

A trustworthy valuation of real property ensures the real property value is sufficient to collateralize the mortgage, protects the mortgagor, allows secondary markets to have confidence in the mortgage products and mortgage backed securities, and builds public trust in the real estate profession.

View the NAR’s Responsible Valuation Policy

Legislative/Regulatory Status/Outlook

Current Legislative Activities

On March 31, 2022, NAR sent a letter to the White House and the Department of Housing and Urban Development (HUD) providing comments to the Biden Administration’s Action Plan to Advance Property Appraisal and Valuation Equity (PAVE Action Plan) created by the Interagency Task Force on Property Appraisal and Valuation Equity (PAVE Task Force). NAR developed these comments under the guidance of a work group made up of members from NAR’s Real Property Valuation Committee and Fair Housing Policy Committee. Overall, NAR is supportive of many of the recommendations in the PAVE Action Plan including those related to increasing consumer education and awareness of appraisal bias, improving data collection and research on appraisal bias, and creating quality controls for the use of automated valuation methods (AVMS) in developing property values.

While NAR is supportive of improving diversity in the appraisal profession, there is concern that reducing education requirements in an effort to bring in a wider diversity of appraiser trainees could adversely impact the quality of appraisals going forward. Focus should be on exploring alternative paths to becoming an appraiser that do not sacrifice the quality of appraiser education and training.

At this time NAR does not support a legislative proposal to change the current governance structure of the appraisal industry. The current oversight of appraisal standards and appraiser education under the Appraisal Foundation allows for the implementation of new requirements to improve transparency, increase public participation, and provide engagement with consumer focused groups. NAR suggests the Administration work with the Appraisal Foundation to continue current initiatives to improve diversity and develop new initiatives and partnerships as well.

On March 29, 2022, the House Financial Services Committee held a hearing entitled “Devalued, Denied, and Disrespected: How Home Appraisal Bias and Discrimination Are Hurting Homeowners and Communities of Color.” The hearing focused on appraisal industry stakeholders and their responses to issues and ideas brought up by the Action Plan of the Biden Administration’s Interagency Task Force on Property Appraisal and Valuation Equity (PAVE). NAR was engaged with the Biden Administration PAVE Task Force throughout the development of the Action Plan and sent specific recommendations to the Biden Administration following the release of the Action Plan.

Past Legislative Activities

On February 26, 2021, NAR submitted comments to the Federal Housing Finance Agency's (FHFA)Request for Information on Appraisal-Related Policies, Practices, and Processes (RFI). NAR provided input on several of the questions posed by FHFA in the RFI, focusing mainly on concerns related to risk in the valuation space, the role of technology, and discrimination in appraisals and other valuation products. In general, NAR believes a traditional, in-person appraisal continues to provide the most comprehensive and thorough opinion of value for a real estate transaction. NAR also supports innovation in the valuation field and allowances for various forms of appraisal type depending on the need of the transaction. Continued work in improving the valuation field must ensure fair and sound appraisal practices and processes.

On September 27, 2019, the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, and the Federal Deposit Insurance Corporation (collectively “the Agencies”) adopted afinal ruleincreasing the threshold for requiring an appraisal in residential real estate transactions from $250,000 to $400,000. Federally related transactions under $400,000 will require an evaluation, rather an a full appraisal, to determine value of the real estate in question. A federally related transaction is a non-Fannie Mae or Freddie Mac transaction and a non-federal financed transaction, such as loans under the Federal Housing Administration, the Rural Housing Service or the Department of Veterans Affairs.

On July 18, 2019, The National Credit Union Administration (NCUA) Board issued afinal ruleincreasing the threshold below which appraisals are not required for commercial real estate transactions from $250,000 to $1,000,000. The rule also incorporated into the regulations Section 103 of the Economic Growth, Regulatory Relief, and Consumer Protection Act of 2018. This will exempt from appraisal requirements certain federally related, rural real-estate transactions valued below $400,000 if no state-certified or state-licensed appraiser is available.

On July 5, 2019, Rep. Wm. Lacy Clay (D-MO) introducedH.R.3619, Appraisal Fee Transparency Act of 2019. The bill adds trainee appraisers to the National Registry of Appraisers, allows the Federal Financial Institutions Examination Council's Appraisal Subcommittee to adjust annual registry fees for appraisal management companies, requires the disclosure of appraisal fees in the case of an appraisal coordinated by an appraisal management company, allows nonprofit organizations and institutions of higher education to receive certain grants, and adds a designee of the Department of Veterans Affairs to the Appraisal Subcommittee. The bill passed the House of Representatives on September 19, 2019.

On June 20, 2019, the House Financial Services Committee, Subcommittee on Housing, Community Development and Insurance, held a hearing entitled "What’s Your Home Worth? A Review of the Appraisal Industry." The hearing focused on recent research suggestinghomes in majority black neighborhoods are valued at roughly half the price as homes in neighborhoods with no black residents. NAR is actively exploring this issue and working with partner organizations to ensure fairness in home valuations.

On June 5, 2019, U.S. Sens. John Thune (R-S.D.) and Jon Tester (D-Mont.) introduced the Federal Housing Administration (FHA) Appraiser Eligibility Expansion Act (S. 1722), legislation that would give licensed residential appraisers the ability to conduct appraisals on FHA properties. The bill would increase the pool of appraisers who are eligible to conduct appraisals on FHA properties, but would not place additional education, training, or competency requirements on any appraiser that is currently conducting FHA appraisals, nor would it place additional requirements on appraisers not wishing to conduct FHA appraisals. NAR supported this bill.

On May 20, 2019, U.S. Rep. Brad Sherman (D-CA) introduced the H.R. 2852 Homebuyers Assistance Act of 2019, legislation that would allow licensed residential appraisers the ability to conduct appraisals on FHA properties. Appraisers would be required to obtain specific educational requirements in order to perform the FHA appraisals. The bill passed the House of Representatives on September 10, 2019. NAR supported this bill.

On May 22, 2018, Fannie Mae and Freddie Mac, at the direction of the Federal Housing Finance Agency, announced a multi-year initiative that will explore options and make recommendations regarding changes to the Uniform Appraisal Dataset (UAD) and uniform appraisal reporting forms. As part of a greater appraisal process modernization, both Freddie Mac and Fannie Mae will be looking at ways to support emerging technologies and data updates over the next few years. Fannie Mae and Freddie Mac are working closely with NAR and other stakeholders in this process, including holding engagement sessions with REALTORS® and NAR staff.

On April 2, 2018, the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, and the Board of Governors of the Federal Reserve System (collectively the Federal Banking Agencies) agreed with prior comments sent by NAR and issued a final rule increasing the appraisal threshold for commercial real estate Federally Related Transactions from $250,000 to $500,000. Commercial transactions that do not meet the new $500,000 threshold must still obtain an evaluation of the real property that is consistent with safe and sound banking practices.

On February 1, 2018, the Appraisal Qualifications Board (AQB) adopted changes to the Real Property Appraiser Qualification Criteria at a public AQB meeting in Washington, DC. The changes include flexibility in education requirements, with the Licensed Residential certification no longer requiring a Bachelor's degree. The Certified Residential certification education requirements may be fulfilled through a Bachelor's degree in any field or an Associate's Degree and/or 30 credit hours completion in relevant subjects. Licensed Residential appraisers wishing to become Certified Residential appraisers may substitute five years of work experience for the education requirements. In addition, experience hours for all levels of appraiser credentials have been reduced.

NAR Committee

Real Property Valuation Committee

Current Legislation/Regulation

Real Property Appraiser Qualification Criteria

Final Rule on Commercial Appraisal Threshold Level

Final Rule on Residential Appraisal Threshold Level

In-Depth

Congressional testimonies
Letters to federal agencies
Issue summary
NAR Federal Issues Tracker

Legislative Contact(s):

Ken Fears
kfears@nar.realtor
202-383-1066

Regulatory Contact(s):

Ken Fears
kfears@nar.realtor
202-383-1066

References

Appraisal and Valuation: The Basics

What You Should Know about Real Estate Valuation (Investopedia, Jul. 19, 2023)

“Value is not necessarily equal to cost or price.Cost refers to actual expenditures – on materials, for example, or labor. Price, on the other hand, is the amount that someone pays for something. While cost and price canaffectvalue, they do notdeterminevalue. The sales price of a house might be $150,000, but the value could be significantly higher or lower. For instance, if a new owner finds a serious flaw in the house, such as a faulty foundation, the value of the house could be lower than the price.”

What is an appraisal? (National Association of Appraisers, Jul. 2, 2023)

The National Association of Appraisers explains appraisal basics on its "What is An Appraisal" information sheet.

The Cure for Appraisal Gap Anxiety (HousingWire, Mar. 24, 2023)

“An appraisal gap is the difference between what a buyer agreed to pay for a home in a purchase contract and what an appraiser concludes as the fair market value of the property. This is usually viewed as a problem when the appraised value is below the purchase contract amount since lenders will not approve a loan amount higher than the appraisal. And homebuyers certainly don’t want to overpay and start off their ownership journey with negative equity.”

Home Appraisals: Your Key to a Successful Refinance (Investopedia, Jul. 31, 2022)

“Anappraisalis a professional opinion ofyour home’s valueand is an important step in the home-buying process. Appraisals are conducted by licensed or certified professionals, who provide opinions as unbiased third parties. The appraiser gets paid for valuing your home but has no skin in the game when it comes to whether you qualify for a mortgage or refinance as a result of their estimate.”

What REALTORS® Should Know About Desktop Appraisals (Real Trends, Feb. 23, 2022)

“Desktop products are built around technology that enables appraisal professionals to work faster and more efficiently, which ultimately helps real estate professionals close deals more quickly. Due to the increased efficiency and time savings, appraisers should be willing to earn a smaller fee for their work. This cost savings is passed along to the end-user for a service that’s more efficient and accurate.”

Appraisal and Fair Housing

The National Fair Housing Alliance Applauds FHFA’s Continued Leadership in Combating Appraisal Bias (National Fair Housing Alliance, Jan. 17, 2024)

“FHFA’s most recent analysis is consistent with numerous news stories as well as research by Fannie Mae, Freddie Mac, Drs. Junia Howell and Elizabeth Korver-Glenn, Dr. Andre Perry and the Brookings Institution, and NFHA that document the serious and systemic problem of appraisal bias for consumers and communities of color. Appraisal bias exacerbates the large and growing Black-White and Latino-White wealth gaps by causing families of color to lose out on homeownership opportunities or get lower valuations.”

Appraisal Bias Undervalues Homes and Robs Homeowners of Equity — Here's How To Spot It (Business Insider, Dec. 28, 2023)

Bias in the appraisal process strips homeowners of wealth and hurts the values of neighboring homes.

Studies show that homes in areas with mostly residents of color are often undervalued compared to homes in majority white areas.

Red flags that could indicate discrimination include mentions of an area's racial makeup or poorly chosen comps.

Fair Housing & Appraisal Bias (Appraisal Institute, Oct. 25, 2023)

“The Appraisal Institute is the leading professional association of real estate appraisers. The Appraisal Institute’s Code of Professional Ethics and Standards of Professional Practice comprise requirements for ethical and competent practice, and advance equal opportunity and nondiscrimination in the appraisal profession. The Appraisal Institute’s work includes an array of professional education and advocacy programs, and stewardship of the highest level professional credentials in residential and commercial real estate appraisal.”

Protecting Homeowners from Discriminatory Home Appraisals (Office of Public Affairs, U.S. Department of Justice, Mar. 13, 2023)

The CFPB administers and enforces federal consumer financial protection laws like the Equal Credit Opportunity Act (ECOA), which is a landmark civil rights law that protects individuals against discrimination in accessing and using credit. These protections apply to every aspect of a credit transaction with a mortgage lender, including the important step of mortgage lenders relying on home appraisals before approving a loan.

The Department of Justice (DOJ) enforces both ECOA and the Fair Housing Act (FHA), which protects individuals from many forms of discrimination in housing, including discriminatory residential valuations conducted by appraisers and the use of those appraisals by mortgage lenders.

Black Couple Settles Lawsuit Claiming Their Home Appraisal Was Lowballed Due to Bias (NPR, Mar. 9, 2023)

“This time the couple decided to "white wash" the house. They removed family photos and art work, books, hair products and anything else that might indicate that a Black family lived there. They also asked a white friend to be present at the house and greet the appraiser as if she were the homeowner and to display some of her family photos in the house. The Austins were not at home during the appraisal. The new appraiser concluded the house was worth $1,482,500 – nearly half a million dollars higher than Miller's estimated value.”

Window to the Law: Ensuring Impartial Appraisals (National Association of REALTORS®, Feb. 7, 2023)

“Real estate transactions rely on an objective appraisal to determine a home’s market value, but evidence suggests there’s potential for racial bias in the appraisal process. Learn more about the Property Appraisal and Valuation Equity action plan to eliminate racial and ethnic bias in home valuations and find tips to ensure an impartial appraisal.”

How Three Black Woman Hope to Change the Home Appraisal Industry (The New York Times, Jan. 18, 2023)

“In the event that a Black homeowner has an appraisal that comes in low and they don’t have a family member who is a Black appraiser, the information they have available to them usually comes either from someone who isn’t an actual appraiser, but is trying to offer advice on the appraisal process. Or if that person is an appraiser, they might be concerned about bias, but they aren’t a person of color themselves. Black appraisers in this space are generally still only talking about how to become an appraiser in the first place. There wasn’t anybody in the space who was a Black appraiser speaking to Black homeowners about the specific issues they face. I can step into that space and provide guidance.”

Fact Sheet: Biden-Harris Administration Releases Action Plan to Address Racial and Ethnic Bias in Home Valuations (The White House, Mar. 23, 2022)

“On June 1, 2021—the centennial of the Tulsa Race Massacre—President Biden announced the creation of the Interagency Task Force on Property Appraisal and Valuation Equity (PAVE) to develop a transformative set of actions to root out racial and ethnic bias in home valuations. Today, the Task Force is releasing thePAVE Action Planwhich, when enacted, represents the most wide-ranging set of reforms ever put forward to advance equity in the home appraisal process. The Task Force is co-chaired by U.S. Department of Housing and Urban Development Secretary Marcia L. Fudge and Domestic Policy Advisor Susan Rice.”

Response to PAVE Action Plan (National Association of REALTORS®, Apr. 4, 2022)

“While NAR is supportive of improving diversity in the appraisal profession, there is concern that reducing education requirements in an effort to bring in a wider diversity of appraiser trainees could adversely impact the quality of appraisals going forward. Focus should be on exploring alternative paths to becoming an appraiser that do not sacrifice the quality of appraiser education and training.”

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.

Appraiser Independence

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.

Appraiser/Agent Communication

Residential Appraisal Process: FAQs for Agents was developed by NAR’s Real Property Valuation Committee for agents who are interested in educating prospective homebuyers about appraisals. NAR has found that confusion persists about appraisal regulations, especially those that affect how real estate agents and their clients communicate with appraisers. Frequently asked questions include “Can I speak to the appraiser?” and “What kind of information should I provide to the appraiser?”

Charlie Lee, from NAR Legal Affairs gave us a Window to the Law: Working with Appraisers video in Dec. 2018, in which he discussed the regulatory background of appraiser independence rules, the different roles of appraisers and real estate agents, and then covered some best practices.

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 readNAR'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.

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.

On May 24, 2018 NAR Real Property Valuation Committee Chair Rebecca Jones and Vice Chair David Griffith talked about NAR's appraiser independence policy and a paper published by the Federal Housing Finance Agency in May on appraisal management companies and appraisals they order.

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.nar.realtor

eBooks & Other Resources

Appraising the Appraisal (eBook)

The Performance Appraisal Handbook (eBook)

Real Estate Appraisal (eBook)

The Art of Real Estate Appraisal (eBook)

Valuing a Business (eBook)

How to Get Started in the Real Estate Appraisal Business (eBook)