Evaluations: Appraisal Foundation Releases Concept Paper

According to the Appraisal Foundation, requests for evaluations are on the rise. A concept paper on this subject is the discussion for the TAFAC meeting this October in Arlington, Virginia. The author is Wayne R. Miller, Chair of the Appraisal Standards Board.

TAFAC is The Appraisal Foundation Advisory Council, which is composed of 60 non-profit organizations and government agencies. Members represent appraisers, home builders, real estate brokers, financial institution regulators, the secondary mortgage market, and the private mortgage insurance industry. I am a member of this council, representing the Ohio Coalition of Appraisal Professionals.

What is an evaluation? Even that is not clearly defined. The term is commonly interpreted as a valuation product that has less documentation, and therefore possibly lower cost, than an appraisal.

According to the Appraisal Foundation’s paper:

“As early as 1989, Title XI of the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA) allowed banks and other financial institutions to obtain evaluations of real estate collateral in certain federally-related transactions below a threshold amount when an appraisal may not be necessary. Beginning in 2010 the use of evaluations began to noticeably increase.

There are two reasons for this increase. First, in 2010, the five agencies listed below updated the Interagency Appraisal and Evaluation Guidelines (Guidelines):

• Office of the Comptroller of the Currency (OCC)
• Board of Governors of the Federal Reserve System (Board)
• Federal Deposit Insurance Corporation (FDIC)
• Office of Thrift Supervision (OTS)
• National Credit Union Administration (NCUA)

These Guidelines identify specific types of real property financial transactions that do not require an appraisal and set forth content guidelines for financial institutions to follow when ordering or completing evaluations. A second factor contributing to the growth of evaluations has been the agencies’ recent decisions to increase appraisal threshold amounts. This has led to a reduction in the number of transactions requiring appraisals, particularly for new loan originations.”

The paper then outlines the great differences regarding the interpretation and use of Evaluations when comparing two sources: USPAP, and the Interagency Appraisal and Evaluation Guidelines. After comparing the two sources’ guidelines, the paper asks the question of the day:

“Is it possible to perform an evaluation in compliance with USPAP and state laws and regulations?

Yes, but some of the reporting requirements may not mesh. For example, when reporting an evaluation opinion of value in a USPAP-compliant report, an appraiser must include the following contradictory labels:

• USPAP requires the evaluation report to prominently state whether it is an Appraisal Report or a Restricted Appraisal Report.
• Some states mandate that in addition to the required USPAP label, the evaluation report must state on its face, “This is not an appraisal.”

To complicate matters further, the Guidelines are written to provide guidance to federally regulated financial institutions and examiners–they are not written for appraisers or others completing evaluations.”

Clearly, there is no national standard for the performance of evaluations; for what it must include, who can perform these assignments, and what guidelines must be followed. There is no publicly accountable entity to ensure that an evaluation is completed competently if it is not performed by a credentialed individual.

The paper concludes:

“In the context of changing laws and regulations, appraisal products, and technology, the ASB is seeking input about whether USPAP should make an accommodation for evaluations, and if so, how to distinguish them from appraisals.”

What is clear is this: there is more discussion and interpretation needed to provide guidance for appraisers who may consider producing an evaluation product as part of their valuation products. Stay tuned, as this topic continues to be discussed in the coming year.

And as always, the Appraisal Standards Board would appreciate your comments on this and other appraisal topics by emailing your comments to: ASBComments@appraisalfoundaion.org.

Have you heard about the new appraisal law that benefits the consumer? Check it out here.