Washington Report and State News
Third Quarter 2013 Issue
July 15, 2013
The Appraisal Institute’s Washington Report and State News quarterly e-newsletter is intended to summarize 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.
In This Issue
Support Conservation Easement Tax Incentives!
Appraisal Institute Urges Congressional Action on 2 Bills
Appraisal Institute-Supported “SAVE Act” Reintroduced
GSE Reform Bill Introduced
Louisiana Board Completes AMC Customary & Reasonable Fee Study
Classification of Appraisal Firms as AMCs Continues to Be a Problem
New Reciprocity Requirements Now In Place
North Dakota, West Virginia Latest States to Enact AMC Legislation
AI Helps Table Bill That Would Require Appraisers to Submit Appraisals to Taxing Authorities
FASB Issues New Leases Exposure Draft
AI Joins Global Property Standards Coalition
AI Hosts Green Financing and Development Roundtable
AI Hosts Residential Mortgage Stakeholder Forum
Other Meetings of Note
Share Your Issues
Designated members, Candidates, Practicing Affiliates and Affiliates are encouraged to contact their member of Congress to seek support for legislation that extends the tax incentive for voluntary, landowner-led conservation easements. Many noncash charitable contributions involve real property, including donations relating to conservation. The U.S. tax code currently supports such donations – known as the enhanced conservation easement tax incentive – through a tax deduction that relies on qualified appraisals prepared by qualified appraisers. Without Congressional action, this tax incentive it is set to expire at the end of the year.
To express support for this important program, click here to send messages to members of the House and Senate.
ON CAPITOL HILL
Appraisal Institute Richard L. Borges II, MAI, SRA, addressed Leadership Development and Advisory Council conference attendees May 22 in Washington, D.C.
More than 100 designated members and candidates of the Appraisal Institute professionals went to Capitol Hill May 22 to urge Congress to act on two bills that could significantly impact the valuation profession.
Attendees of AI’s annual Leadership Development and Advisory Council Conference lobbied lawmakers and their staffs on H.R. 1553/S. 727, the Financial Institutions Examination Fairness and Reform Act, and on S. 526, the Rural Heritage Conservation Extension Act. H.R. 1553/S. 727, introduced by Rep. Shelley Capito, R-W.Va., and Sens. Jerry Moran, R-Kan., and Joe Manchin, D-W. Va., intends to promote consistency of bank examinations and due process and to enhance consistency in the interpretation and understanding of bank examination guidelines and regulations. The Appraisal Institute supports the bill’s overall goals, but noted concern with Sec. 1013(a)(3) of the legislation, which would prohibit any reappraisal of a performing loan even if bank examiners identified safety and soundness concerns.
AI delegates also expressed their support of S. 526, legislation that would extend tax incentives relating to donations of real property, including donations relating to conservation. See the Action Alert above for more information on this issue.
The Sensible Accounting to Value Energy Act, or “SAVE Act,” was re-introduced June 7 by Sens. Michael Bennet, D-Colo., and Johnny Isakson, R-Ga. The SAVE Act (S. 1106) is intended to improve the mortgage underwriting process used by federal mortgage agencies by ensuring that energy costs are considered. Under the SAVE Act, the U.S. Department of Housing and Urban Development would issue updated underwriting and appraisal guidelines for any loan issued, insured, purchased or securitized by the Federal Housing Administration or any other federal mortgage loan insurance agency. It would define such assignments as “complex” appraisals, which would require use of competent appraisers and ensure appraisers have access to building information — including plans, specifications and energy ratings by mortgage lenders and builders — to properly analyze the effects of high-performance improvements in the marketplace.
Similar legislation was introduced, but did not receive a vote, in the Senate during the previous Congress.
The Housing Finance Reform and Taxpayer Protection Act of 2013, also known as the Corker-Warner Bill (S. 1217), has been introduced into the U.S. Senate. The bill would replace Fannie Mae and Freddie Mac with a Federal Mortgage Insurance Corporation, a single government guarantor similar to the Federal Deposit Insurance Corporation. Among other things, the bill provides that the proposed FMIC establish a Mortgage Insurance Fund, develop standard uniform securitization agreements, oversee the common securitization platform currently being developed by the Federal Housing Finance Agency, and maintain a database of uniform loan level information on eligible mortgages. The bill, as proposed, would authorize the FMIC to sell data from the database to the public. The bill is not clear on whether such information sold could be used for commercial purposes or whether the information from the database could be made available to appraisers. These issues, as well as the impact providing such information to appraisers might have on the integrity of the appraisal process is under review by the AI Government Relations Committee, whose views will be shared with the bill sponsors.
Big changes to the bill are expected, and the legislation still faces an uphill battle to pass the Senate. However, the Bill is expected to serve as a starting point for discussion of GSE reform efforts in this Congress. Members of the House Financial Services Committee continue to work on a House version, which is expected to look signigicantly different than the bipartisan Corker-Warner bill.
IN THE STATES
The Louisiana Real Estate Appraisers Board on June 11 released the results of an independent appraisal fee study entitled, “Louisiana Residential Real Estate Appraisal Fee: 2012.” The study was conducted for the LREAB by the Southeastern Louisiana University Business Research Center in accordance with the Louisiana Appraisal Management Company Licensing and Regulation Act’s requirement for the LREAB to collect information on typical residential real estate appraisal fees paid in Louisiana in 2012.
The survey sample consisted of 113 mortgage lenders and 383 appraisers. Respondents were asked to provide information on typical appraisal fees for five appraisal types in urban, suburban, and rural locations. According to the study, “Median fees across all regions ranged from a low of $300 to $350 for Form 2055 appraisals to a high of $500 to $650 for Form 1025 appraisals.
According to the LREAB, appraisal management companies that use the data provided by the study will be considered to be in presumptive compliance with the Louisiana law that requires AMCs to “compensate appraisers at a rate that is customary and reasonable for appraisals being performed in the market area of the property being appraised, consistent with the presumptions of compliance under federal law.” The results of the study, which the LREAB intends to update annually, can be found here.
Over the last several months, the Appraisal Institute has received numerous comments from members who own appraisal companies expressing concern that they are being unfairly captured within some states’ appraisal management company registration and oversight requirements.
From the comments that have been received, it appears as if most of the concerns are that some states include within their definition of an AMC those appraisal companies that:
- Solely utilize employee appraisers to complete appraisal assignments, or have a mix of independent contractors and employees (or only use independent contractors to help fill time off requests, vacation or certain coverage areas);
- Have fewer than 15 independent contractor appraisers on their appraiser panel in the state, or fewer than 25 independent contractors on their appraiser panel in the U.S.; or
- Order appraisals on commercial properties.
The intent of the Dodd Frank Wall Street Reform and Consumer Protection Act was to require that states adopt registration and oversight requirements for AMCs that have more than 15 independent contractor appraisers in a state, or that have a network or panel of 25 or more independent contractor appraisers nationally. AI does not believe the Dodd Frank Act was intended to extend to appraisal companies that have employee appraisers (regardless of how many), or that have 15 or fewer appraisers on their panel in a state or fewer than 25 appraisers on their panel nationally.
Recently, the Appraisal Institute was able to obtain clarification from at least one state appraiser regulatory agency where this was an open question that it will not require registration of appraisal firms with 15 or fewer independent contractor appraisers in the state, or fewer than 25 appraisers on their panel nationally. AI is working to ensure that position is adopted in other states.
In addition, the Dodd Frank Act is clear that an AMC deals in the brokering of appraisals between appraisers and clients who are ordering appraisals solely for residential transactions. It does not appear that there was any intent in the Dodd Frank Act to extend registration and oversight requirements to entities, including many appraisal companies that order appraisals in conjunction with commercial real estate transactions, although states can impose additional requirements themselves. AI will continue to pay close attention to state AMC registration processes to avoid burdensome and unnecessary regulations.
As of July 1, states are now required to have new policies in place regarding the issuing of appraiser credentials to out-of-state appraisers via reciprocity. As enacted by the Dodd Frank Wall Street Reform and Consumer Protection Act of 2010, states, at a minimum, must have in place a policy of issuing a reciprocal appraiser credential to an appraisers with a valid credential from a “home” states that: 1) Is in compliance with Title XI of FIRREA (as determined by the ASC); and 2) Has credentialing requirements that meet or exceed the requirements of the “receiving” state.
According to the recently issued Policy Statements (Revised) of the Appraisal Subcommittee, “A State may be more lenient in the issuance of reciprocal credentials by implementing a more open door policy” but may not “impose additional impediments to issuance of reciprocal credentials.”
Most states have already enacted legislation or modified their regulations to comply with this new requirement. Encouragingly, some states have chosen to be more open, and have adopted policies that they will issue reciprocal credentials to appraisers from any state that is determined to be in compliance with Title XI by the ASC, not just those that have requirements that meet or exceed their own requirements.
The ASC has indicated that they will begin reviewing state reciprocity policies as of July 1, 2013, to ensure that they are compliant with the Dodd Frank Act requirements. If it is determined that a state does not have a reciprocity policy in place that complies with the Dodd Frank Act requirements, it is possible that appraisers in that state could be removed from the National Registry and no longer be eligible to provide appraisals in conjunction with federally related transactions.
North Dakota and West Virginia became the 36th and 37th states, respectively, to enact comprehensive legislation requiring the registration and oversight of appraisal management companies operating in the state. The North Dakota bill (House Bill 1389) was signed into law on April 12 by Gov. Jack Dalrymple, and the West Virginia legislation (House Bill 2608) was signed into law by Gov. Earl Ray Tomblin on April 30.
Both new laws are very similar to laws that have been enacted in the 35 other states that have enacted such legislation. Importantly, the new North Dakota requirements are only applicable to AMCs that place orders for residential appraisals, and it does not apply to appraisal firms who only utilize employee appraisers, or to any entities with 15 or fewer appraisers on their panel in the state or 25 or fewer appraisers on their appraiser panel nationally. This new law is effective on Jan. 1, 2014, but AMCs conducting business in the state on or before that date may continue to do business in the state until 60 days after the date that rules implementing the registration process take effect.
To date, comprehensive AMC legislation has been enacted in 37 states. Several other states, including Delaware, Massachusetts, New Jersey and South Carolina are in the process of considering similar legislation. Pursuant to the Dodd Frank Wall Street Reform and Consumer Protection Act, all states and territories are required to enact comprehensive AMC legislation within three years of the date that the federal bank regulatory agencies promulgate rules that contain the minimum standards that must be adopted. To date, no rules have been released by the bank regulatory agencies.
View a copy of the North Dakota law here. See a copy of the West Virginia law here.
In early 2013, the Guam Legislature considered Bill No. 36-32, “The Responsible Property Valuation Act”, which would have required real estate appraisers in Guam submit to the Department of Revenue and Taxation every appraisal within five business days of its completion, and would have required appraisers to provide the Department with a copy of the most recent appraisal completed on a parcel of real property in the last five years within 10 business days of the enactment of the legislation. The intent of this bill was to use the appraisals to update the existing assessment of properties in Guam for taxation purposes. Where more than one appraisal has been completed on the same property, the one with the highest property valuation would have been utilized to determine the assessed value of the property.
The Appraisal Institute wrote to the Committee on Aviation, Ground Transportation, Regulatory Concerns and Future Generations on Feb. 11, urging that this bill not be enacted into law. In its letter, AI stated, “Our most significant concern with this proposal is that the intended use of a real property appraisal, and the value opinion expressed by the appraiser, may not be appropriate to determine the value of the property for tax assessment purposes.” AI pointed out that a determination of liquidation value, going concern value, investment value, value in use, etc. involves assignment parameters that are vastly different than those utilized to determine market value, and likely would result in significantly different opinions of the value of a parcel of real estate which may not be appropriate to be used for taxation purposes.
AI also pointed out in its letter that establishing the assessed value of parcel of real estate using a real estate appraisal that was up to five years old could result in an assessed value that is significantly different – higher or lower – than the current market value of the property. This could result in property owners paying higher property taxes than required, or the taxing authority receiving reduced tax revenue.
A public hearing was held on this legislation on Feb. 4, but as a result of heavy lobbying in opposition to the bill by designated AI members in Guam, no further action was taken. View Bill No. 36-32 here. To view the AI letter, click here.
The Financial Accounting Standards Board on May 16 issued a proposed Accounting Standards Update: “Leases (Topic 842): a revision of the 2010 proposed Accounting Standards Update, Leases (Topic 840).” Under current US Generally Accepted Accounting Principles and International Financial Reporting Standards, most real estate leases are classified as operating leases and are not recognized on an entity’s balance sheet. Instead, most issuers with operating leases make adjustments to the financial statements (using disclosures and other available information) to estimate the effects of leases on a lessee’s financial statements.
Under the proposal, issuers of financial statements would be required to recognize for the first time assets and liabilities arising from leasing activity. For most lease of real estate, a lessee would be required to recognize a right-of-use asset and a lease liability, initially measured at the present value of the lease payments. On the income statement, an organization would recognize a single lease cost that combines the interest on the lease liability with the amortization of the right-of-use asset, on a straight line basis.
As it relates to lessors of real estate, they would be responsible for recognizing the underlying asset on their balance sheet, and recognizing lease income over the lease term, typically on a straight line basis.
The Appraisal Institute commented on the original Exposure Draft in 2010 and will provide comments on this Exposure Draft. View a copy of AI’s comments on the original Exposure Draft.
To see a copy of the latest FASB Exposure Draft, click here.
The Appraisal Institute joined some of the world’s leading professional organizations May 2 in forming the International Property Management Standards Coalition. The two-day meeting at the World Bank in Washington, D.C., focused on developing and embedding a single standard for the way property is measured worldwide.
The signed document forming the IPMSC said: “Representative bodies of the international property profession, having agreed with the goal of addressing property measurement fragmentation to increase public trust while supporting financial reporting and sound economic information, we commit in principle to the development and implementation of international property measurement standards.”
The declaration to signify the organizations’ active support in developing and embedding an international property measurement standard focused on four objectives: standards, ethics, measurement and implementation. Chief Executive Officer Frederick H. Grubbe, CAE, signed the agreement on behalf of the Appraisal Institute. President-Elect Ken P. Wilson, MAI, SRA, represented AI at the meeting.
Besides the Appraisal Institute, organizations signing the document to form the IPMSC, a coalition of organizations operating across global property markets, included:
- Australian Property Institute,
- BOMA International,
- Council of European Geodetic Surveyors,
- International Monetary Fund, and
- Royal Institution of Chartered Surveyors.
The Appraisal Institute hosted the LEED ND Finance Summit, "Cheaper Cost of Capital, Insurance, Construction & Operations," May 13 at its Chicago headquarters.
Real estate finance and development leaders from throughout the United States discussed sustainable and energy-efficient neighborhood planning and development at a May 13 roundtable at the Appraisal Institute’s Chicago headquarters.
The roundtable was coordinated by the Capital Markets Partnership, a nonprofit coalition of investors; investment banks; insurers and city, state, and federal agencies devoted to establishing a secondary market for sustainable and energy-efficient properties. Joining the Appraisal Institute were representatives from the city of Chicago, the Council for New Urbanism and the Illinois Chapter of the U.S. Green Building Council.
Leading the real estate valuation discussion was AI President Richard L. Borges II, MAI, SRA, who talked about how the real estate valuation profession is meeting challenges in the marketplace related to sustainable development.
Borges highlighted AI's strong leadership in education and methodological development through the Valuation of Sustainable Buildings professional development program, and thought leadership through such initiatives as its Residential Green and Energy Efficiency Addendum.
Participants also heard from Karen Weigert, Chicago’s chief sustainability officer, as well as from banking professionals seeking to finance such ventures and from developers who are working on sustainable real estate development projects. Developers also highlighted their use of appraisal firms as valuation consultants in the pre-development stage and positioning of properties for sale. Presentations from the meeting are available by clicking here.
Technological development in the real estate valuation profession remains too focused on appraisal report forms and is not attentive enough to market analysis, said appraisers, their residential clients, mortgage finance industry leaders, bank regulators and other participants May 24 at the Appraisal Institute Stakeholders Forum in Washington, D.C.
Hosted by the nation’s largest professional association of real estate appraisers, the event was themed “Residential Collateral Valuation: Synchronizing Client Needs and Service Delivery,” with the goal of understanding how appraisals are used by major stakeholders and how appraisal services can be supplemented, enhanced or changed to improve risk analysis.
Participants recommended that education providers continue efforts advanced by the Appraisal Institute to integrate statistical analysis and geo-spatial capabilities into appraisal and end-user education; to work with stakeholders to gain acceptance of technological needs; and to work with technology providers to bring cutting edge services to the real estate market.
Other topics discussed by participants at the Appraisal Institute Stakeholders Forum included lender perspectives on residential mortgage origination; single-family agency issues; asset management and property disposition; and an update from the Mortgage Industry Standards Maintenance Organization, which maintains voluntary e-commerce standards for the mortgage industry.
The Appraisal Institute hosts its Stakeholder Forum series in an effort to bring together divergent viewpoints on topics facing the real estate valuation profession and related professions in order to facilitate discussions leading to practical solutions that benefit real estate market participants.
AI has participated in roundtables and delivered presentations in recent months to several real estate related organizations, including the Business Valuation Roundtable sponsored by The Appraisal Foundation, where Steve Gottlieb, MAI, director of real estate consulting for Deloitte Financial Advisory Services, represented real property appraisers and AI President Richard L. Borges II, MAI, SRA, and AI President-Elect Ken P. Wilson, MAI, observed.
Other activities include AI Washington office staff:
- Providing a legislative and regulatory overview to the American Bankers Association Residential Appraisal Committee on July 9 on issues facing the appraisal profession;
- Delivering remarks on June 13 to National Association of State Energy Officers (NASEO) Buildings Committee on engaging the real estate appraisers on energy efficiency matters;
- Participating in a roundtable meeting on June 12 of the Institute for Building Efficiency on barriers to adoption of green or energy efficiency features on insights, indicators, and interest in achieving scale with energy efficiency in the United States. Of note, New Research presented by Johnson Controls indicates that very few building owners, managers, etc. think that changing appraisal standards to require consideration of energy efficiency in valuation will have any impact on improving energy efficiency in buildings. According to a survey, very few of them also take valuation into account when making decisions about whether to build a new building with EE systems or to retrofit an existing building. The main driver of decision making is cost savings today, and not necessarily about how that translates into higher or lower valuation in the future. Click here to view the survey.
The AI Washington office wants to know if you have relationships with critical policymakers, or are aware of a burgeoning issue of opportunity or concern. Please contact any member of the Government Relations Committee or Washington office staff with more information.