BILL ANALYSIS Ó
AB 624
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Date of Hearing: April 21, 2015
ASSEMBLY COMMITTEE ON BUSINESS AND PROFESSIONS
Susan Bonilla, Chair
AB 624
(Wilk) - As Amended March 26, 2015
SUBJECT: Real estate appraisers: standards of conduct.
SUMMARY: Authorizes licensed real estate appraisers who perform
non-federally related appraisal activities to use a standard of
valuation practice other than the Uniform Standards of
Professional Appraisal Practice if that practice is disclosed
to, and agreed upon, by the client, and if that practice is
described in the appraisal.
EXISTING LAW:
1)Establishes the Real Estate Appraisers' Licensing and
Certification Law (Act), administered by the Bureau of Real
Estate Appraisers (BREA), which regulates the licensing of
real estate appraisers and provides definitions of specified
terms that govern the construction of that law. (Business and
Professions Code (BPC) Section 11300 et seq.)
2)Defines an "appraisal" as a written statement independently
and impartially prepared by a qualified appraiser setting
forth an opinion in a federally related transaction as to the
market value of an adequately described property as of a
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specific date, supported by the presentation and analysis of
relevant market information. (BPC Section 11302)
3)Provides that the term "appraisal" does not include an opinion
given by a real estate licensee or engineer or land surveyor
in the ordinary course of his or her business in connection
with a function for which a license is required, as specified,
and that the opinion shall not be referred to as an appraisal,
as specified. (BPC Section 11302)
4)Defines a "federal financial institutions regulatory agency"
as the Federal Reserve Board, Federal Deposit Insurance
Corporation, Office of the Comptroller of the Currency,
Federal Home Loan Bank System, National Credit Union
Administration and any other agency determined by the director
of the BREA to have jurisdiction over transactions subject to
this part. (BPC Section 11302(h)
5)Defines a "federally related real estate appraisal activity"
as the act or process of making or performing an appraisal on
real estate or real property in a federally related
transaction and preparing an appraisal as a result of that
activity. (BPC Section 11302(i))
6)Defines a "federally related transaction" (FRT) as any real
estate-related financial transaction which a federal financial
institutions regulatory agency engages in, contracts for or
regulates and which requires the services of a state licensed
real estate appraiser regulated by these provisions, and
includes any transaction identified as such by a federal
financial institutions regulatory agency. (BPC Section
11302(j))
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7)Defines a "state licensed real estate appraiser" as a person
who is issued and holds a current valid license under these
provisions. (BPC Section 11302(o))
8)Defines "Uniform Standards of Professional Appraisal Practice"
(USPAP) as the standards of professional appraisal practice
established by the Appraisal Foundation. (BPC Section
11302(p))
9)Requires the USPAP to constitute the minimum standard of
conduct and performance for a licensee in any work or service
performed that is addressed by those standards. (BPC Section
11319)
10)Prohibits a person from engaging in federally related real
estate appraisal activity governed by these provisions or
assuming or using the title of or any title designation or
abbreviation as a licensed appraiser in this state without
first obtaining a license. (BPC Section 11320)
THIS BILL:
1)Makes the following changes relating to definitions:
a) Expands the definition of "appraisal" by no longer
limiting appraisals under the Act to those relating to
federally related transactions;
b) Adds the Consumer Financial Protection Bureau to the
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definition of a "federal financial institutions regulatory
agency";
c) Defines the "USPAP" as the standards of professional
appraisal practice established by the Appraisal Foundation
for use in an FRT;
d) Defines "non-federally related real estate appraisal
activity" as the act or process of making or performing an
appraisal on real estate or real property for any purpose
other than an FRT; and,
e) Defines "standard of valuation practice" as any
nationally or internationally recognized valuation standard
addressing the credibility of an appraisal or appraisal
review;.
2)Limits the use of the USPAP as the minimum standard of conduct
and performance for federally related real estate appraisal
activity.
3)Authorizes a licensee performing a non-federally related
appraisal activity to use a standard of valuation practice if
that practice is disclosed to, and agreed upon, by the client,
and described in the appraisal.
4)Requires a licensee who uses a standard of valuation practice
other than the USPAP to comply with the Ethics, Record
Keeping, Competency, and Scope of Work rules of the USPAP
contained in the 2014-2015 edition of the USPAP.
FISCAL EFFECT: Unknown. This bill is keyed fiscal by the
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Legislative Counsel.
COMMENTS:
1)Purpose. This bill is sponsored by the California
Governmental Relations Subcommittee of the Appraisal
Institute . According to the author, "[This bill] is designed
to modernize California's appraiser licensing law to permit
licensed or certified appraisers to apply the most relevant
appraisal standards for their assignments. While federal law
requires compliance with the [USPAP] for [FRTs], California
operates in an international business environment and foreign
entities often need appraisal reports prepared in accordance
with international standards. Also, entities within the
[United States] often do not require USPAP-compliant
appraisals for their non-federally related transactions.
[This bill] simply permits the use of recognized alternative
or international valuation standards for non-[FRTs], if
disclosed and consented to by the client and if identified in
appraisal reports. In cases where standards other than USPAP
are employed, appraisal reports must still comply with
foundational USPAP standards relating to ethics, competency,
recordkeeping, and scope of work."
2)Background. According to the BREA, in 1989, the Federal
Financial Institutions Reform, Recovery and Enforcement Act
(FIRREA) was adopted by Congress mandating states to license
and certify real estate appraisers who appraise property for
FRTs. FRTs are defined as any real estate-related financial
transaction which a federal financial institutions regulatory
agency engages in, contracts for, or regulates, and which
requires the services of a state licensed real estate
appraiser regulated by these provisions, and includes any
transaction identified as such by a federal financial
institutions regulatory agency. In short, FRTs are
transactions involving loans made, guaranteed or insured by
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federally-supervised financial institutions. The federal law
was enacted as a result of the savings and loan disaster. The
FIRREA, and rules promulgated pursuant to that act, require,
at a minimum, that real estate appraisals be performed in
accordance with generally accepted uniform standards as
promulgated by the Appraisal Standards Board (ASB) of the
Appraisal Foundation, and that such appraisals be in writing.
The USPAP is the set of standards developed by the ASB of the
Appraisal Foundation to meet this requirement. Such
appraisals are to be performed by individuals whose competency
has been demonstrated and whose professional conduct is
subject to effective state supervision.
In response to the federal mandate, the Real Estate Appraisers
Licensing and Certification Law was enacted by the California
Legislature in 1990. The BREA, which administers the Act, is
charged with developing and implementing a real estate
appraiser licensing and certification program compliant with
the federal mandate. The BREA's enforcement unit, which
operates under a federal mandate, ensures adherence to the
federally-required USPAP, California law and regulations.
According to policy statements issued by the Appraisal
Subcommittee of the Federal Financial Institutions Examination
Council, an interagency body empowered to prescribe uniform
principles, standards and report forms for the federal
examination of financial institutions, Title XI of the FIRREA
and the federal financial institutions regulatory agencies'
regulations authorize any state or federal agency to impose
additional appraisal standards if they consider such standards
necessary to carry out their responsibilities, so long as
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additional appraisal standards do not preclude compliance with
the USPAP or the federal institutions regulatory agencies'
appraisal regulations for work performed for FRTs.
The federal financial institutions regulatory agencies'
appraisal regulations define "appraisal" and identify which
real estate-related financial transactions require the
services of a state licensed appraiser. Under these
regulations, only those transactions that involve appraisals
for FRTs require the services of a state licensed appraiser.
California Real Estate Appraisers' Licensing and Certification
Law. According to the author, because virtually every
residential loan is an FRT, approximately 90-95% of all
appraisals are covered. While federal law requires that FRT
appraisals be performed in compliance with the USPAP,
California law goes beyond this requirement in BPC Section
11319, and requires compliance with USPAP for all appraisals
performed by California licensed and certified appraisers,
whether federally-related or not.
According to the author, problems arise when appraisers are
sometimes asked by foreign entities to perform appraisals in
compliance with appraisal standards in the foreign country, or
in compliance with International Valuation Standards (IVS).
For example, other major international and alternative
appraisal and valuation standards may include: the Canadian
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Uniform Standards of Professional Appraisal Practice;
Standards of Valuation Practice; European Valuation Standards;
Uniform Appraisal Standards for Federal Land Acquisitions;
Real Property Appraisal Standards (Japan); Australia and New
Zealand Property and Valuation Standards and the Standards for
Real Estate Appraisals of the People's Republic of China.
California licensed and certified appraisers are not able to
accept an appraisal assignment if the standard identified is
other than USPAP. Even though state law does not require
licensure to perform the appraisal for non-federally related
transactions, licensed appraisers must still use the USPAP
because California mandates the use of USPAP standards for all
appraisals.
According to the author, the USPAP reporting requirements
impose duties beyond those often needed by entities requesting
appraisals in non-FRTs. Investors needing portfolio review
analysis, for example, often do not need, and thus are not
willing to pay for, a full USPAP-compliant appraisal. Because
California law makes USPAP the standard for all appraisals
performed by California licensed or certified appraisers,
California licensees are unable to accept these assignments.
In this regard, California law actually acts as a disincentive
to hire the most competent appraisers. As a result, licensed
professionals in other states or unlicensed persons in
California could perform those non-FRT appraisals without
following USPAP, while California licensees would still be
required to follow the USPAP.
The BREA's website lists as one of the twelve most frequently
asked questions relating to enforcement is whether a licensee
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may voluntarily "suspend" his or her license to perform
non-USPAP appraisals. According to the website, one of the
most common reasons for a licensee to wish to suspend or
terminate their license is the desire to produce non-USPAP
appraisals for real estate brokers or for tax appeal purposes,
i.e., for non-FRT appraisals. However, there is currently no
provision for permitting such a suspension of licensure prior
to the license expiration, and the BREA regulations require
every holder of a BREA license to conform to and observe USPAP
at all times, regardless of the type of transaction.
This bill would address this problem by authorizing licensees
to comply with recognized valuation standards other than the
USPAP for non-FRTs, with the consent of the client and if the
standards are properly identified in the appraisal report.
This bill would still require USPAP provisions relating to
ethics, competency, recordkeeping and scope of work to apply
if a standard other than the USPAP is used for an appraisal.
3)Prior Related Legislation. AB 1317 (Frazier), Chapter 352,
Statutes of 2013, enacted the statutory changes necessary to
reflect the changes in law made by the Governor's
Reorganization Plan No. 2, including moving the former Office
of Real Estate Appraisers from under the jurisdiction of the
former Business, Transportation, and Housing Agency to the
Bureau of Real Estate Appraisers under the Department of
Consumer Affairs, within the Business, Consumer Services, and
Housing Agency.
SB 237 (Calderon), Chapter 173, Statutes of 2009, required
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appraisal management companies, as defined, to register with
the Office of Real Estate Appraisers, and would subject those
entities to the provisions of the Real Estate Appraisers'
Licensing and Certification Law, and set forth standards with
which an appraisal management company would need to comply.
ARGUMENTS IN SUPPORT:
According to the sponsors, the California Government Relations
Subcommittee of the Appraisal Institute , "[This bill] is
designed to modernize California's appraisal licensing law to
permit licensed and certified appraisers to utilize
international and other alternative appraisal standards when
those standards are more relevant to particular transactions.
This will permit lower-cost, more appropriate appraisals which
respond to market and consumer demand. By way of brief
background, Congress imposed a requirement for all states to
license and certify real estate appraisals in 1990, coming out
of the savings and loan crisis of the time. Federal law
requires licensure, and compliance with the Uniform Standards of
Appraisal Practice (USPAP) for "federally-related transactions".
These are basically transactions involving loans made,
guaranteed or insured by federally-supervised financial
institutions. No federal law requires licensing or compliance
with "USPAP" for non-federally related transactions, however.
Since the enactment of licensing in 1990, other appraisal
standards have developed which may be more appropriate in
certain transactions, and USPAP may impose a level of work
unnecessary in some cases. Further, international lenders may
need appraisal work done in compliance with international
appraisal standards or those of their home countries, rather
than USPAP-compliant appraisals. All [this bill] does is permit
the use of nationally or internationally-recognized appraisal
standards for non-federally related transactions, if properly
disclosed and consented to by the client, and if identified in
the appraisal report. [This bill] is narrowly crafted to
respond to a simple need."
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ARGUMENTS IN OPPOSITION:
None on file.
POLICY ISSUE FOR CONSIDERATION:
The author may wish to consider whether it is necessary to
specify the 2014-15 edition of the USPAP a licensee must follow
for purposes of adhering to specific USPAP standards for
non-FRTs. Because specifying that edition would not take into
account future changes relating to those standards in future
iterations of the USPAP, licensees would be prohibited from
following a single set of USPAP standards, and would instead be
required to follow one set of standards for non-FRT appraisals,
and another set standards, e.g. if there is a newer edition of
the USPAP, for FRT appraisals. This may lead to confusion for
licensees, who could be accountable for applying the wrong set
of standards.
AMENDMENT:
This bill deletes the phrase "in a federally related
transaction" from the definition of appraisal, thereby expanding
the definition of appraisal to include non-FRT appraisals.
Because other provisions of the Act refer to appraisals, for
example, BPC Section 11321 which requires licensees to sign
appraisals, it may inadvertently alter existing practice
requirements. As a result, the author should consider restoring
that language to existing law.
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On page 2, line 9, after "opinion" insert: in a federally
related transaction to restore to existing law
REGISTERED SUPPORT:
California Government Relations Subcommittee of the Appraisal
Institute (sponsor)
REGISTERED OPPOSITION:
None on file.
Analysis Prepared by:Eunie Linden / B. & P. / (916) 319-3301
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