BILL ANALYSIS Ó SENATE COMMITTEE ON APPROPRIATIONS Senator Ricardo Lara, Chair 2015 - 2016 Regular Session AB 624 (Wilk) - Real estate appraisers: standards of conduct ----------------------------------------------------------------- | | | | | | ----------------------------------------------------------------- |--------------------------------+--------------------------------| | | | |Version: June 22, 2015 |Policy Vote: B., P. & E.D. 6 - | | | 1 | | | | |--------------------------------+--------------------------------| | | | |Urgency: No |Mandate: No | | | | |--------------------------------+--------------------------------| | | | |Hearing Date: July 13, 2015 |Consultant: Mark McKenzie | | | | ----------------------------------------------------------------- This bill meets the criteria for referral to the Suspense File. Bill Summary: AB 624 would authorize licensed real estate appraisers to use a standard of valuation practice approved by the Bureau of Real Estate Appraisers (BREA) for performing nonfederally related appraisal activities, as specified. Fiscal Impact: The BREA estimates costs of approximately $110,000 in 2016-17 and $102,000 in 2017-18 for 1 PY of staff to develop and adopt regulations regarding the approval of nationally or internationally recognized valuation standards. (Real Estate Appraisers Regulation Fund) AB 624 (Wilk) Page 1 of ? BREA indicates costs of $150,000 in 2016-17 to develop specialized investigator training related to any new valuation standards. These costs could be ongoing to the extent additional valuation standards are approved by the BREA. (Real Estate Appraisers Regulation Fund) Additional BREA costs of approximately $50,000 annually, beginning in 2017-18, to contract for subject matter experts to assist in training development and provide expert witness testimony for enforcement cases. (Real Estate Appraisers Regulation Fund) Background: Following the Savings and Loan crisis in the 1980s, the federal government enacted the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA) in 1989. Included in FIRREA was the establishment of a federal regulatory structure for oversight of real estate appraisal activity performed in conjunction with federally related transactions (FRTs: those requiring loans made, guaranteed, or insured by federally-supervised financial institution). Federal law requires real estate appraisals used in conjunction with FRTs to be performed in writing, and in accordance with uniform standards, by appraisers whose competency has been demonstrated and whose professional conduct will be subject to effective supervision. Existing federal law establishes the Uniform Standards of Professional Appraisal Practice (USPAP) as the minimum standard for appraisals used for FRTs. USPAP contains standards for appraisal services including real property, personal property, business valuation, and mass appraisal, and also contains ethics, record keeping, competency, and jurisdictional exception rules for all aspects of an appraisal assignment. These standards are updated every two years through a transparent, public process. Existing state law, the Real Estate Appraisers Licensing and Certification Law was enacted by the California Legislature in 1990 in response to FIRREA, and establishes the BREA as the licensing and enforcement body for appraisal activity. The licensing unit of the Bureau sets the minimum requirements for education and experience according to criteria set by the federal Appraisal Subcommittee and California law to ensure that only qualified persons are licensed to conduct appraisals in federally related real estate transactions. Applicants must meet the minimum education and experience requirements and AB 624 (Wilk) Page 2 of ? successfully complete a nationally approved examination. The BREA's enforcement unit, which also operates under federal enforcement mandates, ensures adherence to the federally-required USPAP, California laws, and other regulations by investigating complaints of violations of national appraisal standards filed against licensed appraisers. Proposed Law: AB 624 would authorize licensed appraisers to use a standard of valuation practice other than USPAP when performing nonfederally related appraisal activity, if that practice is disclosed to, and agreed upon, by the client and the practice is described in the appraisal. This bill would also do the following: Specify that "nonfederally related real estate appraisal activity" is the performance of an appraisal on real estate or real property for any purpose other than a FRT. Define "standard of valuation practice" as any nationally or internationally recognized valuation standard approved by the BREA. Clarify that USPAP constitutes the minimum standard of conduct and performance for federally related real estate appraisal activity. Require a licensee that uses a standard of valuation practice other than USPAP to comply with ethics, record keeping, competency, and scope of work rules specified in the 2014-15 edition of USPAP. Staff Comments: This bill is intended to authorize licensed and certified appraisers to use alternate standards of valuation approved by the BREA instead of USPAP when performing appraisal activity for non-FRTs. While there are other recognized (primarily internationally recognized) valuation standards, California law related to appraisal activity has been structured around the federal USPAP standards and licensed activities related to FRTs. As such, the BREA would need to develop and adopt regulations to review and approve other valuation standards, and train its investigator and enforcement staff on any new standards that are approved by the Bureau. AB 624 (Wilk) Page 3 of ? BREA estimates staffing costs of $110,000 in 2016-17 and $102,000 in 2017-18 to develop and adopt regulations to establish an application and review process for approving alternate valuation standards. Due to the complexities of these valuation standards, volume of information involved in assessing standards, and expectations of significant interest among stakeholders, the BREA expects significant workload associated with these regulations. BREA expects to incur additional costs to develop a specialized investigator training program to foster necessary expertise on any new standards that are adopted. Preliminary estimates indicate these costs would be approximately $150,000, and could be ongoing to the extent multiple valuation standards are approved. Lastly, BREA also expects to require contracts of approximately $50,000 each year for subject-matter experts to assist in the development of specialized training and to serve as expert witnesses in enforcement cases. -- END --