BILL ANALYSIS Ó AB 1381 Page 1 Date of Hearing: January 12, 2016 ASSEMBLY COMMITTEE ON BUSINESS AND PROFESSIONS Susan Bonilla, Chair AB 1381 Weber - As Amended March 26, 2015 SUBJECT: Real estate appraisers. SUMMARY: Requires real estate appraisers to obtain education in valuing sustainable real estate assets for purposes of meeting educational background requirements and continuing education requirements. EXISTING LAW: 1)Establishes the Real Estate Appraisers' Licensing and Certification Law (Act), administered by the Bureau of Real Estate Appraisers (BREA) within the Department of Consumer Affairs (DCA), which regulates the licensing of real estate appraisers. (Business and Professions Code (BPC) Section 11300 et seq.) 2)Requires the Director of the DCA to adopt regulations for licensure which shall meet, at a minimum, the requirements and standards established by the Appraisal Foundation and the federal financial institutions regulatory agencies acting pursuant to Section 1112 of the Financial Institutions Reform Recovery and Enforcement Act of 1989, Public Law 101-73 AB 1381 Page 2 (FIRREA). (BPC Section 11340(c)) 3)Authorizes the Director to issue a citation to a licensee if the person or entity is in violation of the Act or any regulations adopted to carry out its purposes, which may also contain an order to enroll in and successfully complete additional basic or continuing education courses. (BPC Section 11315(a)) 4)Provides that when a citation imposes an education course or courses, failure to satisfactorily complete or timely report an education course to the office by the date specified in the citation shall result in the automatic suspension of the licensee's real estate appraiser license as of that date. (BPC Section 11315(d)) 5)Provides that a license shall not be renewed prior to the satisfactory completion of an education course specified in the citation. (BPC Section 11315(d)) THIS BILL: 6)Requires the Director, for purposes of establishing educational background requirements, to require education in valuing sustainable real estate assets, which include, but are not limited to, solar and wind power generation installations, and energy efficiency measures. 7)Requires continuing education requirements to include education in valuing sustainable real estate assets, and prohibits the renewal of a license unless the licensee provides evidence of continuing education in valuing sustainable real estate assets. AB 1381 Page 3 FISCAL EFFECT: Unknown. This bill is keyed fiscal by the Legislative Counsel. COMMENTS: Purpose. This bill is sponsored by the author. According to the author, "California has been at the forefront of the expansion of the green economy and has continued to make strides to support growth within the renewables market. As this growth continues it is critical that homeowners who make investments in renewable residential retrofits with the reasonable expectation of adding value to their homes are ensure to be assessed as such. Having required education for the appraisal of sustainable real estate assets makes sense as the way to make sure homeowners have these changes adequately valued." Background. In 1989, Congress adopted the Federal Financial Institutions Reform, Recovery and Enforcement Act (FIRREA), which requires states to license and certify real estate appraisers who appraise property for federally related transactions (FRTs), as a result of the savings and loan disaster. In short, FRTs are transactions involving loans made, guaranteed, or insured by federally supervised financial institutions. The FIRREA, and rules promulgated pursuant to that act, require 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. The Appraisal Foundation also has an Appraisal Qualifications Board (AQB) that establishes the qualification criteria for state licensing, certification, and recertification of appraisers. FIRREA mandates that all state certified appraisers must meet the minimum education, experience, and AB 1381 Page 4 examination requirements promulgated by the AQB. These criteria, among other things, establish four levels of real property appraiser classifications, which are reflected under California law, and have different education, experience, and scope of practice requirements. As of January 1, 2015: Trainee Licensees may appraise any property which the supervising appraiser is permitted to appraise. Requires 150 education hours and does not require experience. Residential Licensees may appraise any non-complex family property with up to four dwelling units with a transaction value up to $1 million, and non-residential property with a transaction value up to $250,000. Requires 150 education hours and 30 semester hours of college level education or an associate's degree or higher in any field and 2,000 hours of appraisal experience. Certified Residential Licensees may appraise any family property with up to four dwelling units without regard to transaction value or complexity, and non-residential property with a transaction value of up to $250,000. Requires 200 education hours and a bachelor's degree or higher and 2,500 hours of appraisal experience. Certified General Licenses may appraise all real estate, without regard to transaction value or complexity. Requires 300 education hours and 3,000 hours of appraisal experience. Background Education Requirements. Educational requirements for all certifications are based upon national standards determined by the AQB, and require specific modules to be covered, such as basic appraisal principles and procedures and a 15 hour National USPAPA course, or its equivalent. The AQB made changes relating to real estate appraiser qualifications which became effective January 1, 2015. Among other things, AB 1381 Page 5 the qualifications specifically provide that case studies relating to special energy efficient items (i.e. "green buildings") may be used as a part of the curriculum required under certain education modules for certified residential and certified general licensees. It is unclear the extent to which these foundational courses already incorporate energy efficiency items. Continuing Education Requirements. The current term of a California real estate appraiser license is two years, and all licensed appraisers must meet minimum continuing education requirements (CEs) before renewing their license. A total of 56 hours of CEs are required every four years, although proof of completion of the seven hour National USPAP Update Course, or its equivalent, is required every two years and must be submitted with each renewal application. Of the remaining hours, proof of completion of a four hour BREA approved course covering federal and state laws and regulations and remaining CE courses is required every four years. The cycle starts with the issuance date of the current license. Currently, the AQB allows, and the BREA may grant, CE credit for courses that cover topics including, but not limited to, energy efficient items and "green building" appraisals. Valuing Sustainable Real Estate Assets. According to the author, there have been concerns raised regarding the consistent assessment of solar and other renewable technologies when added to a home. While these retrofits are often relatively costly, they are worthwhile, considering the savings found in energy bills and a perceived increase in the value of the home, and research shows that sustainable real estate assets do indeed add value to a home. However, according to "The Challenges of Valuing Green," published in the Winter 2015 issue of the Appraisal Journal, an industry publication, valuation professionals, real estate agents, and homebuyers face challenges in the process of valuing, selling, and purchasing green and energy efficient homes due to a lack of comparable properties and lack of data. When applied to AB 1381 Page 6 homes, the term "green" can take a variety of meanings, which creates difficulty in the marketplace when valuing a home that has been classified as green or has energy efficient or high performance features. This bill would build upon current efforts to appropriately value green features by requiring the Bureau to require education in valuing sustainable real estate assets. Renewable Energy in California. According to the Solar Energy Industries Association (SEIA), in 2014, California installed 4,316 megawatts (MW) of solar electric capacity, and of this capacity, 615 MW were residential, 307 MW were commercial, and 3395 MW were utility-scale. As of September 2015, the 11,535 MW of solar energy currently installed in California ranks first in the country in installed solar capacity. According to the SEIA, prices for solar systems for the residential market continue to drop year after year, and have fallen nearly 50 percent since 2010. In 2014, over 230,000 homes in California had solar panels. According to the March 2015, California Energy Commission's New Solar Homes Partnership Program (NSHP) Case Study, the NSHP, part of California's comprehensive statewide solar program, the California Solar Initiative, had the highest market penetration in Southern California, reaching 27 percent of new single-family homes in 2012. Market penetration was 8 percent in Northern California and 4 percent in Central California. Prior Related Legislation. AB 2519 (Berryhill) Chapter 683, Statutes of 2012, among other things, prohibited the renewal of a license if the licensee failed to satisfactorily complete the additional education requirements imposed by a citation. SB 706 (Price) Chapter 712, Statutes of 2011, required licensees to take a four-hour course relating to federal and state AB 1381 Page 7 appraisal laws instead of certifying that they have read and understand specified state and federal laws. ARGUMENTS IN SUPPORT: Broadway Heights Community Council writes, "Renewable technologies are quickly becoming a fixture in residential and commercial markets as a way not only to save on energy costs but also to increase the value of a property. Nationwide in 2015 alone there has been enough solar and wind energy installed to run more than 2.6 million homes according to the Natural Resources Defense Council. Although the trend of retrofitting real estate with green technology is a promising one, there have been a number of complaints from those who received these updates that additions are being undervalued or not taken into account at all. These situations are detrimental to those who have invested a great deal in these green technologies and if issues with valuing persist over the long term, they have the potential to hinder the ability of the renewable industry to continue to grow." ARGUMENTS IN OPPOSITION: The Appraisal Institute California Government Relations Committee writes, "?AB 1381 imposes a (CE) requirement for valuing sustainable real estate assets on all appraisers, whether or not their practice includes any solar energy appraisals. Appraisers may specialize in agricultural, right of way, drainage, and other appraisals, and it is inappropriate to extend this (CE) requirement to all appraisers." POLICY ISSUES: AB 1381 Page 8 Course Availability and Amount of Education Required. While the AQB recently specified that foundational courses may include energy efficient items, it is unclear how many foundational courses incorporate energy efficiency into their curriculum. As a result, unlike CE courses, which already exist for energy efficiency and green building characteristics, applicants for initial licensure may have a harder time finding foundational courses that meet this requirement without having to take supplemental courses. In addition, this requirement would also affect reciprocity for out-of-state applicants, who may also have to take supplemental courses to receive State licensure. Accordingly, the author may wish to consider delaying the operative date for the background educational requirement to give the market time to adjust, and to provide more time for applicants to meet this requirement. In addition, the author may wish to consider specifying the amount of coursework (e.g., number of hours) required to meet these new requirements, and whether all licensees, including those who do not work with sustainable real estate assets, should be required to take ongoing CEs credits in this area. REGISTERED SUPPORT: Broadway Heights Community Council REGISTERED OPPOSITION: Appraisal Institute California Government Relations Committee Analysis Prepared by:Eunie Linden / B. & P. / (916) 319-3301 AB 1381 Page 9