Appraisers should be able to provide – as seamlessly as possible – opinions of value that meet the needs of their clients. But the regulatory system in place for the nation’s real estate valuation profession is full of outdated, inefficient, and duplicative rules and requirements that run completely counter to that goal.
Appraisers face burdensome regulations that ultimately hurt their ability to serve their clients. The situation calls for appraisal regulatory modernization.
Rather than waiting for a total overhaul of GSE regulations, Congress should authorize the use of a multi-state licensing program similar to the Nationwide Multistate Licensing System (NMLS) used by real estate agents and mortgage originators. An NMLS-type structure would maximize efficiency through improved coordination among state regulators, would lower regulatory and cost burdens, and would benefit appraisers and users of appraisal services.
Without a platform like NMLS, the current regulatory system may cause many appraisers to leave the valuation profession.
According to a study conducted by the National Association of Realtors, excessive regulation is one of the most common reasons for leaving the profession among appraisers who are unlikely to remain for another five years. For example, appraisers living near state boarders often work in both states, especially in rural areas, but because each state handles licensing independently, those appraisers working across state lines must earn and pay for licenses in both. Since most appraisers operate as small businesses, these requirements become a significant burden.
Additionally, a survey of Appraisal Institute professionals identified “managing multiple licenses/certifications” as the single greatest regulatory-related challenge they face.
However, if Congress were to adopt an NMLS-like structure, it would improve coordination with a simplified flow of information through a single stop to access data and a uniform database for appraisers across states. For example, many states now require background checks for appraisers — who often work in more than one state — without a central processing or management system, which forces appraisers to navigate a patchwork process that increases costs for lenders and consumers. Meanwhile, the NMLS has a single background check that can be used by all states, providing one-stop shopping for practitioners and appraisal firms.
Furthermore, a recent report from the U.S. Department of Treasury recommended updating the 1989 Financial Institutions Reform, Recovery and Enforcement Act (FIRREA), while pointing out the obvious benefits of systems like the NMLS for harmonizing state licensing laws in the financial services industry.
The report recognizes the benefits of the NMLS for other professions, which has been “to reduce duplicative regulatory requirements, promote greater information sharing and coordination, and maintain consumer protections and the strength and resilience of regulated firms.” It recommends efforts to build a more unified licensing structure and supervisory system across the states, which would also reduce inconsistencies across state laws and regulations.
Ultimately, consideration must be given to impact on consumers, who are making the most important purchase of their lives, and whether proposed changes improve safeguards or increase risks. One proposed regulatory modernization solution has been to waive the appraisal process altogether. But this does not address the inherent structural problems and creates more risk for lenders and consumers.
In August, North Dakota became the first state to request waivers for required appraisals in federally related transactions. Citing several factors, including a 12 percent increase in the state’s population, Gov. Doug Burgum and Lisa Kruse, commissioner of the Department of Financial Institutions, requested the temporary waiver to allow banks to do their own property valuations.
Although the request was driven by a desire to meet demand for appraisals in the state, temporary waivers are not in the interests of home buyers, nor do they address the fundamental issues of overregulation and inefficiencies that have led to the current situation. On the contrary, waivers represent a risky, band-aid approach that puts consumers at even greater risk by not having a quality appraisal performed by a designated professional. On the other hand, North Dakota is a prime example of how an NMLS-type structure would benefit appraisers and consumers by making the appraisal process more efficient and allowing more appraisers to work and share information across states. This would also decrease costs for the small business appraiser. Such a streamlined structure could prevent some of the looming problems that consumers may have to face if housing demand continues to rise but the regulatory system and its burdensome, duplicative requirements is not addressed.
In the end, well-qualified and highly competent appraisers developing reliable, credible appraisals add value to real estate transactions.
To alleviate regulatory challenges and provide benefits that extend beyond the valuation profession, Congress must adopt an NMLS-like structure for appraisers.
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