Thursday, September 28, 2023 | The Latest Buzz for the Appraisal Industry

Valuation Independence

Appraisal Buzz sat down with Josh Walitt, Compliance Manager of Property Interlink, to discuss Appraiser Independence.  As the problem may continue to grow – the industry faces more and more obstacles to determine the regulations, proper policies and how to effectively report the problem. So, how can this all be avoided? Open communication, education and enforcement. 

Buzz: What are the main “rules” that relate to appraiser independence?

Josh: I prefer to use the term “valuation independence”, which is how the Truth In Lending Act (TILA) refers to it. The issue goes a lot deeper than simply “appraisers”. The independence of the valuation function relates not only to the independence of appraisers but also to the independence of the valuation management function, such as appraisal departments and appraisal management companies. I should also mention that these rules are quite broad and address the behavior of the lender, the loan production staff, mortgage brokers, and even real estate agents. So, referring to this issue as “appraiser” independence can be a misnomer.

Requirements are found in TILA, the Dodd-Frank Act (which amended TILA), as well as the Interagency Appraisal and Evaluation Guidelines, Freddie Mac and Fannie Mae’s Appraiser Independence Requirements (AIR) and Appraiser Independence FAQs, and HUD Handbook 4000.1. These sets of rules came to exist in their current form since the financial crisis a decade ago.

Buzz: Related to this concept of “independence”, what exactly are these rules designed to do?

Josh: If you read the various sets of rules, you find very quickly that they have many similarities between them, but they each have some unique aspects. For example, HUD Handbook 4000.1 includes a unique requirement related to providing written notice to an appraiser when he or she is removed from an institution’s list of FHA appraisers. Many items, though, are practically word-for-word from one of the rules to another.

The sets of valuation independence rules focus on communication and behavior with the party preparing the valuation and the party managing the valuation function, centering on: what is prohibited, what is allowed, and what is expected to occur. As examples of these concepts, an appraiser may not be coerced, an appraiser may be asked to add additional support or clarification to a report, and the appraiser must be engaged by the lender or its AMC (but not by loan production), respectively.

Buzz: What effect have these sets of rules had?

Josh: I believe the industry has benefited from the rules, in some ways. But despite the proliferation of these valuation independence rules across practically ever layer of the lending and banking worlds, problems still exist. But even though, I’ve observed improvements related to valuation independence. Today’s problems manifest themselves differently from ten and fifteen years ago.

Then, an appraiser might be asked for a “comp check” where the appraiser would be asked to search for likely comps to promise or anticipate a value. Often, loan production staff openly managed panels and regularly selected “their own” appraisers for assignments. Blacklists were commonplace, often with little documentation for the decisions.

Now, coercion by clients exists, but it may be directed at the AMC, not necessarily at the appraiser. There are reports of some real estate agents (on their own or in conjunction with loan officers) blocking appraisers access to a property, to increase the likelihood of “preferred” appraisers being assigned orders. And there are still reports of non-loan production staff insisting upon managing the panel.

Buzz: So, how could these rules be made more effective?

Josh: First, awareness and education. All parties – appraisers, AMCs, lenders, loan production, real estate agents, and mortgage brokers – need to understand what the industry’s rules prohibit and what they require. The valuation independence issue is often framed as a complex issue, but that is not really the case. Parties simply just don’t want to understand.

Second, enforcement. If agencies truly want valuation independence (as their rules seem to indicate) then the reporting of alleged violations must be made efficient and must be consistently investigated with penalties in appropriate cases. The real question is: who wants valuation independence?

Buzz: What do you see is the main factor preventing valuation independence?

Josh: No one group is immune from having bad players. But I believe the “weakest link” related to valuation independence is enforcement from federal and state authorities.

Buzz: How can appraisers report suspected violations of valuation independence, such as coercion or panel management problems?

Josh: Most institutions and appraisal management companies have a dedicated method, such as a special email or phone, so that appraisers can report alleged valuation independence violations. Generally, only after the lender has determined that the issue did not affect the report (such as the value conclusion itself or the underwriting decision) can the transaction be consummated. For example, a party coercing the appraiser to inflate a value or to not disclose the property’s actual physical condition could impact whether or when the transaction can close.

The Appraisal Subcommittee (ASC) has a link on its homepage ( to the Appraisal Complaint National Hotline, a tool that uses a step-by-step questionnaire to determine which agency regulates a specific type of institution or transaction, so a user can file a complaint. For example, if I am an appraiser and have a complaint involving an alleged violation by a lender’s loan officer located in Colorado for a conventional appraisal, the Hotline tool provides me the contact information for the federal agencies and state authorities for that transaction type.

In addition, state or national appraiser associations can help offer advice to appraisers needing direction.

Buzz: What can appraisers do if they find themselves being denied access to a property by an agent?

Josh: The regulations require the lender (or its approved appraisal management company) to select the person performing the valuation, and prohibits other parties from playing a part in the selection or panel management processes. Any agent refusing an appraiser access to a property is not compliant with regulations, since it puts that agent in charge of selecting or deselecting which appraiser performs the assignment. The appraiser should report it to the lender’s valuation independence contact. While it is conceivable that there is a legitimate reason for an agent denying access, many times such an action merely reflects the agent’s desire to get a different (and possibly a specific) appraiser to perform the appraisal with a predetermined value result. In addition to reporting it to the lender (and AMC), the appraiser should file complaints with the applicable state and federal agencies. If these types of activities go unreported, nothing will change.

Buzz: Can you share with us some examples where appraisers faced valuation independence issues?

Josh: A few weeks ago, I was contacted by an appraiser I’ve known for years. The real estate agent had denied access to a property and had even told her that law enforcement would be called if the appraiser set foot on the property. She called the operations area of the bank and reported it. I sent her links and instructions on the regulatory basis for the valuation independence violation, so she could “speak the language” when reporting the situation to the bank and other parties. I don’t know whether the appraiser did the assignment, but I doubt she re-accepted it.

In another situation, a reviewer shared a story of an underwriter that repeatedly asked the AMC to instruct the appraiser to remove a large adjustment from the sales comparison approach. The AMC explained that they couldn’t instruct the appraiser in that way and the report already had a good explanation in support of the adjustment. Bypassing his company’s policy, the underwriter called the appraiser directly and instructed the appraiser to remove the adjustment if the appraiser wanted to continue receiving work. The appraiser did so and you can imagine the problems that ensued when the appraiser delivered the revised report to the AMC. Not a good situation for the appraiser or the underwriter.

Buzz: How can appraisers get more information or a better understanding?

Josh: Some providers offer continuing education related to regulations and valuation independence. Contact the investigator at a state board or division of real estate. An appraiser could call his or her E & O provider with questions, or even contact the compliance department at lenders or AMCs. The bottom line is: know the rules and regulations.

Buzz: Thanks for talking with us, Josh. We truly appreciate your input and recommendations on how to improve the valuation industry.

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