The Dodd-Frank Wall Street Reform and Consumer Protection Act is the largest reform of our financial regulatory systems since the reforms following the Great Depression. After the Great Recession, Congress passed Dodd-Frank in an effort to protect consumers and the overall financial stability of the United States. Changes in the Act affect nearly every financial regulatory agency in the country. Part of the Dodd-Frank reform was amending four federal statutes: TILA (Truth in Lending Act of 1968), FIRREA (Financial Institutions Reform Recovery and Enforcement Act), RESPA (Real Estate Settlement Procedures Act of 1974), and ECOA (Equal Credit Opportunity Act of 1974).
The most important amendment for appraisers is Section 1427, which changes TILA’s section 129E on appraisal activities. The amendments to TILA are designed to protect both consumers and appraisers from anything that may affect the integrity of an appraisal.
Appraisal independence requirements and The Prohibited Acts
Section 1427 of Dodd-Frank establishes an ethical framework for how other people can interact with appraisers. This framework, designed to protect the independence of the appraiser, comes in the form of The Prohibited Acts. A real estate agent, lender, or interested party may not cause or attempt to cause the value assigned to the property to be based on a factor other than the independent judgment of an appraiser by compensating, coercing, colluding with, instructing, inducing, bribing, or intimidating a person conducting or involved in an appraisal.
While this may effectively sound like the end of communication between real estate agents, lenders, and appraisers, there are three exceptions written into the law that apply to anyone interested in the transaction.
At any time, an interested party may ask an appraiser to:
- Consider additional information or sales in determining the value of a property.
- Clarify or explain the logic used to reach a certain conclusion.
- Correct a factual error.
Typically, real estate agents are encouraged to contact the mortgage lender or AMC with any of the above requests rather than contacting the appraiser directly. Lenders and AMCs typically have a screening process in place to determine whether a request is appropriate and relevant. This is another way to protect an appraiser from intimidation.
If you suspect a violation to the Appraiser Independence Requirements, visit the Consumer Financial Protection Bureau and either submit a complaint online or call the Whistleblower Hotline at (855) 695-7974.
Section 1427 also establishes the requirement for mandatory reporting. Lenders and agents must report noncompliant or non-credible appraisals to state regulatory agencies. If someone approaches you concerning an issue with your report or offers a suggestion, be sure to take their thoughts seriously and look critically at your own report.
Customary and reasonable fees
Perhaps the most controversial part of the TILA amendment, this particular piece of the law requires that appraisers be paid a customary and reasonable fee. This hasn’t always meant that appraisers are paid more for their work, however. In some cases, appraisers were actually paid less. There are three sources used to establish what is customary and reasonable:
- Academic studies
- Governmental fee schedules
- Independent fee surveys
Complex properties require additional analysis and, ultimately, more time. The law specifies that complex properties should amount to higher fees. However, simply asking for a higher fee doesn’t always yield one. To increase your likelihood of agreeing on a higher fee, take the time to clearly explain what makes a property more complex than average. If you can show why it will require more of your time, you’re more likely to be successful.
Want to learn about other issues that can impact your appraisal work, get practical advice on how to improve your appraisal business, and more? Browse continuing education courses at McKissock.com.