Real estate appraisers are required to be independent of other individuals with interests in a real estate transaction. This requirement helps to ensure the appraisal is conducted without outside influence which may sway the appraiser’s view of the property’s value. [Calif. Business & Professions Code §11345.4]
To that end, many appraisers believe that any communication with individuals involved in the transaction — including real estate agents — is unlawful. However, the Bureau Chief of California’s Bureau of Real Estate Appraisers (BREA) debunked this view in a recent BREA newsletter.
According to the Bureau Chief, an appraiser ought to take data offered by an agent into consideration in order to create the most accurate appraisal. Any information offered by the agent or other interested individual needs to be independently confirmed by the appraiser to determine whether it is credible.
However, communication between an agent or other individual and the appraiser is not lawful if it violates appraiser independence.
The violations of appraiser independence are:
- any action by a participant to the transaction which attempts to influence the appraiser to disregard their independent judgment;
- deliberate mischaracterization by the appraiser of the appraised value of the property;
- any action which encourages the appraiser to appraise the property at a targeted value to facilitate the making or pricing of a transaction; and
- the withholding or the threat to withhold payment for services rendered after the appraisal contract has been fulfilled. [15 United States Code §1639e]
In California, improper influence of an appraiser includes:
- withholding or threatening to withhold timely or partial payment for a completed appraisal report, regardless of whether a sale or financing transaction closes;
- withholding or threatening to withhold future business from an appraiser;
- demoting or terminating, or threatening to demote or terminate an appraiser;
- expressly or implicitly promising future business, promotions or increased compensation for an appraiser;
- conditioning the ordering of an appraisal report or the payment of an appraisal fee, salary or bonus based on the opinion, conclusion, valuation or preliminary value estimate requested from an appraiser;
- requesting an appraiser provide an estimated, predetermined or desired valuation in an appraisal report prior to entering into a contract or completing a report;
- requesting an appraiser provide comparable sales prior to the completion of the report;
- providing an appraiser with an estimated, predetermined or desired value for a property or a proposed or target amount to be loaned to the borrower, except that the appraiser may be handed a copy of the purchase agreement;
- requesting the removal from an appraisal report of comments disclosing adverse property conditions or physical, functional or economic obsolescence; or
- hiring an appraiser based on the valuation likely to be generated by the appraiser. [Department of Real Estate Regulations §2785(a)]
Nowhere in federal or California law is an appraiser prohibited from communicating with real estate agents when that communication does not touch on any of the violations mentioned above.
Further, an individual with an interest in a real estate transaction is always allowed to ask an appraiser to:
- consider additional, appropriate property information including comparable properties;
- provide further explanation for the appraiser’s value conclusion; and
- correct errors in the appraisal report. [DRE Regulations Article 11 2785(b)]
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