These laws define the improper influence a real estate licensee or an appraisal management company is prohibited from exercising in a real estate transaction involving an appraisal.

Business and Professions Code §11345.4, California Civil Code §1090.5

Added by S.B. 6
Effective: January 1, 2012

DRE Regulation Article 11.1 Section 2785

Effective: October 26, 2011

Real estate licensees and appraisal management companies in a real estate transaction involving an appraiser may not exercise or attempt to exercise the improper influence of the development, reporting, result or review of an appraisal sought for a mortgage loan controlled by the Real Estate Settlement and Procedures Acts (RESPA). [See RPI Form 200]

Improper influence includes any of the following activities:

  • 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; or
  • requesting the removal from an appraisal report of comments disclosing adverse property conditions or physical, functional or economic obsolescence.
  • hiring an appraiser based on the valuation likely to be generated by the appraiser;

Real estate licensees are further prohibited from providing an appraiser, appraisal company or appraisal management company with stock or financial or non-financial benefits.

Appraisal management companies are further prohibited from requiring compensation from an appraiser in order for the appraiser to attain priority in the assignment of business.

Editor’s note – Civil Code §1090.5, which was adopted in 2007, already barred a person with an interest in a real estate transaction from improperly influencing an appraiser of real estate. Additional amendments which finalized the Truth in Lending Act (TILA) in 2010 also defined the improper influence of the appraisal process. DRE Regulation Article 11.1 Section 2785 above was added by the DRE to highlight the relevance of federal legislation to the practice of real estate in California. It also adds to the state’s list of actions defined as the improper influence of the appraisal process.

Related articles:

December 2010 LWs

Appraisal management to the rescue?

Anyone with an interest in a real estate transaction may ask an appraiser to do any of the following:

  • consider additional relevant property information, including information regarding comparable properties;
  • provide further explanation for the valuation;
  • correct errors in the appraisal report;
  • provide a copy of the sales contract with purchase transaction.
  • obtain multiple valuations in order to assure reliability in value assessment;
  • withhold compensation due to breach of contract or inferior service; or

Editorial note – The last point in the list above goes against the intended effect of the law. Being privy to the purchase agreement directly influences the appraiser to value the property at a price equal to or greater than the amount stated in the agreement.