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No Joke: States Aim to Prohibit Foreclosures in Appraisals

An American Banker article last week notes that four states are considering legislation that would prohibit an appraiser from using foreclosures in an appraisal report. According to the article, the rationale is that the high number of foreclosures in these states is distorting the market. A more rational rationale might be that foreclosures are simply impacting values. Illinois, Nevada, Missouri, and Maryland are the four states.

This could be troublesome for appraisers and it doesn’t sound like lenders find this a good idea. For appraisers, ignoring foreclosures could mean abiding by the new law but failing to comply with the Uniform Standards of Professional Appraisal Practice (USPAP). The Nevada Bankers Association believes the end result is inflated values, according to the AB article.

According to the Appraisal Institute (AI), the Missouri and Illinois legislation would prohibit appraisers from using foreclosures as comparables for five years. Said AI, “[t]he Nevada legislation would prohibit the use of foreclosures and short sales. The prohibitions contained in the Maryland legislation are somewhat broader and include any property that was sold under “duress or unusual circumstances, such as a foreclosure or short sale.

Check out the IL legislation, or the NV legislation, or the MO legislation, or the MD legislation.

Comments
  1. Jack

    This would be a huge problem- would jurisdictional exception trump USPAP?. The exception may lead to a misleading report, and that is good for no one.

  2. In my blog article “Why my listing did not sell”. The smart buyer’s agent will have a rider stating “The Contract is subjected to the Appraisal value”. The smart listing agent should have a rider stating the “Appraisal value is subject to a reveiw process”.
    Remember no one gets paid until the transaction is closed.

    The Appraisal report’s that lack the data to suport the opinion statements in the appraisal report is a worthless report. A good review appraiser could support and/or not support the report data and value opinion.

    I did review of an Appraisal report were the value opinion was reasonable. The appraiser made a good guess because there was no data in the report to support
    any of the report statements and opinions. The report statements were all boiler plate data.

    Coach Jack

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