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.