Working RE Magazine - Issue 68

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Real Est at e A pprai s ers

Summer 2025, Volume 68

Could a Class Action Lawsuit Finally Unbundle Hidden AMC Fees?

UAD 3.6 and URAR: Shaping the Appraisers of Tomorrow In the Appraiser’s Corner: Interview with Craig Capilla The New UAD Quality Equation

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Summer 2025, Volume 68

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From the Editor

Readers Respond

6

Could a Class Action Lawsuit Finally Unbundle Hidden AMC Fees?

by Isaac Peck, Publisher

12

A New Era in Valuation: How UAD 3.6 and the Redesigned URAR Will Reshape the Appraisal Landscape

by Paula K. Konikoff, Appraisal Institute

16

In the Appraiser’s Corner: Interview with Craig Capilla

by Isaac Peck, Publisher

24

The New UAD Quality Equation: Interior + Exterior = Overall Rating

by Jo Traut, McKissock Learning

28 32 34

Insurance IQ: Indemnification Agreements

by Isaac Peck, Senior Broker at OREP.org

How Appraisers Bring Human Insight to the Most Unique Homes in the Country

by Chad Barker, CEO of Velox Valuations

The Short-Term Rental Dilemma

by JoAnn Apostol

38

Trump’s War on DEI: What It Means for Appraisers

by Isaac Peck, Publisher

Mission Working RE is published to help readers build their businesses, reduce their risk of liability and stay informed on important technology and industry issues.

Subscribe to Print and Receive Premium Content WorkingRE.com/Subscribe/ Subscription included with OREP Membership (Visit OREP.org).

Comments & letters are welcome! All stories without attribution are written by the editor.

2 Working RE Summer 2025

Publisher

Working RE

Marketing and Design Manager

6353 El Cajon Blvd., Suite 124-605 San Diego, CA 92115 (888) 347-5273 Fax: (619) 704-0567 subscription@workingre.com www.WorkingRE.com

Isaac Peck isaac@orep.org

Ariane Herwig ariane@orep.org

Editor

Kendra Budd kendra@orep.org

Working RE is published quarterly and mailed to real estate appraisers, agents and other real estate professionals nationwide.

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From the Editor

Steadfast in the Face of Change

by Kendra Budd, Editor

The appraisal profession is bound

to see some major changes in the coming months, some of which have already begun. With lawsuits challenging the transparency of appraisal fees, DEI initiatives being phased out, and increased conversations on how to keep appraisers safe from potential claims, the appraisal sphere is abuzz with one question: what is going to happen to the profession?

This copy of Working RE magazine that you now hold in your hands hopes to provide some clarity on these topics.

Currently, many appraisers are closely following the class action lawsuit Timmins v. Clear Capital, Core Valuation Management (CVM), and Rocket Mortgage after many were left disappointed by the Consumer Financial Protection Bureau’s (CFPB) failed attempt to curb AMCs increased economic leverage after new leadership took place in the White House.

Timmins’ is arguing for increased transparency regarding appraisal fees, more specifically on what portion ap4 Working RE Summer 2025

praisers are being paid vs. AMCs— alleging that Clear Capital, CVM, and Rocket Mortgage engaged in fraud, unfair acts, and violated California’s consumer protection laws. The case is set to be argued out in a California courtroom later this year while working appraisers wait with bated breath to see how the conclusion of this case will affect their business. (Read more on page 6.)

Regarding how the political climate is affecting the appraisal profession, Donald J. Trump’s executive orders regarding DEI initiatives have been making major headlines. While these executive orders don’t target the appraisal profession specifically, they have had an overarching effect on appraisal programs such as the Property Appraisal and Valuation Equity (PAVE) task force, which was charged with addressing appraisal bias and advancing valuation equity. This will also undoubtedly influence how Fannie Mae, Freddie Mac, and the Department of Veteran Affairs operate in the future. Not to mention the

United States Department of Housing and Urban Development (HUD) will have to rethink how they run their department—more specifically how they will navigate HUD complaints regarding bias. (Read more on page 38.)

During these uncertain times for the appraisal profession, it’s important now more than ever to make sure you are keeping yourself safe from any potential claims that may arise. In a dynamic interview spanning multiple subjects, industry-leading trial attorney Craig Capilla shares his insights on what the current liability environment is like for appraisers, what’s coming next, and what appraisers can do to stay safe and protect themselves.

(See In the Appraiser’s Corner: Interview with Craig Capilla on page 16.)

Right now, many appraisers are feeling the profession being flipped on its head over and over again. We are honored to be here to help keep appraisers informed and educated on how to navigate these new changes.

Stay safe out there! WRE

Readers Respond FHFA’s Massive Expansion of Appraisal Waivers: What it Really Means Fannie Mae’s Lyle Radke states that these waivers “will only have a small impact on appraisal volume.” To the working appraiser, “appraisal volume” means “income from appraisal fees.”

Earlier, the article says that “FHFA estimates that since 2020, appraisal waivers ... have saved consumers $2.5 billion dollars on appraisal fees.” So appraisers have lost $2.5 billion in appraisal fee income in the last five years. With roughly 35,000 active residential appraisers (depending on whose estimate one uses), that small impact works out to a loss of over $71,000 per appraiser, or over $14,000 per year in lost income.

And appraisers will lose even more in the future with the expansion of waivers.

—Matt Cook

 DOJ vs. Appraiser and Rocket Mortgage There is a famous case regarding this type of matter and it was ruled in favor of the appraiser. The final result the Court ruled was the appraisal amount is just an opinion. The appraiser defendant was Jimmy Johnson (Indianapolis, Indiana): BSA Construction LLC v. Jimmie E. Johnson.

—Patricia Hogue Shane in Baltimore is still fighting ...

Here’s a little tidbit: Connolly said in his deposition that he didn’t put any weight on the higher value because he knew it was “way higher than we ever thought”, and he or his law firm still didn’t verify.

Connolly proceeded to go on his media tour knowing the higher value was bogus but insisted Shane was a racist based on that value. Do you think Connolly

and Relman Colfax could be in trouble?

It’s obvious … It’s in summary judgement and she should rule in a couple weeks.

Fingers crossed and still praying, going on three years. Thanks to all! —Steve Lanham

 Fannie, Freddie: New Market Analysis Requirements February 4th This industry has taken a drastic turn in the last 15 years. We will have more AI doing a vast majority of Appraisals where the [average] hard-working appraiser is getting forced out of the system due to more work and liability and fewer fees paid … We as [average] appraisers need to form a backbone, unionize, remove the scam [management companies], demand a full fee or this will be just a parttime job with no benefits. The industry is imploding. Preparing for a new job.

—Salvato WRE

Summer 2025 Working RE

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Could a Class Action Lawsuit Finally Unbundle Hidden AMC Fees?

by Isaac Peck, Publisher

Appraisers hoping for the Consumer

“This litigation is important as it challenges the legal basis of the current AMC ‘fee split’ model and presents arguments appraisers have been raising for over a decade.”

Financial Protection Bureau (CFPB) to curb the increasing economic leverage of appraisal management companies (AMCs) suffered a setback when new leadership in the White House made clear moves to undermine the CFPB’s rulemaking and enforcement activities in late January 2025.

Many appraisers had looked to the CFPB to issue a ruling that would separate the appraisal fee and the AMC fee on consumer mortgage disclosures, arguing that bundling these two fees into a single “appraisal fee” on disclosures misrepresents the true cost of the appraiser’s services and creates a conflict of interest where AMCs are financially incentivized to shop for the cheapest appraiser, not the highest quality— because they get to keep the difference.

This affects consumers’ understanding of appraisal costs, impacts the quality of appraisals, and reduces public trust, the argument goes. (See WorkingRE.com; search “Great Debate on Appraisal Fees.”)

With the CFPB unlikely to take action on this issue given its weakened state, a new class action lawsuit, Timmins v. Clear Capital, Core Valuation Management (CVM), and Rocket Mortgage, is forcing the issue to a head in a California courtroom.

Timmins alleges that, because the true cost of appraisal services is obscured and misrepresented on her mortgage disclosures, along with the fact

Isaac Peck is the Publisher of Working RE magazine and the President of OREP Insurance, a leading provider of E&O insurance for real estate professionals. OREP serves over 10,000 appraisers with comprehensive E&O coverage, competitive rates, and 14 hours of CE at no charge for OREP Members (CE not approved in IL, MN, GA). Visit OREP.org to learn more.

Reach Isaac at isaac@orep.org or (888) 347-5273. CA License #4116465.

6 Working RE Summer 2025

that Clear Capital and CVM took a substantial, undisclosed portion of the “appraisal fee,” that defendants engaged in unfair competition by means of both fraudulent acts and unfair acts, unjust enrichment, and deceptive acts and practices in violation of California’s consumer protection laws.

Against the backdrop of the $418 million settlement the National Association of Realtors (NAR) finalized in late 2024—stemming from a class action lawsuit over price fixing and transparency of compensation in the real estate market—AMCs and lenders are likely approaching this latest challenge to appraisal fee disclosures with heightened caution.

This litigation is important as it challenges the legal basis of the current AMC “fee split” model and presents arguments appraisers have been raising for over a decade.

Will this case lead to material change in the appraiser profession? Only time will tell. Here are the details on what is likely to be just the beginning of a long legal fight over appraisal fees.

Bundled Fees and Transparency At the heart of Timmins’ lawsuit is the alleged lack of transparency inherent in the way the “appraisal fee” is disclosed to consumers on their initial mortgage disclosures, and even their closing disclosures.

Specifically, a single “appraisal fee” is disclosed to the consumer on the initial mortgage disclosure, but the appraiser is only being paid a portion of page 8 8

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that fee, with an AMC, a third-party rarely disclosed to the consumer, typically taking a significant portion of that “appraisal fee.” This single fee, Timmins argues, is “deceptive because a reasonable consumer would conclude that this fee is for the actual appraisal services performed by appraisers.”

Lenders like Rocket Mortgage, Timmins says, enjoy the benefits of using AMCs because it allows them to “receive liability protection” and essentially outsource the entire appraisal procurement function (and its associated costs), while having the borrower pick up the cost of the AMC because it is hidden in the singular “appraisal fee.”

This failure by Rocket Mortgage to differentiate the actual cost of the appraisal and the cost of the AMCs services, and Rocket’s complete omission of the AMC’s involvement in the initial disclosure, misleads the consumer, Timmins asserts—a deception worsened by the low fees paid to the actual appraisers, around 50 percent of the disclosed “appraisal fee.” Timmins cites research suggesting Clear Capital “retained 64-84 percent of the sample appraisal fees charged to borrowers in Florida, Iowa, Minnesota, North Carolina, Oregon, Oklahoma—and California, where Clear Capital retained 66 percent of an appraisal fee earlier this year.”

The language of Timmins’ complaint echoes what many appraisers are thinking: “What services AMCs provide is obscure,” Timmins argues. “It is the appraisers—not AMCs—who contact borrowers, schedule appraisals, conduct appraisals, and prepare appraisal reports. The appraiser’s work can take significant time and includes traveling to the property to examine it, conducting market research on comparable properties, and then preparing a final appraisal report. The AMC receives the appraisal report and forwards it to the lender, but beyond that it is 8 Working RE Summer 2025

In plain language aimed at consumers, the firm echoes the language of Timmins, arguing that AMCs “bundle their fees with the cost of the appraisal, leaving homebuyers unaware of the inflated charges.” unclear what, if any, role AMCs have in supporting the work to create the appraisal report.”

Timmins asserts that misrepresentation permeates AMC’s practices, from calling the fee an “appraisal fee” at all to instructing the actual (lowpaid) appraisers to “not include an invoice” in the written appraisals they give to the customer. The Defendants are thus able to “charge borrowers considerably in excess of the actual appraisal cost, with no tangible benefit to borrowers.” The typical dynamics of a free market are not able to help keep prices competitive for consumers because of the lack of transparency, the argument goes. “The only way to make AMCs’ fees subject to the healthy pressure of an efficient market is to inform consumers of the details of the AMCs’ fees. This would give consumers a chance to demand that lenders compete for the borrower’s business by competing with each other on the price their AMC charges. This competition is not happening now because the Defendants are obfuscating that the AMCs receive an excessive middleman fee,” the suit reads.

Defendants Answers Back CVM, Clear Capital and Rocket Mortgage all filed demurrers in response to Timmins, essentially asserting that Timmins’ claims are inadequate, unfounded, and should be dismissed before discovery begins or the case is heard any further by the court.

Clear Capital’s filing argues that Timmins has an “apparent lack of awareness about the critical role that AMCs play” and briefly lists out AMCs’ value-

add activities, including (1) contracting with appraisers to perform assignments (2) reviewing and verifying the work of appraisers, (3) receiving appraisal orders and appraisal reports, (4) submitting completed appraisal reports to creditors, (5) collecting fees from creditors, and (6) forwarding fees to appraisers.

Interestingly, Rocket Mortgage, Clear Capital, and CVM lean heavily on an “it wasn’t me” strategy, with Rocket arguing that if there was any wrongdoing (which they deny), it was done by the AMCs and therefore Rocket cannot be held liable or responsible. Clear Capital and CVM both say that they never communicated anything with Timmins, therefore any claim for misrepresentation or deception has nothing to do with them.

Answering Timmins’ argument about its engagement letter prohibiting appraisers from including an invoice in their report, Clear Capital maintains that their policy precludes only the inclusion of an invoice, and that appraisers can include the amount of the appraisal fee they were paid.

REVAA Statement Working RE reached out to Mark Schiffman, Executive Director of the Real Estate Valuation Advocacy Association (REVAA), an organization that represents the largest AMCs in the country, for a comment.

REVAA’s position is that the current practices of lenders and AMCs are in compliance with federal and state laws pertaining to the disclosure of appraisal fees. “We do not oppose the disclosure of the AMC and appraiser fee separately in the consumer closing documents at the national level

(per the Truth in Lending Act and CFPB) or on the Uniform Residential Appraisal Report (URAR) at the state level. The new URAR from the GSEs has the AMC contact information included and has line items for the AMC and appraiser fee to be included if it is mandated by the state or if a lender requires it,” writes Schiffman.

The challenge for AMCs and lenders, Schiffman relays, is that the appraisal fee is currently in a zero-tolerance category in consumer closing documents. Keeping this fee bundled with the AMC fee “allows lenders the flexibility to adjust the appraiser’s fee, rather than have to redisclose, if needed to accommodate payment of higher fees to the appraiser per Customary and Reasonable Fee requirements,” Schiffman argues.

If the current law were changed to move the appraisal fee from zerotolerance category to “a category that permits flexibility for lenders to make reasonable disclosure,” then REVAA would support the unbundling of the fee, Schiffman says.

Stakeholder Consensus Many of the leading appraiser organizations like the Appraisal Institute, the American Society of Appraisers (ASA), and the American Society of Farm Managers and Rural Appraisers (ASFMRA), have been fighting to separate the appraisal fee and AMC fee on consumer disclosures for nearly a decade—including trying to get a bill passed through Congress six years ago (Visit WorkingRE.com; search “Appraisal Fee Transparency Act of 2019”).

NAR, for its part, is also in favor of separating the fees, with its 2024 President Kevin Sears writing to the CFPB last year that for reasons of “regulatory oversight and enforcement purposes, transparency, and market efficiency, fees charged by AMCs should be identified separately from those charged by appraisers.”

Many state bankers associations also wrote the CFPB last year urging separation of AMC and appraisal fees on consumer disclosures. While the national Mortgage Bankers Association itself was silent on the issue in its response to the CFPB’s Request for Information regarding junk fees, it is widely understood that many lenders appreciate the bundled “appraisal fee” because of the zero-tolerance category that appraisal fees are in currently, to REVAA’s point.

Flexible AMC earnings per order prevent lenders from needing to redisclose closing costs when appraisal assignments become more complex.

Morgan & Morgan Investigating The largest personal injury law firm in the United States is also now paying attention. Morgan & Morgan recently published a consumer-facing article on their website calling out the hidden fees associated with AMCs and encouraging homebuyers who believe they may have been overcharged to come forward. The firm is actively investigating such cases and offering free case evaluations.

In plain language aimed at consumers, the firm echoes the language of Timmins, arguing that AMCs “bundle their fees with the cost of the appraisal, leaving homebuyers unaware of the inflated charges ... This lack of transparency,” they write, “makes it difficult to identify how much of the fee actually goes to the appraiser versus the AMC.” While not a party to the Timmins lawsuit, Morgan & Morgan’s public engagement on the issue signals growing legal interest in the AMC business model—and suggests that more consumer litigation could be on the horizon. With the ink barely dry on the National Association of Realtors’ $418 million settlement over price fixing and fee transparency, the legal spotlight is clearly shifting toward other corners of the housing industry where similar dynamics are in play.

In this climate, the issue of the bundled “appraisal fee” and undisclosed AMC markups is gaining traction as a potential next front in consumer protection litigation.

In speaking with HousingWire, Morgan & Morgan attorney John Yanchunis explains that the firm’s interest in fee practices began over a year ago when two consumers came forward with concerns. That prompted an ongoing investigation into how widespread the issue really is. Yanchunis says one suit is likely on the horizon. With the CFPB weakened and unlikely to act, he says private litigation can step in to fill the gap. “The drama at the CFPB just creates a greater importance for consumer lawyers like me in my firm,” Yanchunis said. “We’re going to be busier because of it. I’m a big supporter of the CFPB and their absence is not going to be helpful to consumers, and we’re ready to fill the void.” For supporters of fee transparency and consumer awareness, such legal pressure may be the only path left forward.

How Big Is Too Big? Another question that some industry insiders are posing is how big is too big in terms of the size and power of the largest AMCs in the valuation space. While Clear Capital has not published any specific numbers pertaining to its footprint, it is widely regarded as one of the “Top 5” largest AMCs in the United States and is one of only a handful of vendors approved with Fannie Mae and Freddie Mac for hybrid appraisals.

Because the leading AMCs in the country are privately held, hard data about the size and market position is not available. Class Valuation, which touts itself as the nation’s largest AMC on its own website, has completed nearly 20 acquisitions of other AMCs over the last 10 years and has published some data which provides insight into its market presence. In an page 10 8

Summer 2025 Working RE

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email put out by Chad Stanius, SVP of Staff Appraisers at Class, Stanius boasts that “by the end of 2023, our remarkable group of staff appraisers completed over 60,000 appraisals for Class Valuation.”

According to data put out by the American Enterprise Institute (AEI), there were roughly 1,650,000 traditional appraisals ordered through Fannie Mae and Freddie Mac in 2023. It is unclear whether Stanius is referencing the total number of appraisals completed by its staff appraisers since the beginning of Class’s staff appraiser division, or if he is referencing what their staff appraisers had completed just in the year 2023. If specific to just the year 2023, this would mean Class Valuation

has a pretty substantial portion of total market share in the valuation space. In private conversations, the GSEs have denied that any single AMC has over 5 percent of market share—so definitive data on the market share of the largest AMCs remains unclear.

Conclusion Will Timmins’ legal challenge to the bundled “appraisal fee” survive? Only time will tell.

It is clear that increased scrutiny is being placed on transparency around fees that are being charged to consumers, specifically in the real estate market.

With consumer advocacy law firms circling and appraisal organizations rallying behind greater fee transparency, the

fight over what constitutes a fair and fully disclosed “appraisal fee” is hopefully not over yet. Whether through court rulings, regulatory reforms, or sheer consumer pushback, the bundled fee model is facing more heat now than at any time in its two-decade run.

For working appraisers, the stakes couldn’t be higher. The bundled appraisal fee allows a fundamental conflict of interest to continue, i.e. AMCs profit more by paying appraisers less.

The risk here is a race to the bottom where the cheapest appraiser is prioritized, not the most qualified. Appraisers will be watching closely, as the future of their compensation model—and their visibility in the real estate transaction—hangs in the balance. WRE

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A New Era in Valuation:

How UAD 3.6 and the New URAR Will Reshape the Appraisal Landscape

by Paula Konikoff, Appraisal Institute

T

he residential appraisal profession is entering a period of profound transformation. With the introduction of UAD 3.6 and the redesigned Uniform Residential Appraisal Report (URAR), appraisers aren’t just being asked to fill out a new form—they’re being asked to operate within an entirely new digital ecosystem. This is not a tweak. It’s a reengineering of the reporting process that will impact the entire valuation workflow: from inspection to submission, from fieldwork to file review.

“For some, this transition will feel natural. For others, it may require a steep learning curve and an investment of time and resources.”

A Redesign With Reach The UAD and URAR redesign, led by Fannie Mae and Freddie Mac, is part of a broader modernization strategy to increase transparency, flexibility, and data standardization in mortgage lending. The legacy 1004 form—long the industry’s default—is being phased out, along with other form-specific templates.

In its place, the new URAR provides a dynamic and modular structure designed to accommodate all residential property types in a single format. That shift alone represents a significant departure from the rigid, checkbox-heavy reports many appraisers have grown accustomed to.

But the changes go far deeper than formatting. UAD 3.6 introduces new data fields, redefines existing ones, and creates room for more narrative reporting and integrated exhibits. Appraisers will be expected to demonstrate stronger support

Paula K. Konikoff, JD, MAI, AI-GRS of Los Angeles, is the 2025 president of the Appraisal Institute. As president, she serves on AI’s Executive Committee and chairs the policy-setting Board of Directors. She is the author of the book, “Appraisers in Arbitration,” the developer of online seminars, was on the development team for the AI-GRS qualifying education and is a reviewer of textbooks and articles submitted to The Appraisal Journal.

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for adjustments, provide embedded market analysis within the report itself, and maintain consistency between the written analysis and structured data fields.

Technology at the Forefront Adapting to these changes will require more than just learning a new template—it will demand new tools and systems. The updated URAR is built for a digital-first environment, emphasizing software integration and data validation.

Many of the systems being rolled out to support this transformation are designed for mobile use, enabling appraisers to collect data and complete sections of the report in the field.

This mobile shift signals a major operational change. Appraisers will need to evaluate and possibly overhaul their existing software, update their devices, and get comfortable working in environments that prioritize interoperability between platforms. For some, this transition will feel natural. For others, it may require a steep learning curve and an investment of time and resources.

The Training Divide One of the most pressing challenges emerging during this transition is the uneven rollout of education across industry stakeholders. While appraisers are being offered robust training programs—including a course developed in partnership with the GSEs and delivered by the Appraisal Institute—the same level of engagement has not yet been extended to lenders, underwriters, or appraisal reviewers. page 148

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To date, the GSEs have offered only limited training for the lender community, and those offerings are not on par with the formal course requirements for appraisers. This growing knowledge gap between service providers and their clients could introduce new complications to the review process. Lenders may flag appraisals for perceived inconsistencies that are actually aligned with the new requirements. Reviewers unfamiliar with the structure or expectations of the redesigned URAR may request revisions that reflect outdated standards. In short, a lack of shared understanding could lead to delays, miscommunication, and frustration on all sides.

Ongoing Education and Strategic Support To help appraisers fully prepare for these sweeping changes, the Appraisal Institute is offering a robust lineup of educational programs beyond the core

URAR course. In addition to the foundational seminar developed in collaboration with Fannie Mae and Freddie Mac, the Appraisal Institute is rolling out new sessions focused on critical aspects of the updated reporting process.

These include targeted courses on market analysis and the sales comparison approach—both of which are undergoing significant changes under the new framework. These follow-up programs are designed to give appraisers the tools they need not only to comply with the new standards, but to enhance the quality, credibility, and defensibility of their reports in a more demanding regulatory environment.

Further, the Appraisal Institute is bringing these learning opportunities to appraisers nationwide through both inperson seminars and synchronous virtual delivery. Special offerings will also be held this summer at Val Expo 2025, where attendees can gain hands-on ex-

perience with the new reporting structure in the context of real-world case studies.

A Call for Cross-Sector Readiness To ensure a successful rollout, the entire valuation ecosystem—appraisers, lenders, AMCs, reviewers, and regulators— must engage in coordinated training.

A well-informed appraiser can only be as effective as the reviewer who understands the new standards or the underwriter who interprets the findings. This is a moment for collaboration, not silos. The coming months and years will define how well the industry adapts. Those who lean into the change, embrace the new technology, and invest in education will position themselves for long-term success. For others, the transition may be disruptive. But one thing is certain: the future of residential appraisal is taking shape now, and it’s up to all of us to meet the moment. WRE

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In the Appraiser’s Corner: Interview with Craig Capilla

by Isaac Peck, Publisher

Real estate appraisers have faced myr-

“While a handful of attorneys specialize in appraisal litigation and regulatory issues, Capilla has been on the front lines of appraiser defense for the last decade.”

iad legal and regulatory challenges and risks over the last five years.

From the roughly 2,000 loan buybacks and state board complaints (per year) initiated by Fannie Mae and Freddie Mac to the nearly 300 discrimination complaints filed with HUD and the numerous discrimination-related lawsuits filed against appraisers in court (including one by the Department of Justice), appraisers have been feeling the heat.

With a new Administration in the White House and political shockwaves running through the federal government, where do appraisers stand today?

One person uniquely qualified to answer this is Craig Capilla, Partner at Franklin, Greenswag, Channon & Capilla, LLC in Northern Illinois. While a handful of attorneys specialize in appraisal litigation and regulatory issues, Capilla has been on the front lines of appraiser defense for the last decade.

Working RE sat down with Capilla to hear more about his journey, his experience defending appraisers over the last decade, and what he sees coming next for appraisers in the near future.

Working RE: Tell us about your professional background. How did you get involved in working with real estate professionals and appraisers specifically?

Capilla: I moved to Chicago, Illinois to attend law school and my first real legal job upon graduation was working for a transactional law firm that was doing a lot of transactional work on residential and mixed-use commercial properties. This gave me some exposure to 16 Working RE Summer 2025

real estate brokers and appraisers from a distance. The transactional work was good until the economy started to take a turn in 2007 and 2008. I remember we only had three closings the entire month of October 2007. I knew I was going to have to pivot in my career and started exploring. I even interviewed at a divorce law firm, but I decided I couldn’t do that every day.

By January 2008, I got an opportunity to interview with the state licensing agency in Illinois. I started in March 2008, on the Thursday before Bear Stearns collapsed. For the next four and a half years I was the licensing board prosecutor. I was the only one in the department for a period of time. The primary professions we oversaw were real estate brokers, appraisers, home inspectors, and a handful of others. I was actively involved in prosecuting every license board complaint the agency pursued and got a very in-depth look at how a large regulatory agency functions—how it evaluates and prosecutes cases.

Four and a half years later I decided I wanted to move into private practice and Charlie Franklin, of the Franklin Law Group, was expanding his firm so I reached out to him. Franklin had been defending appraisers against me for years when I worked for the state and was one of only a few attorneys that was focused on defending licensees. He really knew the material, he knew USPAP, and did a really good job defending appraisers and the other professionals he would represent. So I ended up joining his firm and I’ve been focused on the defense side of litigation and license complaints ever since. Now 12 and a half years later, page 18 8

7page 16

here I am, doing the same thing. We’ve built on the practice and expanded our footprint geographically.

Working RE: Fannie Mae and Freddie Mac (the GSEs) are reportedly filing around 1,000 complaints (each) against appraisers with their state regulatory board. Each of these complaints is preceded by a loan buyback forced on the lender. So that’s at least 2,000 loan buybacks pushed through every year because of alleged appraisal deficiencies. Have you seen an increase in buyback related litigation against appraisers?

Capilla: To some extent. We aren’t necessarily seeing all the buyback demands land in the appraiser’s lap. Some are handled at the appraisal management company or lender level. Not every buyback demand results in a claim against an appraiser. All buybacks that are pushed through do result in a “tip” that is submitted by the GSEs to the state regulators. Where it goes from there really depends on the state. Some states don’t treat them as a complaint and don’t investigate. Other states treat it as a complaint and look into every single one of them. This adds to inconsistency and confusion for appraisers.

Whether the state investigates or not, or whether the complaint is dismissed or not, a GSE tip sent to the board is still an indication that a loan buyback was pushed through and a claim can definitely result from that (even if it’s a rarer occurrence). Sometimes we see a claim develop a year or two after the buyback happens.

Working RE: How often do you work with appraisers who get coverage denied because they didn’t notify their insurance carrier of a board complaint or a “potential” claim?

18 Working RE Summer 2025

Capilla: Thankfully, I see this less than I used to. Maybe we’re doing a better job of educating and informing appraisers about the necessity of reporting things to the carrier. But I still hear from appraisers multiple times per month asking whether they should report a particular issue to their insurance carrier. I always advise to err on the side of caution. Even if it is the most minor thing, turn it in to the carrier as a notice of a potential claim. If nothing develops and you don’t need coverage (i.e. it doesn’t turn into a claim), you can let the carrier know that. In our own practice, on my attorney’s E&O policy, we turn in everything we can think of as a potential claim. They can close the file tomorrow if they want, as long as we’ve got a written acknowledgement that I told them about it. That sort of mentality is lacking in the appraisal space. The big question is: Will this impact my premium? Sometimes yes, sometimes no. But any premium impact is a lot smaller than not having any coverage and having your claim denied.

Failing to notify your insurance carrier about a board or licensing investigation, or about a potential claim, absolutely jeopardizes your coverage. Don’t take that risk.

Working RE: There’s been a lot of buzz about discrimination complaints filed with the U.S. Department of Housing and Urban Development (HUD). Our latest data indicates that just under 300 complaints have been filed in the last five years. What are you seeing on that front?

Capilla: I’m not seeing any material changes, yet. We have heard from multiple sources that case closure notifications were starting to be sent out on some of these cases. I have a bunch of cases with HUD and I haven’t received any dismissals on the active files that I have. As far as action goes, I’m not

getting contact from any of the investigators either. Before the transition to the new administration, the only notification I got was they were assigning it to a new investigator. There’s been no substantive changes for the last few years, and I’ve got several cases that have been in limbo for years. It’s still all quiet at the moment. I’ve most recently been notified that cases are being reassigned to the HUD investigators in their office of systemic investigations but I do not know whether that applies to all existing cases or whether that also might be a prelude to some substantive movement on these cases, one way or another.

Working RE: Relman Colfax, the law firm representing the plaintiffs in the Baltimore appraisal discrimination case, has reportedly billed over $3 million on the case. The Trump Administration’s mandates ending Diversity, Equity and Inclusion (DEI) will impact funding for non-profits like the National Fair Housing Alliance (NFHA). How will this affect discrimination complaints and lawsuits against appraisers?

Capilla: Most everyone is in a waitand-see posture. The expectation is that the efforts to both reduce headcount and expenditures at HUD and cutting the funding to external non-profits is going to have an impact on appraisers.

The immediate concern is that if funding is still out there and available, if the HUD cases get sidelined, there’s a possibility those cases will get removed to federal court or wind up in litigation funded by non-profits like NFHA. Liability events are going to start stacking up in that way.

The NFHA and other DEI-focused non-profits like the National Urban League have all seen their federal funding either cut or severely threatened.

Even still, federal funds only make up page 22 8

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25 to 30 percent of NFHA funding, so it’s not as if these organizations are going to be completely defunded.

The actions of the current administration and the funding cuts might also embolden donors. I wouldn’t say we’re out of the woods yet. Just because we haven’t seen the litigation yet doesn’t mean it’s not coming.

The cutting of federal funding, however, will likely force some hard choices at these non-profits. The ability to fund these private lawsuits is a legitimate concern. Even though federal funding is not all of their funding, it still requires some significant recalibration when you’re looking at an organization losing a material percentage of funding. I think instead of sounding the all clear for appraisers, this is more about reassessing where everyone stands right now instead of just declaring victory. That may be where we are though, we’ll have to wait and see. So far, I would say that non-profits haven’t seen much in the way of return on their legal expenditure.

Working RE: What about GSE policy? Do you think the movement to ban certain words in appraisals will be rolled back? And the new ROV rules?

Capilla: We don’t expect the GSEs to walk back their Do Not Use (DNU) word list or move back towards subjective language. It was notable that FHFA rolled back the Reconsideration of Value (ROV) procedures. The ROV rules had been worked on for years with several different agencies and tons of input from many organizations, but they were immediately rescinded as though they had never occurred. The procedures had been in place for five or six months. It’s also important to note that it wasn’t a strategic rollback where they just tried to remove the bias and discrimination components of the rules. The approach was more that 22 22 Working RE Summer 2025

It’s a recipe to be either out of business or in trouble and on your way out of business. That means that the time to become modernized and competent has long passed. There’s no hiding from it anymore. because somewhere in the procedures it references bias and discrimination, they just removed the whole thing.

That casts uncertainty at all levels for the rest of the GSE’s requirements. It creates uncertainty for appraisers and for state regulators. Regulators were gearing up for a wave of referrals coming from AMCs and lenders because ROVs were going to require mandatory reporting. That’s all gone away now. Without a singular process for borrower-initiated ROVs, there’s nothing uniform and consistent for stakeholders to work off of.

have been signing as the appraiser for the assignment but were not themselves performing the actual subject property inspection. Various state regulators are keying into that problem. Federal investigators and federal enforcement is also possible. The DOJ has begun investigating—particularly when looking at federally backed loans like FHA/ HUD and VA loans. It looks like state and federal prosecutors will be taking active steps to prosecute those matters.

Working RE: What are some of the latest threats and exposures you see facing appraisers today?

Working RE: Do you see the new UAD 3.6 and the GSE’s moves towards more hybrid valuations changing the liability environment for appraisers in the next few years?

Capilla: First, the new UAD 3.6 format is going to create a lot of heartburn for appraisers. Particularly those that aren’t prepared to move onto that format and get comfortable using it. In a way, we’re seeing a forced adaption to current technology. So appraisers that are behind the curve on technology in their own day-to-day practice are going to struggle.

Second, even if we’re removing bias and discrimination concerns from the state regulatory environment, there is still a keen sense that we’re going to be seeing more substantive complaints about appraisal and its reporting. There is a renewed focus on appraisers showing support for adjustments and conclusions of value.

Third, in the era of hybrid and bifurcated assignments, for full appraisals and full field inspections, we’ve heard for a while that some appraisers in practice

Capilla: In a perfect world, the new UAD 3.6 format should help reduce liability because of the way it is designed. It will be more work for appraisers on the front-end because it requires appraisers to provide more details when prompted.

In theory, the additional detail and support required within the UAD 3.6 should help reduce revision requests, reconsiderations of value, and reduce errors in the final reporting itself.

The use of hybrid appraisals and property data collectors (PDC) will also affect liability. Having someone, or no one at all, inspect the property, is anticipated to mitigate the risk to appraisers around bias and discrimination. Many of the appraisal discrimination related claims allege that the appraiser “identified and determined the race of the borrower” and then started making biased judgements. So if the appraiser never runs across the borrower, or an individual

planted there to act as the borrower, presumably, the appraiser would not have the information available to make biased decisions. This should ultimately serve to dial back the discriminationrelated liability somewhat.

How hybrids or PDCs will affect appraiser liability in other ways is an open question. If the appraiser is not measuring the subject, they can’t also mismeasure the subject. But is there anybody else to absorb that liability?

Right now there is no liability coverage for whoever might be out in the field obtaining that information. The appraiser is required to certify they have all the information they need to perform the assignment competently.

Of course, reliance on third-party information is not a new thing either, it’s always been a feature of the appraiser’s role. But there are new ways these PDCs could be wrong. I don’t see the liability environment changing much at all. If it does, it should reduce the liability that appraisers are facing.

Working RE: What do you think are the key issues that appraisers should focus on to protect themselves and their businesses today and going forward?

Capilla: The first main issue is that there is no room left for an appraiser to shun technology and tools. Appraisers must be competent in the tools, approaches and methodology that their peers are using. Appraisers that have been resisting change for years because “this” is the way you’ve always done it, that is the pathway to disaster. It’s a recipe to be either out of business or in trouble and on your way out of business. That means that the time to become modernized and competent has long passed. There’s no hiding from it anymore.

The second issue is that there will be a heightened focus on reporting and USPAP. This is more important than ever—appraisers are not just filling in boxes. They really need to go through the process of explaining to their reader what they did and why they did it. The UAD 3.6 format is going to drag everyone in that direction anyway. But for non-lender work and for lenders that aren’t selling their loans and instead hold on to their paper, those appraisals may not go to the GSEs and may not require the UAD 3.6 format. The expectation is that appraisers are still going to be reporting their conclusions

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and opinions at a heightened level.

Thinking you can avoid that responsibility just by not working for the GSEs won’t work. Whether you like it or not, without UAD 3.6 you may not have to jump through all the hoops, but this is a rising tide that lifts all boats. The ones that don’t float up are going to get swamped.

This also extends to the workfile—to truly document your processes for your reader. The support for your adjustments, opinions, and conclusions needs to be in your workfile.

Amongst appraisers, modernization is a bad word. What appraisers are hearing is: “This is how tools and technology are going to come in and replace the appraiser.” But modernization is going to force the tightening of business practices that are long overdue to be tightened up. In fact, because of the tools and tech, keeping a tight workfile has never been easier. Failing to do that is more inexcusable than it has ever been. Regulators, lenders, and enforcement are not going to be cutting as much slack for that anymore. Appraisers can use tools and tech to make their work more defensible, be more efficient, and build their workfile. WRE

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The New UAD Quality Equation: Interior + Exterior = Overall Rating

by Jo Traut, McKissock Learning

For many appraisers, the mention of

“The key change lies not in requiring us to observe new elements, but rather in how we document and reconcile our observations.”

new reporting requirements can trigger a collective groan. I’ve experienced this sentiment myself. The upcoming new URAR and UAD 3.6 changes to quality and condition ratings might initially appear to add complexity to our already detailed work. For those of us who have completed relocation appraisals, this level of detailed observation feels remarkably familiar. Relocation work has long required appraisers to document interior finishes, exterior materials, overall quality characteristics, and property condition.

The new URAR framework essentially brings this level of thoroughness to mortgage lending appraisals.

The key change lies not in requiring us to observe new elements, but rather in how we document and reconcile our observations. With the new URAR, we’ll now evaluate interior and exterior quality and condition separately before reaching our final conclusions. This structured approach provides better support for our overall quality and condition rating. While the new URAR introduces important changes to both quality and condition ratings, this article will focus specifically on understanding the quality rating framework.

with specific criteria for interior and exterior components.

Interior Quality: The interior quality assessment begins with examining specific components including room sizes, ceiling treatments, trim work, flooring materials, kitchen features, and bathroom characteristics.

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The 6 Distinct Levels of UAD Quality Assessments The UAD quality rating system provides six distinct levels from Q1 to Q6, Jo Traut is a certified residential appraiser with more than 27 years of experience, licensed in Illinois and Wisconsin. Jo specializes in appraising luxury homes, valuations for lending purposes, relocation appraisals, appraisal review, and appraisal compliance. Jo previously served as SVP, Residential Chief Appraiser for the fifth-largest bank in the United States.

She currently serves as Director of Appraiser Training at McKissock Learning. Jo holds a CDEI designation from IDECC and is an AQB Certified USPAP Instructor, combining her extensive professional knowledge with a commitment to appraisal education.

24 Working RE Summer 2025

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Q1 Interiors: At the highest level, Q1 interiors feature spacious rooms with high ceilings, and extensive ceiling treatments such as coved, barrel, or coffered designs. The flooring often incorporates rare or imported materials with custom inlay work, while kitchens feature top-grade materials with extensive cabinetry and countertop surface area, and state-of-the-art or commercial grade appliances. Luxury bathrooms in Q1 properties are typically oversized and feature exceptional quality materials with multiple ornate fixtures. The key is that these interiors are truly custom.

Q2 Interiors: Moving to Q2 interiors, we find high-quality features that, while not as unique as Q1, still demonstrate custom design work. These properties typically offer spacious rooms with custom ceiling elements, high-grade durable flooring, builtins, and large kitchens with high -end appliances, extensive cabinetry, and fixtures. Also, the criteria notes “large bathrooms specifically dedicated to certain bedrooms as well as at least one common bathroom.” The bathrooms should contain high-end materials and plumbing fixtures.

Q2 vs Q1 Interiors: The key distinction between Q1 and Q2

•

•

interiors lies in the level of customization and material selection.

While Q2 interiors feature highquality materials and excellent workmanship throughout, they typically utilize commercially available highend products rather than the one-ofa-kind or imported materials found in Q1 homes. The design elements, while custom, are more likely to be adaptations of existing plans rather than completely unique architectural features.

Q3 Interiors: Q3 interiors represent above-standard quality, featuring large general living areas or main bedroom, possibly some vaulted ceilings, built-ins, upgraded flooring, and moderately sized kitchens with upgraded appliances, cabinetry, and countertops or a mix. Multiple bathrooms with some specifically dedicated to certain bedrooms as well as at least one common bathroom, featuring a mixture of upgraded and high -end elements.

Q3 vs Q2 Interiors: The distinction between Q2 and Q3 primarily comes down to the consistent use of high-end materials in Q2 ver-

•

•

•

sus the selective use of upgraded materials in Q3. Q2 represents a higher grade of materials and finishes throughout, while Q3 offers above-standard quality with upgrades from stock standards.

Q4 Interiors: Q4 interiors reflect standard quality with sufficiently sized rooms, typically flat ceilings and some vaulted ceilings, some trim, standard floor coverings exceeding economy grade, and moderately sized kitchens with standard components. Bathrooms of moderate size and standard components with some upgraded elements.

Q5 Interiors: Q5 interiors demonstrate basic quality through small rooms with flat ceilings, economy-grade flooring, and limited kitchen and bathroom spaces with mostly basic fixtures and standard grade elements.

Q6 Interiors: The Q6 quality rating reflects construction that may not meet basic building standards.

The living spaces are notably constrained, with small rooms often featuring low ceiling heights, minimal storage space, and limited or undersized closets. The interior trim

work is either extremely basic or non-existent and finishes throughout are minimal. The kitchen space demonstrates only the most basic functionality and bathrooms are both limited in size and number, providing only the minimum requirements for basic function, often with lowgrade fixtures.

Exterior Quality: Just as with interior elements, exterior quality is rated based on specific components and materials, focusing on elements like fenestration, architectural details, roof design, and wall construction.

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Q1 Exterior: Q1 exteriors demonstrate exceptional quality through custom fenestration using multiple windows, featuring decorative adornments, top-grade materials, premium roof materials, roofs with multiple ridges, hips and valleys, and exterior walls constructed with high-end materials and featuring multiple corners and unique angles.

Q2 Exterior: Q2 exteriors maintain high quality with features like multiple windows and doorways page 268

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constructed with high-end materials, featuring custom design at the front and rear, high-end roof materials, ornamental overhangs, steep roof pitches, and multiple ridges, hips, valleys, and gables.

Q2 vs Q1 Exteriors: Q1 exteriors feature exceptional, often unique materials and truly custom architectural elements throughout, while Q2 exteriors incorporate high-end, commercially available materials with custom applications. Think of Q1 as individually engineered and designed versus Q2’s advanced adaptation of high-end commercial products. The key distinction lies in the grade of materials and level of customization.

Q3 Exterior: Q3 exteriors showcase upgraded materials throughout, with decorative elements adorning at least the front of the home and roof designs that may incorporate multiple ridges with hips and valleys. Upgraded exterior materials and multiple corners with some angled walls or unique shapes.

Q3 vs Q2 Exteriors: Q3 homes feature upgraded windows and doorways with decorative design elements, though these are typically concentrated on the front elevation rather than continuing throughout all facades. The roof design demonstrates architectural interest though not reaching the complexity found in Q2 homes. The Q3 exterior walls show some architectural interest through multiple corners and occasional angled walls, but they maintain a more straightforward design approach than the sophisticated angles and unique shapes found in Q2 homes.

Q4 Exteriors: Q4 exteriors represent standard quality construction that meets or exceeds building codes. These Q4 homes feature windows and doorways constructed of standard-grade ma-

26 Working RE Summer 2025

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terials without special architectural details or enhancements. The roof design is straightforward, using standard-grade materials with moderate pitch, and while it may incorporate more than one ridge line, any decorative elements are simple. The exterior walls are constructed using standard-grade materials, and while they may have multiple corners, the overall footprint remains basically rectangular.

Q5 Exteriors: Q5 exteriors demonstrate basic construction. These homes feature limited window and door openings, all constructed with economy grade materials and simple designs with only basic trim and finish work. The roof design is fundamental, typically featuring a low pitch with a single roofline, using economy or standard-grade roofing materials. The exterior walls follow a basic rectangular shape, constructed using economy or standard-grade materials. This level of exterior quality reflects construction focused on efficiency and basic functionality rather than architectural interest or upgraded materials.

Q5 vs Q4 Exteriors: While Q4 exteriors incorporate standard-grade materials throughout and may include some basic architectural interest, Q5 exteriors consistently use economy-grade materials with minimal design elements. The overall impression of a Q4 exterior is one that meets or exceeds building codes with standard materials, while a Q5 exterior reflects basic construction.

Q6 Exteriors: Q6 features minimal window and door openings constructed with lower-grade materials, often lacking finished details.

The roof design is basic, typically with a low pitch and single roofline, though there may be inconsistent rooflines where additions have been made. The roofing materials are low-grade or may include

alternate materials not typically used in residential construction.

The exterior walls follow a basic rectangular shape, constructed using economy or low-grade materials.

The Art of Reconciliation Perhaps the most significant aspect of the new quality rating system is the requirement for appraisers to reconcile their separate interior and exterior ratings into an overall quality rating. This process requires careful consideration of how different elements contribute to the property’s overall quality level. It is important to note that properties need not meet every criterion within a quality level; instead, they must meet the majority of criteria for that rating.

The process of determining the overall quality rating requires analysis of both interior and exterior components.

Here’s a systematic approach: 1. Document which criteria are met for both interior and exterior 2. Determine if most criteria are met at a particular quality level 3. Analyze whether any superior elements in one category offset inferior elements in another (e.g. the sophisticated roof design offsets minimal decorative adornments) 4. Select the overall quality rating that best represents the property’s total quality level

Conclusion Remember that the quality ratings are absolute, not relative. Don’t fall into the trap of rating a property’s quality based on how it compares to other properties. By evaluating interior and exterior components independently before reaching an overall conclusion, you are providing support for your quality determinations. The result? More reliable quality ratings mean the same thing whether you’re appraising in Manhattan or rural Kansas. WRE

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Insurance IQ: Indemnification Agreements

by Isaac Peck, Senior Broker at OREP.org

Editor’s Note: The first edition of this article appeared in Working RE’s Fall 2022 issue (Vol. 60). New details and examples have been added to this latest version.

It’s a tale as old as time. When adding

“My advice to any appraiser who hires a subcontractor in the course of their business operation would be to use an indemnification agreement themselves with their own subcontractor.”

an appraiser to their appraiser panel, a lender or appraisal management company (AMC) will present to the new appraiser a five to 15 page-long “Appraisal Services Agreement” or “Appraiser Engagement Agreement” for signature. Inside these service agreements is an often-discussed and disputed clause: the indemnification clause.

Indemnification clauses were popularized in the years following the 2007/2008 real estate crash, as AMCs took over market share after the passage of HVCC and the Dodd-Frank Act. Today, the vast majority of lenders and AMCs ask appraisers to sign an agreement that contains an indemnification clause. I just reviewed a service agreement from Wells Fargo where the indemnification provisions spanned nearly a full page!

OREP helps over 10,000 appraisers with their E&O insurance every year— and a question that many appraisers routinely ask is: “Do I need to be worried about this indemnification clause?”

What Appraisers Should Know Here is a sample indemnification clause: Appraiser shall indemnify, defend and hold harmless AMC from and against any and all claims or legal actions which arise out of or relate to the following: (a) any negligent act or omission or willful misconduct by Appraiser; or (b) any breach in a representation, covenant or obligation of appraiser contained in this Agreement.

28 Working RE Summer 2025

To unpack this, let’s start with what it means to “indemnify” someone.

The Merriam-Webster Dictionary defines “indemnify” as: • •

To secure against hurt, loss, or damage; To make compensation for incurred hurt, loss, or damage.

In other words, the contracted or subcontracted appraiser is agreeing to defend the AMC (or lender) and make them “whole” in the event the AMC is sued or held liable for mistakes that the appraiser makes.

The good news for appraisers is that most of these clauses are simply restatements of common law indemnification principles, i.e. that when one party (in this case the AMC) is harmed by the actions of another (the appraiser), there is an implied obligation on the part of the wrongdoer to reimburse the harmed party.

These types of clauses are now incredibly common amongst the construction trades, real estate professionals, wedding services, financial services, and more. For example, if you are a general contractor hired by a wealthy patron to build a house, you will probably hire a framing company to frame the house, an electrical company to run the electrical, and so on. In each case, the smart risk management practice is to have these subcontractors agree to indemnification clauses where they agree to take responsibility for any property damage, mistakes, or errors that they make. After all, even

though you are the general contractor, if your subcontractors make mistakes, you want them to take responsibility and pay for it, not you.

My advice to any appraiser who hires a subcontractor in the course of their business operation would be to use an indemnification agreement themselves with their own subcontractor. For example, if you hire another appraiser to help you complete an appraisal, or measure a home, or to provide any services in the scope of your operations, you should have a signed agreement with that appraiser where they agree to indemnify you for mistakes, errors, or omissions on their part. It’s just good risk management.

Practical Example: Home Inspector Here’s a story from an adjacent profession that highlights why using an

indemnification clause is a good risk management practice for any professional that is hiring a subcontractor.

OREP also serves home inspectors with liability insurance and recently had the privilege of defending a home inspector on a claim in the Midwest. This particular home inspector was offering his clients pest inspection services alongside his regular home inspections.

For the pest inspection services, he would charge $80 for the pest inspection and then hire a pest professional to do the inspection for $50, pocketing a cool (extra) $30 on every transaction!

Sounds like a good deal!

In this case, the OREP home inspector told us that the pest professional was his “buddy,” and that while he had seen a copy of the guy’s liability insurance, he didn’t have a copy on file and he didn’t have a written agreement between himself and the pest professional (his

subcontractor). I’ll bet you can start to see where this story goes.

After a year or two of this, one of the new homeowners that hired the OREP home inspector moved into their new house and did a “gut-to-thestuds” remodel, pulling out all the drywall with plans to completely update the home. Can you guess what they discovered? Termite damage. Lots of it.

It had been concealed by the drywall and was not visible to the home inspector or to the pest inspector.

This is exactly the type of claim that would traditionally be made directly to a pest professional. But in this case, because the home inspector is the one who was hired to perform the pest inspection, he’s the one who collected the money and entered into an agreement with the homebuyer client, he’s the one with the liability. page 308

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But what about his “buddy?” He’s the one who actually did the inspection for termites. Do you think that he, his company, let alone his insurance carrier, will voluntarily step up and take responsibility for this claim? Doubtful to say the least. The pest professional and his insurance carrier are breathing a sigh of relief that they were not named in the lawsuit and that they are, so far, completely unencumbered by the entire ordeal. Whew!

Obviously, the home inspector was left to defend this claim all by himself. The only recourse a company has against a subcontractor like this would be to file a claim against the subcontractor and potentially sue them. In other words, the home inspector would need to sue the pest professional himself, while defending a lawsuit from the homeowner. Many insurance companies and professionals are very uncomfortable with this approach (unless the dollar amounts are very high), and in many cases, the subcontractor will get off scot-free if there is no written agreement between the two parties outlining responsibilities and liabilities.

If the home inspector had (1) a copy of the pest professional’s insurance, and (2) a written agreement with an indemnification clause, it would have been much easier for the home inspector to tender the claim to the pest professional’s insurance carrier and seek retribution and defense in the lawsuit.

Practical Example: Mortgage Field Here’s another example. OREP also serves mortgage field professionals with insurance and risk management. These professionals help banks and other large property managers manage their inventory of bank-owned properties (REOs, providing services like boarding up windows, mowing lawns, property maintenance, and property clean-outs—where a firm enters a home and removes all furniture, belongings, and trash.

30 Working RE Summer 2025

“Any business that is working with subcontractors should be asking those subcontractors to sign an agreement with an indemnification clause.”

The relationship between these professionals is structured in a similar way to the appraisal industry: typically, there are larger vendors that service big contracts with a lender. They then sub out the jobs to smaller firms across the country. Just like with appraisals, lenders try to avoid administering their own panel of thousands of vendors across the country.

In one claim OREP has seen, a local mortgage field firm was hired by a larger vendor to perform a “clean out” on a particular property that had been foreclosed on. However, the smaller firm pulled up to the incorrect property address, kicked in the front door, and cleaned out the wrong house—putting all of the homeowner’s current belongings out on the front lawn!

As you can imagine, this resulted in an extremely large claim. But you guessed it: the larger vendor didn’t have an indemnification clause in their service agreement and had difficulty forcing the liability onto the smaller subcontractor who had made the mistake. As a result, the larger vendor ended up defending and settling a serious claim.

The problem here, for the larger company, is that their insurance covers them for claims that they face but doesn’t pay for any recovery efforts that they might want to engage in to sue the smaller subcontractor for their own damages (this is standard). Moreover, even if the smaller subcontractor was carrying their own insurance, without a clear indemnification clause in the agreement signed between the parties, the result is that the larger vendor and the smaller subcontractor’s insurance companies end up arguing about who is responsible for the claim!

After taking on several claims because of the volume of their business and their faulty contracts, the larger vendor ended up in a precarious position facing mid-six-figure (annual) insurance premiums and having very few carriers willing to even quote their business. In fact, the only insurance carrier that was willing to quote their business demanded as a condition of coverage that the company begin including indemnification clauses in all their service agreements.

If You Hire a Subcontractor I tell this story to appraisers and AMCs alike when they ask me about indemnification clauses. Common law indemnification theory dictates that the party responsible for the mistake should pay for it. From a practical standpoint (especially when it comes to insurance), indemnification clauses make all the difference.

In other words, from a risk management perspective, any business that is working with subcontractors, or even businesses that allow subcontractors on their properties (like builders or wedding venues, for example), should be asking those subcontractors to sign an agreement with an indemnification clause. This is true for AMCs and appraisers as well. It is common sense and it is now a widely adopted practice across many industries.

This means that if you as an appraiser hire a subcontractor in your business and you want them (and their insurance) to be responsible for their own mistakes, having a written agreement with them that includes a clause where they agree to indemnify you for their own mistakes is a smart, prudent thing to do.

When You are the Subcontractor Here’s what to look for when you are the subcontractor—like in cases where you’re working with an AMC or lender.

While indemnification clauses that have the appraiser take responsibility for errors that the appraiser commits are common, there are still things for appraisers to look out for when evaluating an engagement letter or services agreement.

Specifically, you never want to sign any agreement where you agree to indemnify any third-party for their mistakes or errors.

After HVCC and the Dodd-Frank Act were passed in 2010 and 2011, AMCs had disproportionate bargaining power and often tried to force appraisers into signing one-sided indemnification agreements where the appraiser actually agrees to indemnify the AMC for the AMCs own errors and mistakes!

The popularity of such one-sided indemnification clauses has since waned, as several states have passed AMC laws and regulations that specifically prohibit this practice. Here is an excerpt of the AMC regulation passed in Massachusetts listing AMCs’ “prohibited activities”: Require an appraiser to sign an indemnification agreement that would require the appraiser to defend and hold harmless the appraisal management company or any of its agents, employees or independent contractors for any liability, damages, losses or claims arising out of the services performed by the appraisal management company or its agents, employees or independent contractors and not the services performed by the appraiser…

Thankfully, many other states have adopted similar language, and this

issue is much less of a concern today. However, it is still something that appraisers should be on the lookout for when evaluating a new service agreement. From an insurance standpoint, if you agree to indemnify a third-party for their own mistakes and errors, that is not something your insurance will cover. So watch out for that!

How Can I Help?

If you ever have any questions about liability or risk management in your appraisal business, please reach out to me directly at isaac@orep.org or give OREP’s office a call at (888) 347-5273.

We are now open 12 hours a day to better serve appraisers across the country!

(8 a.m. ET – 8 p.m. ET) Stay safe out there! WRE

The National Society of Real Estate Appraisers The 2025 Real Estate Appraisal Conference Fayetteville State University Save the Date: October 15–17, 2025 Join us for a three-day conference on the campus of Fayetteville State University designed to engage, educate, and inspire the next generation of real estate valuation professionals. With outreach to FSU students, Fort Bragg service members, and the broader Fayetteville community, this event will spotlight career pathways in real property, personal property, business valuation, and art valuation.

Highlights include: • Professional workshops and expert-led presentations • Student engagement sessions with real-world valuation exposure • Career panels featuring industry leaders and educators We invite valuation firms, regulatory agencies, trade organizations, and educators to participate—host a booth, lead a workshop, or sponsor a session to showcase your impact and connect with aspiring professionals.

Help shape a more inclusive and dynamic future for the valuation industry.

More information to follow: www.nsrea.org

Summer 2025 Working RE 31

How Appraisers Bring Human Insight to the Most Unique Homes in the Country

by Chad Barker, CEO of Velox Valuations

When most people think of apprais-

“No matter the project, our goal is to ensure the homeowner understands what’s behind the number.”

als, they envision spreadsheets, square footage, and a bottom-line number.

The process often appears clinical—an analysis grounded in formulas, market comparisons, and condition checklists.

But for many appraisers, especially those working in today’s dynamic and varied housing market, the job goes well beyond calculations. Appraisers are not only analysts; they are observers, listeners, and sometimes, quiet witnesses to the stories homes tell.

At Velox Valuations, a national appraisal firm founded in 2020, bringing the human element into our work is critical. Our company has built its reputation on balancing data-driven methodology with on-the-ground understanding of context—be it historical, emotional, or architectural. Our team of certified appraisers spans the country and has tackled assignments ranging from complex urban properties to remote, unconventional homes that defy traditional comparison.

Objectivity and Nuance The appraiser’s task is, at its core, to produce an unbiased opinion of value.

But as real estate continues to evolve, and as properties increasingly reflect personal, cultural, or historical narratives, Chad Barker is the CEO of Velox Valuations, a national real estate appraisal firm celebrating its fifth anniversary in 2025. Under his leadership, Velox has expanded rapidly through corporate growth and a newly launched franchise model, now available in 48 states. Barker remains committed to empowering appraisers through a scalable, sustainable business model, recently introducing a Veterans Franchising Program to support veteran entrepreneurs. His vision continues to drive Velox’s success and impact within the evolving appraisal industry.

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objectivity must coexist with awareness.

For example, appraising a mid-century modern home designed by a noted architect presents different challenges than appraising a recently built tract home.

Similarly, a residence with notoriety, such as one associated with a newsworthy event or public figure, introduces sensitivities that go beyond market comps.

One example includes our appraisal work on the Fox Hollow Farm property in Indiana—a home known not just for its architecture, but for its connection to a criminal investigation that has since been revisited in a popular documentary. In such instances, appraisers are tasked with more than market research.

They must navigate legal, emotional, and even ethical dimensions, all while ensuring their valuation remains consistent with professional standards.

Even when dealing with difficult or high-profile properties, we follow these same principles. The difference lies in how we approach each situation, with empathy, discretion, and a commitment to accuracy. This type of nuanced approach is crucial not just for publicized homes, but for properties that may carry private significance to the homeowner, such as generational homes passed down through a family, or those with custom features crafted over decades.

The Challenge of the Unusual Across the appraisal industry, one of the most persistent challenges is evaluating properties that don’t fit easily into the

mold. From off-the-grid cabins to multimillion-dollar estates, homes that lack recent, relevant comparables require a more investigative process. Appraisers often need to dig into archival data, examine zoning records, speak with local historians, or interview contractors to understand unique attributes.

One of our appraisers recently recalled traveling to a remote home perched atop a mountain ridge, only reachable via private cable car. “There were no direct comparables within 50 miles,” the appraiser said. “It came down to understanding the appeal of the location, the design, and the type of buyer who would value that lifestyle.”

Appraising historic properties introduces another layer of complexity. In addition to accounting for preservation restrictions or specialized materials, appraisers must analyze how these factors influence value in their specific market. In some areas, historical status increases appeal; in others, it may limit buyers due to maintenance concerns or regulatory limitations.

Even newer homes can pose a challenge, particularly when built with unconventional materials or layouts. As custom building becomes more popular, appraisers are increasingly required to assess unique spaces that may not align with regional norms.

Serving Homeowners With Clarity While high-profile properties tend to draw headlines, most appraisal assignments involve far more everyday scenarios. These include refinancing, estate planning, divorce settlements, tax appeals, or pre-listing valuations. For homeowners, these are often emotionally or financially significant moments, and an accurate appraisal can provide both clarity and confidence.

At Velox, we emphasize the importance of communication in these situations. Appraisers often provide opportunities for clients to ask questions before or after the report is delivered. It’s part of

a broader effort to interpret the process and help homeowners feel informed, not intimidated. No matter the project, our goal is to ensure the homeowner understands what’s behind the number.

It’s not just about value—it’s about what that value represents in the context of a decision they’re making.

This educational element has become increasingly important in an era when property values fluctuate more rapidly, and when public access to online valuation tools can sometimes lead to confusion or unrealistic expectations.

By offering transparency around how appraisals are conducted—what influences value, what doesn’t, and why— appraisers provide a critical service beyond the scope of the report itself.

Technology Meets Human Insight Modern appraisal practices are increasingly supported by technology, from digital measurement tools to market analytics platforms. At Velox, we leverage these advancements to improve consistency and turnaround time, particularly for complex or rural properties. But no algorithm can fully replace professional judgment, particularly in cases where the story behind a home is central to its appeal.

The COVID-19 pandemic accelerated the use of remote and hybrid appraisal methods, especially for mortgage lending. While useful in some contexts, there remains a strong case for in-person assessments, especially when valuing properties with hard-to-capture nuances or when dealing with unique land features and lot configurations.

Experienced appraisers are often able to identify subtle factors that could influence value, such as deferred maintenance that might not show up in photos, or a view corridor that elevates a property’s desirability. Likewise, they are equipped to recognize potential over-improvements or functional obsolescence that could impact market appeal, despite recent upgrades.

Valuing America, One Home at a Time The phrase “We Value America” may sound aspirational, but it reflects a core philosophy within the appraisal profession: that every property, no matter how ordinary or extraordinary, has worth. And that worth is not only monetary—it’s personal, historical, even cultural.

In a country as diverse as the U.S., housing markets are as varied as the landscapes they inhabit. From brownstones in Brooklyn, to adobe homes in New Mexico, to lake cottages in Michigan and sprawling ranches in Texas, no two properties are truly alike. Appraisers serve as connectors between the property and the market, translating each home’s story into a number that helps owners, buyers, lenders, and legal professionals make informed decisions.

At its best, the appraisal process doesn’t just reflect the market, it honors the individuality of a home. By combining rigor with respect, and precision with perspective, today’s appraisers help bring depth and context to a profession that continues to evolve alongside the homes and the people they serve. WRE Serving Real Estate Professionals

Winter 2020 Volume 52

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Summer 2025 Working RE 33

The Short-Term Rental Dilemma

by JoAnn Apostol

A

“The issue really came with the requests to place shortterm rental income on the ‘1007’ FNMA form because it wasn’t designed for this type of income.”

couple of years ago, I was having a conversation with some colleagues on short-term rental analysis requests from lenders. One person said that a Certified Residential appraiser should never complete these requests. I held my breath and thought about this for a while and listened to their argument for their position. I also thought to myself, “Have I been doing these all wrong for 20 years?”

After listening to the information presented by the other appraiser, I realized that his work was a going concern assignment. The property was located in an area where the short-term rental properties sold for more than properties that weren’t rented. This remains a likely scenario for an assignment and could require competencies beyond a residential appraiser’s expertise. I continued to have these conversations with different colleagues across the country.

I work in ski resort areas and have for many years. There are condominium complexes that are on the ski area, and those complexes are filled with shortterm rental units. These sell like any other condominiums in towns, and people buy them to stay in when they go skiing, or to spend time in the local area. I’ve interviewed many owners who mostly have responded that they rent

JoAnn Apostol has been a Certified Residential Appraiser in Colorado since 2002. She specializes in mountain properties west of Denver and complex residential properties throughout the 6-county Denver Metropolitan Area. She taught for a national appraisal education program for 17 years, where she taught qualifying education, continuing education, and USPAP, and was the national appraisal instructor. An AQB-Certified USPAP Instructor and Certified Distance Educator, JoAnn has a bachelor’s degree in mathematics with an education emphasis and a minor in special education. She volunteers with the National Association of Appraisers as Chair of the Communications Committee, publishes a quarterly newsletter, tutors students preparing for the National Appraiser Exam and mentors new appraisers in industry standards and acceptable appraisal methods.

34 Working RE Summer 2025

them out to cover the costs of ownership. The multiple listing services in these areas usually have a field for furnishings, and I’ve done analyses on the impact of furnishings being sold with the real estate. The client has always asked for a fee simple interest, which is a straightforward assignment.

I also taught licensing courses for many years. I taught courses for all the residential levels. The courses cover income stream analysis, including the potential, effective and net income analyses. These topics are also on the National Uniform Licensing and Certification Examination for appraisers. So even a Licensed Residential Appraiser is armed with the basic tools to do the analyses required in a short-term rental analysis. Residential appraisers are not limited to using the GRM method for income. This analysis is not as complex as one would expect. It does take some research, analysis and understanding of the method to become competent, but we all have this basic tool.

The COVID-19 pandemic changed the short-term rental market significantly. Even before COVID-19, there had been an increase in single-family houses available to rent on a shortterm basis. In subsequent years lenders, including FNMA, were allowing this income to offset the debt-to-income ratio of the borrower. The issue really came with the requests to place shortterm rental income on the “1007” FNMA form because it wasn’t designed for this type of income.

I’ve heard many appraisers flatout refuse these assignments. I’ve read page 36 8

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social media posts arguing that this income shouldn’t be made by appraisers; the reasonings are different in each post. The one consistent theme is the lack of common sense in so many of the conversations.

From the beginning, I was trying to understand if a Certified Residential appraiser could complete these assignments. From all the research I have done, the straightforward, commonsense answer is yes. However, if there is a state law that prohibits it, then the law takes precedence. Think about it for a minute. We hold real estate licenses, and most states don’t license personal or business property appraisers. Therefore, there is nothing that violates our license, or any license.

Is it a violation of USPAP? Likely not if the appraiser is competent.

Is it a violation of the intended use?

That depends on the assignment. If the use is for income purposes, possibly because the lender would be asking for a “Going Concern Value.” In identifying the problem in USPAP, we must identify the type and definition of value in the assignment. This is often linked to the intended use and client’s expectations. If an appraiser has the knowledge and experience to appraise a going concern value, then they are competent.

One note to remember about USPAP is that the requirements have no relationship to the license level an appraiser holds. That’s because USPAP compliance is required when either the service or the appraiser is required to comply based on laws, regulations or agreements with the client.

Even in appraising a property to a market value for the fee simple interest, the appraiser should be aware of the impact on price of the personal property or business interest of a short-term rental.

It took a while, but FNMA did finally come out and say that short-term rental income should not be reported 36 Working RE Summer 2025

I see people trying to make these into hotel/motel valuations consistently, but they are not the same. I’m not saying they aren’t similar; I am saying these are not identical to a hotel or motel. Therefore, the analysis shouldn’t be identical either. on the 1007 form. Does that mean we don’t still get requests to report shortterm rental income on the 1007 form?

Definitely not! I still get them regularly.

There are lenders out there who don’t sell their loans to a Government Sponsored Enterprise. There are also hard money lenders and non-banks that make loans on real estate.

Last month, I was on a webinar that was introducing a new format for reporting short-term rental income. Having been an AQB Certified USPAP Instructor since 2008, I listened intently to the presentation. The speaker indicated that coming to an opinion of short-term rentals fell outside of the standards of USPAP! I couldn’t believe what I was hearing!

From the beginning of my USPAP training and in the Instructor Certification Course, it has always been stressed that an opinion of market rent is an appraisal. I sent a question to the Appraisal Foundation to ensure that I was correct. The initial response was that they were working on answering an inquiry from an organization on just that topic!

The response finally came through a few days later, and it confirmed what I had thought and had always done.

Doing just an opinion of market rent is an appraisal that has to comply with USPAP, including Standards 1 and 2.

Here is what they sent to me: Regarding whether an “analysis of short-term rental income” constitutes an “opinion of value” and how this relates to USPAP. Some of the relevant definitions and considerations for a clear understanding include:

Key USPAP Definitions Appraisal: Defined in USPAP as: “(noun) the act or process of developing an opinion of value; value an opinion of value. (adjective) of or pertaining to appraising and related functions such as appraisal practice or appraisal services. Comment: An appraisal is numerically expressed as a specific amount, as a range of numbers, or as a relationship (e.g., not more than, not less than) to a previous value opinion or numerical benchmark (e.g., assessed value, collateral value).” (emphasis added) Appraiser: Defined in USPAP as: “one who is expected to perform valuation services competently and in a manner that is independent, impartial, and objective.” (emphasis added) Valuation Service: Defined in USPAP as: “a service pertaining to an aspect of property value, value regardless of the type of service and whether it is performed by appraisers or by others.” (emphasis added) Value: USPAP defines this as: “the monetary relationship between properties and those who buy, sell, or use those properties, expressed as an opinion of the worth ties of a property at a given time. Comment: In appraisal practice, value will always be qualified—for example, market value, liquidation value, or investment value.” (emphasis added) From the Preamble and associated guidance (e.g., AO-21, FAQ 172 which specifically states the opinion of market rent is an appraisal, as well as FAQs 4, 310, and 348), it’s clear that:

Any opinion formed using appraiser expertise and judgment—particularly when based on analysis of factors such as income potential—qualifies as an appraisal if it results in an opinion of value.

The ETHICS RULE states that an individual should comply any time that individual represents that he or she is performing the service as an appraiser.

Market rent is explicitly recognized as an opinion of value (see AO-21, Illustration #3).

When an appraiser develops an opinion of market rent, it is an appraisal within USPAP and thus is an assignment within Appraisal Practice, not just a Valuation Service.

The webinar was still interesting because they were designing a form to report short-term rental information. They had sections for the high season and the low season, since many short-term rental areas are very seasonal. They had areas for vacancies, furnishings, condition, age, bed and bath counts and other amenities. The conclusion was a nightly rental conclusion.

The problem with this approach is that the average daily rent for a one-unit property is zero on the days it’s vacant and using a zero in the average skews the average. The consistent theme is that we MUST conclude to an average daily rate which is a hotel/motel term, not a single-family term. I see people trying to make these into hotel/motel valuations consistently, but they are not the same.

I’m not saying they aren’t similar; I am saying these are not identical to a hotel or motel. Therefore, the analysis shouldn’t be identical either.

I actually own a short-term rental, so I can speak from experience. The guests who book my house tend to book for a weekend, a few weeks, a

month, or longer. My property manager offers a monthly discount for a booking. I’ve used AirDNA for rental analysis in different areas and I’ve done research on annual income in other areas. There are other resources available also like Rento-meter and others, depending on where the property is located. The key difference between these is the location of the property.

In the ski resort towns where I work, property management agencies and condominium/resort operators tend to provide an annual gross income based on the rating of the unit. A unit with a Platinum or Gold rating will be rented first and will generate more income. These areas are often better to look at as annual income.

Depending on the information you can find, you could use either gross or net income, but the management fees should be removed. When these folks say “gross” they really mean effective gross income. The management fees are the business side of this business.

In the resort towns, management fees are 40 percent or more of the gross income. They are high because they offer 24-hour desk staff and other additional services that aren’t available in a single-family rental situation.

My property manager in Arizona charges me 20 percent of the effective gross income. Anyone can call enough property managers to figure out what the typical management charge is in an area. USPAP allows interviews of industry professionals as support for an adjustment; just keep notes on this information in your workfile. This should still be applied to the income because it removes the business portion from the conclusion. Owner-operators manage their own properties to increase their revenue, which is their business income. We are getting closer to a rental conclusion with the management, but there are so many other considerations in doing these short-term rental analyses.

I mentioned earlier that the length of the stay may be different depending on the location of the rental. I believe that this should be considered when doing the analysis and in the final number reported. I agree with all the sources that one should not just simply divide annual income by 12 to get a monthly income. I also believe that the final amount should be driven by the shortterm rental market.

The seasonality of the area and income should be considered, and the typical vacancy rates should be applied. This can be done on a daily, weekly or monthly basis based on the location and the typical stay in the area. I know in Arizona and the Carolinas that houses are rented for the entire high season to the same person. The same person tends to rent the same house year after year, also. This rental market is significantly different than a ski area rental market.

How the analysis is completed may be different depending on the client, assignment, property or location. We should discuss those factors with the client during the engagement process to thoroughly understand the needs and expectations of the client.

We must ensure that our results are credible and not misleading for their intended use and users. If we are doing this in conjunction with an opinion of market value, we must be sure to also include a definition of market rent in the report. I use the definition from the Appraisal Institute’s “The Appraisal of Real Estate.”

If asked to do this as a standalone product, get your USPAP book out and use Standard 2 as a checklist to ensure you comply with USPAP. These are more difficult because we aren’t given a form that has most of the basic items included. I’ve completed these in both scenarios as a Certified Residential Appraiser; remember that it’s more about your competency than your license level. WRE Summer 2025 Working RE 37

Trump’s War on DEI: What It Means for Appraisers

by Isaac Peck, Publisher

D

“With PAVE suddenly disbanded, many appraisers have questions about what will happen to other appraisal bias related initiatives.”

38 Working RE Summer 2025

onald J. Trump kicked off his second term as President of the United States with a flurry of executive orders including renaming the Gulf of Mexico, declassifying the JFK files, giving TikTok an additional 90 days to court a buyer, and much, much more.

What about in the appraisal world?

Trump issued several executive orders dealing with Diversity, Equity, and Inclusion (DEI) and these appear to be having an immediate effect on the profession. Among other things, one of the executive orders terminates “to the maximum extent allowed by law, all DEI...offices and positions...all ‘equity action plans,’ ‘equity’ actions, initiatives, or programs, ‘equity-related’ grants or contracts; and all DEI or DEIA performance requirements for employees, contractors, or grantees.”

While these orders have far-reaching effects and are highly controversial for many, one of the immediate effects that appraisers have noted is that the Property Appraisal and Valuation Equity (PAVE) task force appears to have been disbanded. Visitors to the PAVE website, https://pave.hud.gov/, will note a 403 Access Denied message that reads “You do not have permission to view this directory or page.”

The PAVE task force was made up of 13 federal agencies and published several whitepapers, including a 58+ page Action Plan for how policymakers should address appraisal bias and advance valuation equity, with suggestions including exploring the “potential use of alternatives and modifications to the sales comparison approach that may yield more accurate and equitable home valuation.”

With PAVE suddenly disbanded, many appraisers have questions about what will happen to other appraisal bias related initiatives. Here is what Working RE is hearing on the streets about how the new Trump administration is impacting the narrative around appraisal bias issues.

Appraisal Coursework Focusing on Bias With a clear mandate to walk away from DEI initiatives on the federal level, many appraisers are wondering what impact that will have with respect to the new 7-hour class on fair housing and appraisal bias that is set to become a requirement for all appraisers across the country in 2026.

The future of these coursework requirements is a little more nuanced as it is the Appraiser Qualifications Board (AQB), at The Appraisal Foundation (TAF), that sets these requirements for appraisers. As we all know, TAF is a private non-profit that wields a great deal of influence over the appraiser profession, but it is not a federal agency, nor is it controlled directly by any federal department.

Given the lack of federal influence over TAF, and the fact that the AQB is an independent board within TAF, whether the AQB chooses to revisit and/or rollback the fair housing and bias coursework remains to be seen. Of course, some states have passed statespecific laws that deal with coursework on appraisal bias, and those requirements exist outside of, and in addition to, the AQB requirements. Moreover, Trump has threatened to use the power page 40 8

Have you seen the 2025 USPAP Q&A from The Appraisal Foundation dated March 6, 2025?

2025-01: Using Experience as Support for Adjustments Question: If an appraiser is competent to perform a specific assignment, and has extensive experience in that type of assignment, can they support an adjustment for a property’s proximity to a park solely based on that experience?

Answer: No, experience cannot be a recognized method or technique or a substitute for relevant evidence and logic. Adjustments are a type of assignment result and must meet USPAP’s requirements for credible assignment results.

Assignment results are defined as: ASSIGNMENT RESULTS: An appraiser’s opinions or conclusions, not limited to value, that were developed when performing an appraisal assignment...[Bold added for emphasis] Additionally, credible, is defined as: CREDIBLE: worthy of belief Comment: Credible assignment results require support, by relevant evidence and logic, to the degree necessary for the intended use. [Bold added for emphasis] This means that adjustments, which are assignment results, must be supported by relevant evidence and logic to the degree necessary for the intended use.

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Adjustments are (again) a very HOT topic.

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7page 38

of the Internal Revenue Service to revoke the non-profit status of organizations he sees as politically progressive, although it’s unclear whether he will target private professional organizations.

Another consideration is the fact that TAF signed a Conciliation Agreement with HUD in 2024, with the agreement being effective well into the year 2027. Sometimes a new administration’s executive orders will explicitly call for overriding agreements made in previous administrations, but the language of Trump’s orders are not always clear, and these questions are often haggled over in litigation. In any case, it will be interesting to see how such initiatives develop over the next 12 months.

The Naughty Word Lists There have been widespread rumors amongst appraisers regarding whether the more “politically correct” requirements regarding subjective and “naughty” words will get rolled back at Fannie Mae and Freddie Mac (the GSEs), or even at the Department of Veteran Affairs (VA).

Insiders at the GSEs report that there are no immediate plans to change policy around appraisers’ use of subjective words, or appraisers’ use of words that identify “protected classes.” The move towards more objective words, descriptors, and so on, is about accuracy and objectivity for appraisers, and discrimination in housing is still illegal, one source told Working RE in a matterof-fact way.

The VA, which cited PAVE’s action plan in several of its appraisal-related circulars over the last few years, is rumored to be preparing a circular that specifically addresses how it will be operating in Trump’s new world, but no official confirmation has been issued yet.

HUD Complaints Scott Turner, a former Texas State Representative, and a former professional football player who played 40 Working RE Summer 2025

nine seasons in the NFL, is Trump’s new Secretary of the United States Department of Housing and Urban Development (HUD). ProPublica reports that while serving in Austin, Turner opposed many attempts to expand affordable housing, but that the Trump administration praised Turner for his work in facilitating the creation of Opportunity Zones in disadvantaged communities.

On January 16, Turner spoke before the Senate Banking, Housing, and Urban Affairs committee while seeking confirmation from Congress for his position. His remarks provided hints for how he plans to run the department. Turner argued that today HUD is “failing at its most basic mission,” which as he sees it, is to combat homelessness in America. He promised the Senators he would review every program at HUD to determine which ones work and which ones didn’t and repeatedly promised to streamline the agency to make it more efficient.

At the end of the hearing, Turner had an exchange with Democratic Senator Raphael Warnock of Georgia that is worth quoting in full. Watch the video here: https://bit.ly/turner-warnock.

Transcript: Warnock: Will you commit to vigorous enforcement of the nation’s fair housing laws and be a strong voice in the administration in favor of protecting existing fair housing laws from efforts to weaken them or to roll them back?

Turner: I do commit to upholding the fair housing laws, yes sir.

Warnock: One of the overlooked drivers of racial wealth and equity within our housing system is the very well documented pattern of lenders and the appraisal market persistently assessing the value of black and brown homes lower than white homeowners. You and I discussed this a little bit the other day in my office. And my staff sent you some background information

and data on appraisal bias. This is real money. Hurting real people. In part, at my urging, the Biden administration took steps to crack down on appraisal bias with HUD leading an interagency effort.

If confirmed, will you commit to continue to use HUD’s tools and authorities to crack down on appraisal bias including by continuing to provide consumers with data to push back on suspected bias?

Turner Thank you Senator. Thank you Turner: for the information that you sent. I have begun to read [sic] and I look forward to exploring that more with you. And as I said before I do commit to upholding the law as it is on the books against all illegal discrimination.

Warnock: Including appraisal bias?

Warnock Turner We will continue to look into that Turner: and I look forward to working with you on that and becom[ing] more well studied.

Thank you.

Warnock I hope you will continue HUD’s Warnock: important work on this matter even as we go into this weekend of celebrating Dr. King’s birthday.

Under the Biden administration, as Warnock revealed, HUD had been leading efforts to “crack down” on appraisal bias, and the result was that many bias complaints filed with HUD were referred directly to the Washington D.C. office. Today, many appraisers are still waiting for resolution—with some complaints still open after three years or more of sitting in limbo.

On a more longer-term horizon, the Trump administration is also proposing a 43 percent cut in HUD’s budget for 2026. With a clear antiDEI tone coming from the top of the Trump administration, and a new HUD Secretary that is focused on efficiency, it will be interesting to see how HUD’s approach to the appraisal bias complaints shifts in the coming months.

Time will tell. WRE