Appraisal Madness in Illinois, Maryland, Missouri and Nevada

Inquiring minds are investigating sheer lunacy regarding the appraisal process in Illinois, Maryland, Missouri and Nevada.

Please consider Four States Consider Legislation Barring Distressed Sales as Comparables

Four states – Illinois, Maryland, Missouri and Nevada – are considering legislation that would prohibit or restrict the use of “distressed sales,” such as foreclosures and short sales, as comparable sales as a part of a residential real estate appraisal.

The Missouri legislation, known as House Bill 292, would prohibit appraisers from using a property that has been sold at a foreclosure sale as a comparable. Similar to the Missouri proposal, the Illinois legislation would prohibit appraisers for the next five years from using as a comparable sale “a residential property that was sold at a judicial sale at any time within 12 months.”

The Nevada legislation would prohibit the use of foreclosures and short sales. The prohibitions contained in the Maryland legislation are somewhat broader and include any property that was sold under “duress or unusual circumstances, such as a foreclosure or short sale.”

There is, however, conflicting language in the Maryland legislation that appears to allow for the use of distressed properties as comparables if the appraiser takes into account factors such as the motivation of the seller, the condition of the property and the property’s history or disposition before the sale. Appraisers in Maryland will oppose this legislation during a hearing March 29.

If these bills were enacted into law, appraisers would be put in the difficult position of having to choose which law to violate. Appraisers are required to adhere to comply with the Uniform Standards of Professional Appraisal Practice in federally related transactions. The standard mandates that appraisers “must analyze such comparables sales as are available.” Further, the standard cannot be voided by a state or local government.

Not following USPAP could subject the appraiser to having action taken against their license. Therefore, appraisers would have to make the decision to commit a USPAP violation – which in the case of federally related transactions would be a violation of state law – or to violate the law prohibiting the consideration of distressed sales as comparables.

Admittedly appraisers blew it in 2004-2006 with absurd valuations. However, the market rectified that situation quite nicely.

Let the appraisers do their jobs. They are the ones who ought to know what to include in comparables or not. If perchance some don't, the one thing we know with absolute certainty is that virtually 100% of legislators don't know either. If they did, they would have acted to prevent appraisal fraud six years ago.

Such laws would be bad enough as is, but conflicting standards makes the legislation considered by Illinois, Maryland, Missouri and Nevada complete lunacy.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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