In 2021, California passed AB 948, also called the Fair Appraisal Act. In an effort to, “ensure that no one is discriminated against during the appraisal process of a real estate transaction,” the Fair Appraisal Act imposes the following on the appraisal, real estate and lending communities:
Requires the Bureau of Real Estate Appraisers to add a check box to its complaint form to ask if the complainant believes that the opinion of value of real estate is below market value.
Requires the Bureau of Real Estate Appraisers to collect specific demographic and other information from the complainant.
Prohibits an appraiser from basing their appraisal of the market value of the property on the basis of race, color, religion, gender, gender expression, age, national origin, disability, marital status, source of income, sexual orientation, familial status, employment status, or military status of the present or prospective owners or occupants of the subject property, or of the present owner or occupants of the properties in the vicinity of the subject property, or on any other basis prohibited by the federal Fair Housing Act.
Requires persons seeking or maintaining an appraisal license to complete additional education requirements relating discrimination and “cultural competency.”
Requires that certain notice language be included in real estate contracts.
Requires lenders to produce and provide a notice to borrowers concerning their rights about appraisal discrimination.
These requirements are phased in over the next few years, starting with the language in the real estate contracts and the disclosures by lenders to the consumers, both of which become effective after July 1, 2022. So, starting July 2, each contract for sale of real property must contain the following notice, in no less than 8-point type:
"Any appraisal of the property is required to be unbiased, objective, and not influenced by improper or illegal considerations, including, but not limited to, any of the following: race, color, religion (including religious dress, grooming practices, or both), gender (including, but not limited to, pregnancy, childbirth, breastfeeding, and related conditions, and gender identity and gender expression), sexual orientation, marital status, medical condition, military or veteran status, national origin (including language use and possession of a driver’s license issued to persons unable to provide their presence in the United States is authorized under federal law), source of income, ancestry, disability (mental and physical, including, but not limited to, HIV/AIDS status, cancer diagnosis, and genetic characteristics), genetic information, or age. If a buyer or seller believes that the appraisal has been influenced by any of the above factors, the seller or buyer can report this information to the lender or mortgage broker that retained the appraiser and may also file a complaint with the Bureau of Real Estate Appraisers at https://www2.brea.ca.gov/complaint/ or call (916) 552-9000 for further information on how to file a complaint.”
This notice is also required to be provided by lenders to the borrower in refinance transactions of first lien purchase money loans secured by 1-4 unit properties prior to, or along with, the loan estimate required under Regulation Z (aka “TRID”). The notice may be stand alone or it may be included in the “Appraisal Notice” disclosure required under the Equal Credit Opportunity Act. In any event, it would appear that the notice must be delivered no later than the timing for the loan estimate.
So, what is the key take-away from this? The immediate take-away is that lenders should check with their document providers to ensure that the appraisal notice is contained somewhere in their California document set. In the long-game of the Fair Appraisal Act, where the complaint database will capture something akin to “HMDA” data on appraisal complainants, appraisers are provided additional education on appraisal discrimination and “cultural competency,” and the agency-mechanization for addressing these concerns is tested, it will be interesting to see if other agencies in California and other states will see this as a model for managing concerns of appraisal – or other forms of – discrimination. Indeed, addressing and eliminating is discrimination in the appraisal process is excellent public policy. But like all new laws and regulations, let’s hope this yields the desired results while avoiding any unfair unintended consequences.
At Firstline, we specialize in helping you protect you and your company by staying in front of compliance rules and regulations. Contact Firstline at (831) 325-3369 or firstname.lastname@example.org if we can help.