Understanding Appraiser Independence Requirements  

No one wants an appraiser who can be bought off or persuaded in their valuation processes. That’s why in 2023, Fannie Mae Freddie Mac imposed new requirements to help strengthen the existing Appraiser Independence Requirements (AIR). Here’s everything you need to know to stay up-to-date and unbiased! 

What Are Appraiser Independence Requirements?  

Appraiser Independence Requirements (AIR) are set to ensure that the appraisal process is free from coercion, bias, and other undue influences. These are set by both state and federal agencies — all intended to safeguard the impartiality of appraisers and Independent Parties in the valuation process of 1-4-unit residential properties. "Independent Parties,”, in this definition, can include any of the following: 

• Appraiser 

• Appraisal company 

• Appraisal management company (AMC) 

• All related entities 

• Other parties involved in the appraisal process 

The Necessity of Appraiser Independence  

At its core, appraiser independence requirements are meant to ensure that appraisers can remain as objective as possible in their valuations, with no external pressures. There are three main features of appraiser independence: 

• Objective valuations: All fair market opinions of value should be based solely on relevant data and professional judgment 

• Prohibited undue influence: Practices such as bribery, threats, or influence from lenders and agents are illegal 

• Communication guidelines: There are rules in place regarding who can and cannot communicate with appraisers about assignments, and which appropriate communications are documented 

Each of these points help to ensure that appraisers can maintain a high level of public trust. 

Historical Context 

Without getting too far in the weeds, here is a simple overview of the legal history behind appraiser independence, and what each moment contributes to the bigger picture. 

How It All Started – FIRREA (1989) 

There has been some framework guiding requirements for appraiser independence since 1989, with the Financial Institution Reform, Recovery, and Enforcement Act of 1989 (FIRREA, P.L. 101-73). Here are the main takeaways from FIRREA: 

• Established the Uniform Standards of Professional Appraisal Practice (USPAP) 

• Required states to establish licensing and certification requirements for appraisers 

• Formed the Appraisal Subcommittee (ASC) to ensure compliance with federal standards 

The Home Valuation Code of Conduct (HVCC) (2009) 

The Home Valuation Code of Conduct (HVCC) (2009) was designed to prohibit the coercion, suggestion, or undue influence of appraisers working on residential property valuation assignments. HVCC accomplished the following: 

• Increased use of Appraisal Management Companies (AMCs), which act as the intermediary between appraisers and lenders 

• Increased transparency by mandating clear documentation of all communications between lenders, appraisers, and AMCs 

Overall, the HVCC was an attempt to reduce conflicts of interest in the appraisal process. It laid the groundwork for more robust practices, like Dodd-Frank. 

The Dodd-Frank Wall Street Reform and Consumer Protection Act (2010) 

When it comes to appraiser independence, the Dodd-Frank Act brought out the big dogs. The Dodd-Frank Wall Street Reform and Consumer Protection Act was signed into law, codifying many of the HVCC provisions along with it. It was intended to protect consumers and taxpayers from predatory lending and other egregious practices. 

This Act came with many big changes for consumer protections and risk-taking prevention (risks like those that led to the financial crisis of 2008). So what does this have to do with appraisers? To keep it simple, here are the main takeaways: 

• Codification of many HVCC provisions for appraiser independence 

• Established the Consumer Financial Protection Bureau (CFPB) — committed to combatting appraisal bias among other protections 

• Required lenders to pay appraisers service fees — intended to ensure fair payout from AMCs 

If you want to dive in a little further, read more about Dodd-Frank and appraisal. 

Fannie Mae Selling Guide Update (2023, 2024) 

Recently, there were a few updates made to the Fannie Mae Selling Guide, which reinforced appraiser independence principles and gave appraisers more context, details, and clarifications for navigating the appraisal process unbiasedly. It also provided some modernizations, to help enhance the reliability of appraisals and give an updated view on independence requirements. This includes guidance on hybrid and desktop appraisals. 

Unpacking Appraiser Independence Requirements (AIR) 

We can’t stay in the land of legislation all day. Let’s dive in to the actual independence requirements and how you should be following them in your own appraisal work! 

Key Points on AIR 

1. You must be licensed or certified to conduct any appraisal work. 

2. Only authorized parties can discuss appraiser assignments, and they can have no influence on target values for those assignments. 

3. If any conflicts of interest arise, appraisers must disclose these and remove themselves from the assignment. 

4. Lenders are required to utilize quality control procedures to ensure appraisers are compliant with AIR. 

Consequences of Violating Appraiser Independence Requirements 

If you’re asking, “So what if I break the rules?,” this might not be the job for you. Jokes aside, you could face some serious repercussions by dismissing or accidentally violating these requirements, which in turn can mean violating state and federal regulations.  

For example, in your career you may be faced with pressure from external parties to inflate property values. To do so would be in violation of the Dodd-Frank Wall Street Reform and Consumer Protection Act, and you could find yourself in the middle of a class action lawsuit. In this case, not only would your appraisal license be revoked, but your reputation would be badly damaged to the extent that it would be difficult to find another job in any related field. 

This scenario would also have its fair share of fines and damages, legal fees, and the wrong kind of attention to you and your business. In other words, the consequences are severe, and obviously, not worth it.  

Following AIR in Your Daily Appraisal Work 

Here are some tips for staying mindful of AIR and making sure you are following all the requirements necessary.  

• Stay vigilant of potential conflicts of interest and relationships that may compromise your objectivity. 

• Use reliable data based on thorough market research and comparable sales. 

• Be open to participating in peer reviews of your appraisals to ensure they meet professional standards. 

• Check yourself and your peers for biases. 

• Document your methodology, data sources, communications with clients. 

• Communicate clearly and with boundaries to protect your independence. 

• Report any external pressures and/or attempts to influence your appraisal process to your supervisor. 

• Remember that your reputation matters! 

Stay In-The-Know 

Appraisal is a fascinating career for lots of reasons, but primarily because of the limitless potential for learning and growing in the industry. As industry standards, laws, regulations, and requirements shift over time, you’ll want to equip yourself with an appraisal education that serves those needs.