Kansas Bill Says AVMs Are Appraisals
John Cirincione, SRA posted the news on the aiforum that the Kansas Governor signed into law House Bill 2735. I want to thank John for the heads-up. Below is my summary and thoughts.
A Kansas billed was signed into law this week that did a couple of interesting things as related to the world of appraising. First it provides that appraised value can be estimated through the use of an AVM:
Under the new law, appraised value can mean “the estimated market value determined through an automated valuation model acceptable to the administrator.†House Bill 2735 will change the state’s Uniform Consumer Credit Code to define “appraised value†as a value produced by an automated valuation model.
According to the measure, “appraised value†means the fair market value of the real estate, as reflected in a written appraisal of the real estate performed by a Kansas licensed or certified appraiser within the past 12 months or, in the case of a nonpurchase money real estate transaction, the estimated market value determined through an automated valuation model acceptable to the administrator.
(The) new law also provides that “an automated valuation model provider shall not accept a property valuation assignment when the assignment itself is contingent upon the automated valuation model provider reporting a predetermined property valuation, or when the fee to be paid to the automated valuation model provider is contingent upon the property valuation reached or upon the consequences resulting from the property valuation assignment.â€
And all along appraisers have been told that AVM’s are not appraisals. A quick review of Advisory Opinion 18 (AO-18) provides the following:
An AVM is a computer software program that analyzes data using an automated process. For example, AVMs may use regression, adaptive estimation, neural network, expert reasoning, and artificial intelligence programs.
The output of an AVM is not, by itself, an appraisal. An AVM’s output may become a basis for appraisal, appraisal review, or appraisal consulting opinions and conclusions if the appraiser believes the output to be credible for use in a specific assignment.
An appraiser can use an AVM as a tool in the development of appraisal, appraisal review, or appraisal consulting opinions and conclusions. However, the appropriate use of an AVM is, like any tool, dependent upon the skill of the user and the tool’s suitability to the task at hand.
This Advisory Opinion applies when an appraiser uses an AVM in connection with an individual property. This Advisory Opinion does not apply to mass appraising.
An appraiser needs to know, before using an AVM, whether it is to be used:
1. to perform an appraisal, appraisal review, or appraisal consulting service, or
2. solely to provide the client with AVM output.
When an appraiser uses an AVM to develop his or her own opinions or conclusions in an appraisal, appraisal review, or appraisal consulting assignment, all of the USPAP rules governing that assignment apply and all of this Advisory Opinion is relevant.
An appraiser is not performing an appraisal, appraisal review, or appraisal consulting assignment when he or she simply runs an AVM by using information provided by the client and:
1. does not alter the input or affect the output of the AVM, and
2. does not communicate his or her own appraisal, appraisal review, or appraisal consulting opinions or conclusions regarding the AVM’s output.
Has the State of Kansas erred in this situation? What impact will this have on appraisers in that state?
The second part of the bill is also very interesting. Take a look at this:
The bill prohibits a lender or any person acting on behalf of a lender from disclosing to an appraiser or other person engaged to determine the appraised value of real estate the amount of a proposed real estate loan or the preferred or required value of any real estate intended to secure such loan.
This may actually be a good provision in this bill. Appraisers are still required to develop a property history where existing contracts, sales, etc. must be analyzed and I see nothing in the bill that precludes the appraiser from knowing the contract price, but hopefully this will begin to limit some of the pressure applied to appraisers. What are your thoughts?