Can a Texas real estate appraiser fill out the FHA Valuation Conditions form without an inspector license?

Plain-English summary

A House committee chair, writing on behalf of a state certified real estate appraiser, asked whether a state licensed or certified appraiser is authorized to make the observations and answer the questions on Form HUD-92564-VC, the "Valuation Conditions" (VC) form, which is completed with an appraisal for Federal Housing Administration (FHA) mortgage insurance. The concern was that the form requires "Real Estate Property Inspection" observations that might fall outside what an appraiser is licensed to do under Texas law, crossing into the work of a licensed real estate inspector. The Attorney General concluded the appraiser is authorized to complete the form.

The opinion laid out the framework. Federal law (Title XI of the 1989 FIRREA) requires appraisals in federally related transactions to be done by state licensed or certified appraisers, and HUD prescribes the standards for FHA mortgage insurance appraisals, including use of the VC form, which flags readily observable physical conditions that affect habitability, health, or safety. On the Texas side, appraisers are licensed under the Texas Appraiser Licensing and Certification Act (TALCA), and real estate inspectors are licensed under the Real Estate License Act (RELA).

The opinion made two threshold points. First, completing the VC form is voluntary in the sense that only appraisers who have applied to HUD, certified they read the HUD Handbook, and passed an FHA examination are eligible (and then required) to complete it; an appraiser who does not want to do FHA appraisals need not. Second, completing the form as part of an FHA appraisal does not conflict with Texas law. TALCA defines "appraisal" broadly and does not spell out or exclude the specific acts the VC form involves, and RELA does not bar an appraiser from completing the form: section 23(n) exempts a person from the inspector-licensing requirement for acts the person is authorized to perform under another state license. The Real Estate Commission, which administers RELA, construes appraisers as exempt from inspector licensing when performing an appraisal and has stated an appraiser may complete the VC form as part of the appraisal process. HUD likewise treats the VC form as part of the appraisal, not a home inspection. So an appraiser eligible to do FHA appraisals may complete the VC form without holding a separate inspector license.

Currency note

This opinion was issued in 2000. Subsequent statutory amendments, court decisions, or later Attorney General opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

What the opinion meant for those who asked

Real estate appraisers (what the opinion held for them): The opinion held that a state licensed or certified appraiser who has qualified with HUD to perform FHA appraisals is authorized to complete the VC form as part of that appraisal, without obtaining a real estate inspector license.

Real estate inspectors and the Real Estate Commission (what the opinion held for them): The opinion held that RELA's section 23(n) exemption covers an appraiser completing the VC form during an appraisal, consistent with the Commission's own construction, so this does not encroach on the inspector-licensing scheme.

Homebuyers and lenders (what the opinion held for them): The opinion explained that completing the VC form is part of determining the property's value for FHA mortgage insurance and is not a home inspection, which the HUD Handbook says is not required to complete the form.

Common questions

Does an appraiser need an inspector license to fill out the FHA VC form?
No. The opinion concluded that completing the VC form is part of the FHA appraisal process, and RELA section 23(n) exempts the appraiser from the inspector-licensing requirement.

Is every Texas appraiser required to complete the VC form?
No. The opinion concluded only appraisers who voluntarily applied to HUD, certified they read the HUD Handbook, and passed an FHA examination are eligible and then required to complete it.

Is completing the VC form the same as a home inspection?
No. The opinion noted that HUD treats the VC form as part of the appraisal to determine value, and the HUD Handbook states a home inspection is not required to complete the VC form.

Does Texas law prohibit an appraiser from making the VC form observations?
No. The opinion concluded TALCA does not exclude those acts and RELA does not bar them, so completing the VC form during an appraisal does not conflict with state law.

Background and statutory framework

Title XI of the federal Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (12 U.S.C. §§ 3331-3351) requires appraisals in federally related transactions to be performed by state licensed or certified appraisers, authorizes states to establish a certifying and licensing agency (§ 3346), and lets a federal agency add standards to carry out its duties (§ 3339). HUD sets the standards for FHA mortgage insurance appraisals; the maximum insurable mortgage is based on the appraised value (12 U.S.C. § 1709(b)(10)), and the Secretary prescribes appraisal standards (§ 1708(e); 24 C.F.R. § 203.5(e)(1)) in HUD Handbook 4150.2, which requires the VC form. Only appraisers who applied to HUD and met its requirements are eligible to perform FHA appraisals (64 Fed. Reg. 72868, 72869 (1999)).

In Texas, TALCA (art. 6573a.2) conforms to Title XI; appraisers are licensed or certified by the Texas Appraisal Licensing and Certification Board, an independent subdivision of the Texas Real Estate Commission (§§ 5, 6), and "appraisal" is defined as "the act or process of estimating value or an estimate of value" (§ 3(1)). RELA (art. 6573a) licenses real estate inspectors and defines a "real estate inspection" (§ 23(a)(10)); engaging in that business without a license is a Class B misdemeanor (§ 23(m)). Section 23(n) exempts persons performing acts they are authorized to perform under another state license or registration. The opinion gave weight to the Real Estate Commission's administrative construction of section 23(n) (Dodd v. Meno, 870 S.W.2d 4, 7 (Tex. 1994)), under which appraisers are exempt from inspector licensing when performing an appraisal, and noted HUD's position (and 24 C.F.R. § 200.145) that the VC form is part of the appraisal, not a home inspection.

Citations

Federal and state provisions:

• 12 U.S.C. §§ 3331-3351, 3339, 3346, 1708(e), 1709(b)(10) (1994 & Supp.)
• 24 C.F.R. §§ 200.145, 203.5(e)(1) (1999); 64 Fed. Reg. 72868 (1999)
• Tex. Rev. Civ. Stat. Ann. art. 6573a.2, §§ 2, 3(1), 5, 6 (Vernon Supp. 2000)
• Tex. Rev. Civ. Stat. Ann. art. 6573a, §§ 1, 23(a)(10), 23(m), 23(n) (Vernon Supp. 2000)

Cases:

• Dodd v. Meno, 870 S.W.2d 4 (Tex. 1994)

Source

• Landing page: https://www.texasattorneygeneral.gov/opinions/john-cornyn/jc-0271
• Original PDF: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/2000/jc0271.pdf

Original opinion text

Best-effort transcription from the official scanned PDF. Minor character-level errors from the source OCR have been corrected; the linked PDF is authoritative.

OFFICE OF THE ATTORNEY GENERAL - STATE OF TEXAS

JOHN CORNYN

August 16, 2000

The Honorable Yvonne Davis
Chair, Local and Consent Calendars Committee
Texas House of Representatives
P.O. Box 2910
Austin, Texas 78768-2910

Opinion No. JC-0271

Re: Authority of a state licensed or certified real estate appraiser to complete a Valuation Conditions Form for Federal Housing Administration mortgage insurance appraisals (RQ-0201-JC)

Dear Representative Davis:

On behalf of a state certified real estate appraiser, you request an opinion regarding Form HUD-92564-VC, Valuation Conditions ("VC form"), a form completed in connection with a real estate appraisal for Federal Housing Administration ("FHA") mortgage insurance. We understand you to ask whether a state certified or licensed real estate appraiser is authorized to make the observations and render the responses required by the VC form. We conclude in the affirmative.

We begin with a brief review of the federal and state law framework. The FHA requires appraisals to be performed by state licensed or certified appraisers. Title XI of the federal Financial Institutions Reform, Recovery, and Enforcement Act of 1989 requires that all real estate appraisals in connection with federally related transactions be performed only by individuals certified or licensed by a state in accordance with a uniform national appraisal standard. See 12 U.S.C. §§ 3331-3351 (1994 & Supp. II 1996, Supp. III 1997, Supp. IV 1998). To assure the availability of state licensed or certified appraisers to perform appraisals for federally related transactions, the Act authorizes a state to establish a state appraiser certifying and licensing agency. See id. § 3346 (1994). The Act also authorizes a federal agency or instrumentality to require compliance with additional standards for performing real estate appraisals if necessary to carry out its statutory duties. See id. § 3339.

The VC form is required pursuant to United States Department of Housing and Urban Development ("HUD") prescribed standards for FHA mortgage insurance. The maximum mortgage amount that the FHA (an organizational unit of HUD) can insure is based on the appraised value of the property. See id. § 1709(b)(10) (Supp. IV 1998). The Secretary of HUD is specifically directed to prescribe standards for the appraisal of all property to be insured by the FHA. See id. § 1708(e) (1994); see also 24 C.F.R. § 203.5(e)(1) (1999) (FHA single family mortgage insurance regulation requiring mortgagee to have property appraised in accordance with standards and requirements prescribed by Secretary of HUD). These standards are prescribed in HUD Handbook 4150.2. See U.S. Dep't of Housing and Urban Dev., Handbook 4150.2, Valuation Analysis for Home Mortgage Insurance for Single Family One-to-Four Unit Dwellings (July 1, 1999) http://www.hudclips.org [hereinafter "HUD Handbook"]. The HUD Handbook requires an "as repaired appraisal" valuation of property using the VC form, which addresses physical conditions of the property that may render the property uninhabitable or cause health and safety concerns.[1] See id. at pp. 5-2 to 5-4.

Two state statutes are also relevant to your query. The Texas Appraiser Licensing and Certification Act ("TALCA") was enacted to conform to the regulation of real estate appraisers under title XI of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989. See TEX. REV. CIV. STAT. ANN. art. 6573a.2, § 2 (Vernon Supp. 2000). Under TALCA, persons are licensed or certified to perform appraisals by the Texas Appraisal Licensing and Certification Board, ("TALCB") "an independent subdivision of the Texas Real Estate Commission." Id. art. 6573a.2, §§ 5, 6. An "appraisal," under this statute is "the act or process of estimating value or an estimate of value." See id. art. 6573a.2, § 3(1).

You are concerned about the extent to which FHA mortgage insurance appraisals require property inspections. Persons are licensed to perform "real estate inspections," by the Texas Real Estate Commission pursuant to section 23 of the Real Estate License Act ("RELA"). See id. art. 6573a. A "real estate inspection," under RELA is "a written or oral opinion as to the condition of the improvements to real property, including structural items, electrical items, mechanical systems, plumbing systems, or equipment." Id. art. 6573a, § 23(a)(10). A person commits an offense - a Class B misdemeanor - under RELA "if the person knowingly or intentionally engages in the business of real estate inspecting without a license." Id. art. 6573a, § 23(m)(1), (2).

You believe that the VC form conflicts with state law because it requires all real estate appraisers to perform "Real Estate Property Inspection[s]" that are outside the scope of a "real estate property valuation appraisal[]" that appraisers are licensed to perform under state law. See Pennebaker Letter at 1.[2] We disagree.

As a threshold matter, we note that a state licensed or certified real estate appraiser who does not wish to perform FHA mortgage insurance appraisals and complete the VC form is not required to do so. State licensed or certified appraisers have the choice whether to perform FHA mortgage insurance appraisals. If they elect to do so, they must make the requisite property condition observations and complete the VC form. Only those state licensed or certified appraisers who have applied to HUD to perform appraisals for FHA mortgage transactions, have certified that they have read and understood the HUD Handbook, and have passed an examination on the FHA appraisal method and reporting requirements are eligible to perform FHA appraisals. See 64 Fed. Reg. 72868, 72869 (1999) (to be codified at 24 C.F.R. pt. 200, §§ 200.202, .206); HUD Handbook pp. 1-1 to 1-2; see also HUD Brief at 6.[3] Thus, only appraisers who have voluntarily applied to and have been deemed qualified by HUD to perform FHA appraisals are required to complete the VC form.

Completion of the VC form as part of the FHA mortgage insurance appraisal by a state licensed or certified appraiser does not conflict with state law. An appraiser eligible to perform FHA appraisals is authorized to complete the VC form because it is part of the FHA appraisal process. The Texas Appraiser Licensing and Certification Act ("TALCA"), the state law under which real estate appraisers are licensed or certified, does not expressly prohibit the observations and responses required by the VC form, nor does it impliedly prohibit those observations and responses. While TALCA defines "appraisal" as "the act or process of estimating value or an estimate of value," see TEX. REV. CIV. STAT. ANN. art. 6573a.2, § 3(1) (Vernon Supp. 2000), the statute does not exclusively set out the specific actions constituting the "act or process of estimating value or an estimate of value." Nor does RELA, the state law under which real estate inspectors are licensed, preclude an appraiser from completing the VC form as part of a FHA appraisal. To the contrary, section 23(n) of the RELA specifically exempts from the licensing requirement of the act:

any person who repairs, maintains, or inspects improvements to real property and who does not represent to the public through personal solicitation or public advertising that the person is in the business of inspecting such improvements. The provisions of this section shall not be construed so as to prevent any person from performing any and all acts which the person is authorized to perform pursuant to a license or registration issued by this state.

Id. art. 6573a, § 23(n). To the extent completion of the VC form is part of the appraisal process for FHA mortgage insured properties, an appraiser licensed or certified under TALCA may complete the VC form without being licensed under RELA as a real estate inspector.

Our construction of section 23(n) is supported by its administrative construction. See Dodd v. Meno, 870 S.W.2d 4, 7 (Tex. 1994) (construction placed upon a statute by agency charged with its administration, while not binding, is entitled to substantial weight). The RELA is administered and enforced by the Real Estate Commission. See TEX. REV. CIV. STAT. ANN. art. 6573a, § 1 (Vernon Supp. 2000). The Commission construes section 23(n) to allow licensed or certified appraisers to complete the VC form as part of an appraisal: "[The Commission] considers appraisers licensed or certified by the [Texas Appraisal Licensing and Certification Board] to be exempt from the inspector licensing requirement when performing an appraisal. Thus, a licensed or certified appraiser may complete the new HUD Form 92564-VC as part of the appraisal process without being licensed as an inspector by [the Commission]." TALCB, Appraiser Report (August 1999) at 2 (emphasis omitted) (on file with Opinion Committee); see also Pennebaker Letter at 1 ("[The Commission] has issued a statement that Appraisers are exempt from being Licensed Real Estate Inspectors when performing an appraisal, thus may complete the HUD VC Sheet.").

Furthermore, completion of the VC form as part of the FHA mortgage insurance appraisal is permitted under federal law. HUD construes the observations and responses required by the VC form to constitute an essential part of the appraisal of the property to be insured by the FHA to determine its market value; completion of the VC form, HUD asserts, does not require or constitute a real estate or home inspection. See HUD Brief at 10-12; see also, e.g., HUD Handbook at p. 5-2 ("A home inspection is not required to complete the VC [form]."); 24 C.F.R. § 200.145 (1999) ("Any appraisals, inspections, environmental assessments, and technical or financial evaluations conducted by or for the [Federal Housing] Commissioner are performed to determine the maximum insurable mortgage, and to protect the Commissioner and the FHA insurance funds.").

SUMMARY

Only state licensed or certified real estate appraisers who have voluntarily applied to and have been deemed qualified by the United States Department of Housing and Urban Development to perform FHA mortgage insurance appraisals are required to complete the Valuation Conditions Form on FHA mortgage insurance appraisals. A state licensed or certified real estate appraiser eligible to perform FHA appraisals is authorized to complete the Valuation Conditions Form. Completion of this form as required by federal law does not conflict with state licensing requirements for performing real estate appraisals and real estate inspections.

Very truly yours,

JOHN CORNYN
Attorney General of Texas

ANDY TAYLOR
First Assistant Attorney General

CLARK KENT ERVIN
Deputy Attorney General - General Counsel

SUSAN D. GUSKY
Chair, Opinion Committee

Sheela Rai
Assistant Attorney General - Opinion Committee

[1] The VC form includes questions that require "yes" and "no" responses based on "readily observable evidence" of "site hazards and nuisances," "soil contamination," "grading and drainage," "well and individual water supply and septic," "wood destroying insects," "private road access and maintenance," "structural defects," "foundation," "roofing," "mechanical systems," "other health and safety deficiencies," "lead based paint hazard," and "condominiums and planned unit developments." See U.S. Dep't of Housing and Urban Dev., Form HUD-92564-VC, Valuation Conditions (Sept. 1999) http://www.hudclips.org.

[2] Letter from Dotti J. Pennebaker, IFA, to Honorable Yvonne Davis, Texas State Representative, District 111 (Aug. 31, 1999) (on file with Opinion Committee).

[3] Brief of U.S. Department of Housing and Urban Development, in response to Attorney General Opinion Request No. 0201-JC (on file with Opinion Committee).