Can the Texas Appraiser Board let its licensed appraisers skip USPAP standards when doing a federal 'evaluation' instead of an appraisal?

Plain-English summary

This opinion is about a quirk in how real estate valuations get regulated. Under the federal Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA), some real estate transactions are "federally related transactions" that legally require an appraisal, and those appraisals have to follow the Uniform Standards of Professional Appraisal Practice, known as USPAP. But many transactions fall below the federal threshold or otherwise do not require a full appraisal. For those, federal banking rules allow a lighter "evaluation," which does not have to comply with USPAP. The Texas Appraiser Licensing and Certification Board, through its chair Sara Oates, asked the Attorney General whether the Board could adopt a rule letting the appraisers it licenses skip USPAP when they perform one of these evaluations. The Board's concern was competitive: its licensees were losing business because, by virtue of their license, they had to apply the stricter USPAP standard to evaluations, while people without a license could perform the same evaluations under looser rules.

The AG set the question in its federal context but answered it under Texas law, because the issue was the Board's rulemaking authority. Chapter 1103 of the Occupations Code, the Texas Appraiser Licensing and Certification Act, bars anyone from performing a real estate appraisal unless licensed or certified, and section 1103.405 requires a person who holds a chapter 1103 license, certificate, or registration to comply with the most current edition of USPAP (or standards at least as stringent). The AG applied the settled principle that an administrative agency has only the powers the Legislature expressly gives it plus those reasonably necessary to carry out its duties, and that an agency rule has to be consistent with its statutory authority, citing the Texas Supreme Court's decision in the Texas State Board of Examiners of Marriage and Family Therapists case.

Putting those together, the AG reasoned that section 1103.405 imposes the USPAP requirement by statute, so a Board rule exempting its own licensees from USPAP would conflict with the statute, at least to the extent the "evaluation" in question is itself an "appraisal" as chapter 1103 defines that term (an opinion of value, whether or not prepared for a federally related transaction). The AG therefore concluded a court would likely hold the Board may not adopt the proposed exemption rule. It flagged one important caveat: chapter 1103 expressly does not prohibit an authorized person from performing an evaluation, and whether a particular task counts as an "evaluation" or an "appraisal" under chapter 1103 is a fact question the opinion process cannot resolve.

Currency note

This opinion was issued in 2020. Subsequent statutory amendments, court decisions, or later AG 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

The opinion was written for the licensing board that wanted to give its appraisers relief from a competitive disadvantage. For the Board, the answer was that it could not solve the problem by rule: section 1103.405's USPAP mandate is statutory, and a rule carving out an exemption would exceed the Board's authority. For Texas licensed and certified appraisers, the opinion meant the USPAP obligation continued to attach to their work when that work is an appraisal under chapter 1103, even if a non-licensee could perform a comparable evaluation without USPAP. For anyone pressing the competitive-fairness concern, the opinion implicitly pointed toward the Legislature, since the requirement the Board wanted to relax came from statute, not from a Board rule. The AG left open the underlying line-drawing question of when an evaluation is or is not an appraisal, treating that as fact-specific.

Common questions

Q: What is the difference between an appraisal and an evaluation here?
A: Under FIRREA and federal banking rules, transactions that legally require an appraisal must use a USPAP-compliant appraisal, while transactions that do not require an appraisal can use a lighter "evaluation" that need not follow USPAP.

Q: Can the Texas Appraiser Board exempt its licensees from USPAP for evaluations?
A: The AG concluded it likely cannot. Occupations Code section 1103.405 requires chapter 1103 licensees to comply with USPAP, and a Board rule exempting them would conflict with that statute where the evaluation is an appraisal under chapter 1103.

Q: Why does it matter that the requirement is in a statute and not a rule?
A: Because a state agency can only adopt rules consistent with its statutory authority. The AG reasoned that the Board cannot use a rule to override a requirement the Legislature put in the statute.

Q: Did the AG decide whether a particular evaluation counts as an appraisal?
A: No. The AG said whether a person is performing an "evaluation" or an "appraisal" under chapter 1103 involves fact issues outside the scope of an attorney general opinion.

Background and statutory framework

The opinion bridges federal banking law and Texas licensing law. On the federal side, FIRREA (12 U.S.C. sections 3331 through 3356) directs the federal financial-institution regulators to set appraisal standards and to rely on state agencies to license and certify appraisers. The agencies issued the Interagency Appraisal and Evaluation Guidelines and rules (for example, 12 C.F.R. section 34.44(a) for the OCC) requiring appraisals in federally related transactions to conform to USPAP, while permitting non-USPAP evaluations (12 C.F.R. section 34.43(b)) for transactions that do not require an appraisal. USPAP itself is developed by the Appraisal Standards Board of the Appraisal Foundation, as the Missouri court described in Dwiggins v. Mo. Real Estate Appraisers Comm'n. On the Texas side, chapter 1103 of the Occupations Code (the Texas Appraiser Licensing and Certification Act) prohibits unlicensed appraisals (section 1103.201(a)), defines "appraisal" broadly as an opinion of value whether or not for a federally related transaction (section 1103.003(1)), provides that the chapter does not prohibit an authorized person from performing an evaluation (section 1103.004(1)), and, in section 1103.405, requires licensees to follow current USPAP. The Board's rulemaking power appears in sections 1103.151 and 1103.154. The AG's analysis rested on the administrative-law rule, stated in Tex. State Bd. of Exam'rs of Marriage & Family Therapists v. Tex. Med. Ass'n, that an agency rule cannot exceed or conflict with the agency's statutory authority.

Citations and references

Statutory and regulatory provisions:

• Tex. Occ. Code § 1103.405 (USPAP compliance requirement); § 1103.201, § 1103.003, § 1103.004, § 1103.151, § 1103.154 (licensing, definitions, rulemaking)
• 12 U.S.C. §§ 3331–3356 (FIRREA appraisal framework); 12 C.F.R. § 34.43, § 34.44 (OCC appraisal and evaluation rules)

Key cases:

• Tex. State Bd. of Exam'rs of Marriage & Family Therapists v. Tex. Med. Ass'n, 511 S.W.3d 28 (Tex. 2017) (an agency rule must be consistent with its statutory authority)
• Dwiggins v. Mo. Real Estate Appraisers Comm'n, 515 S.W.3d 765 (Mo. Ct. App. 2016) (USPAP developed by the Appraisal Standards Board of the Appraisal Foundation under FIRREA)

Source

• Landing page: https://www.texasattorneygeneral.gov/opinions/ken-paxton/kp-0342
• Original PDF: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/2020/kp-0342.pdf

Original opinion text

KEN PAXTON
ATTORNEY GENERAL OF TEXAS

November 19, 2020

Ms. Sara Oates
Chair, Texas Appraiser Licensing & Certification Board
Post Office Box 12188
Austin, Texas, 78711-2188

Opinion No. KP-0342

Re: Authority of the Texas Appraiser Licensing and Certification Board to exempt licensed or certified appraisers from the statutory requirement to comply with the Uniform Standards of Professional Appraisal Practice when performing a property "evaluation" allowed under the federal Interagency Appraisal and Evaluation Guidelines (RQ-0355-KP)

Dear Ms. Oates:

You ask whether the Texas Appraiser Licensing and Certification Board (the "Board") may "adopt a rule exempting appraisers licensed or certified under Chapter 1103 of the Texas Occupations Code from the statutory requirement to comply with [the Uniform Standards of Professional Appraisal Practice] when performing an evaluation allowed under the Interagency Guidelines[.]"¹

Your question requires some context. The federal Financial Institutions Reform, Recovery and Enforcement Act of 1989, or FIRREA, created a system to protect "real estate related transactions" by requiring real estate appraisals used in connection with "federally related transactions" to conform to certain standards. See Financial Institutions Reform, Recovery, and Enforcement Act of 1989, 12 U.S.C. §§ 3331–3356. FIRREA directs the federal agencies that regulate financial institutions² to prescribe those standards. Id. § 3339. The federal agencies responded with the Interagency Appraisal and Evaluation Guidelines ("Interagency Guidelines").³

FIRREA also creates a comprehensive framework wherein the states license and certify real estate appraisers and supervise appraisal-related activities. Id. § 3346 (providing for establishment of state appraiser certifying and licensing agencies). At the core of the comprehensive framework is the "real estate related financial transaction," which is a transaction involving the sale, lease, exchange, or refinancing of real property, including property interests, and the "use of real property or interests in property as security for a loan or investment." Id. § 3350(5). Relevant to your question, only a subset of the real estate-related financial transactions—"federally related transactions"—require an appraisal. See id. §§ 3339, 3350(4)(B) (defining "federally related transaction" in part as one that requires the services of an appraiser); see also id. §§ 3341(b) (authorizing the federal agencies to establish a threshold level at or below which an appraisal is not required), 3356 (exempting certain real estate located in rural areas). An appraisal must at a minimum "[c]onform to generally accepted appraisal standards as evidenced by the Uniform Standards of Professional Appraisal Practice." 12 C.F.R. § 34.44(a) (OCC); id. § 225.64(a) (same) (Reserve); id. § 323.4(a) (same) (FDIC); id. § 722.4(a) (NCUA). These appraisal standards, known as the Uniform Standards of Professional Appraisal Practice ("USPAP"), are "an evolving set of professional standards developed by the Appraisal Standards Board of the Appraisal Foundation, which is authorized by the U.S. Congress [in FIRREA] as the independent source of appraisal standards and appraiser qualifications." Dwiggins v. Mo. Real Estate Appraisers Comm'n, 515 S.W.3d 765, 767 (Mo. Ct. App. 2016). However, if a real estate-related transaction is not a "federally related transaction," an appraisal is not required. See 12 U.S.C. §§ 3339, 3350(4)(B). Instead, an evaluation is required, and an evaluation need not comply with the USPAP. See 12 C.F.R. § 34.43(b) (requiring the evaluation be consistent with safe and sound banking practices) (OCC), id. § 225.63(b) (same) (Reserve), id. § 323.3(b) (same) (FDIC).⁴

You explain generally that licensed and certified appraisers in Texas must comply with the USPAP, and you are concerned "that some appraisers will lose business opportunities if they are required to conduct evaluations under the more stringent USPAP standards solely because of their professional certification while others are able to conduct evaluations without following those same standards." Request Letter at 1.

Set in this federal context, your question involves the rulemaking authority of the Board, which is governed by state statute. Chapter 1103 of the Texas Occupations Code regulates the licensure and certification of persons conducting real estate appraisals. See TEX. OCC. CODE §§ 1103.001–.5545 ("Texas Appraiser Licensing and Certification Act"). Chapter 1103 prohibits a person from performing a real estate appraisal "unless the person is licensed or certified as an appraiser under this chapter." Id. § 1103.201(a). Section 1103.405 provides that a "person who holds a certificate, license, or registration issued under . . . chapter [1103] shall comply with . . . the most current edition of the Uniform Standards of Professional Appraisal Practice" or other standards at least as stringent as the USPAP. Id. § 1103.405. While the Board may adopt rules concerning an appraiser's professional conduct that require compliance with the USPAP or its equivalent, section 1103.405 imposes that requirement. See id. § 1103.154(1)–(3) (authorizing the Board to adopt rules for professional conduct); 22 TEX. ADMIN. CODE § 153.8(a) (Tex. Appraiser Licensing & Certification Bd., Scope of Practice).

An administrative agency "has only those powers that the Texas Legislature has expressly conferred upon it and those implied powers that are reasonably necessary to carry out its statutory duties." Tex. State Bd. of Exam'rs of Marriage & Family Therapists v. Tex. Med. Ass'n, 511 S.W.3d 28, 33 (Tex. 2017); see also TEX. OCC. CODE §§ 1103.151, .154. An agency rule must be consistent with its statutory authority. Tex. State Bd. of Exam'rs of Marriage & Family Therapists, 511 S.W.3d at 33. Here, chapter 1103 prohibits a person from performing "an appraisal of real estate" without being licensed or certified. TEX. OCC. CODE § 1103.201(a) (emphasis added). Section 1103.405 requires a person who holds a certificate, license, or registration to appraise real estate under chapter 1103 to comply with the USPAP. Id. § 1103.405. A board rule exempting a licensed or certified appraiser from compliance with the USPAP when performing an appraisal conflicts with that statutory requirement. Therefore, a court would likely conclude that the Board may not adopt a rule exempting an appraiser licensed or certified under chapter 1103 from complying with the USPAP when performing an evaluation under the federal Interagency Guidelines, insofar as an evaluation constitutes an appraisal under that chapter.⁵ See id. § 1103.003(1) ("'Appraisal' means, regardless of whether prepared for a federally related transaction . . . an opinion of value . . . ." (emphasis added)); but see id. § 1103.004(1) (providing that chapter 1103 "does not prohibit . . . a person authorized by law from performing an evaluation of real property . . . ." (emphasis added)).

S U M M A R Y

Section 1103.405 of the Occupations Code governing real estate appraisals requires a person who is certified, licensed, or registered under chapter 1103 to follow the Uniform Standards of Professional Appraisal Practice. Under Texas law, an administrative agency rule must be consistent with its statutory authority. A rule exempting an appraiser licensed under chapter 1103 from complying with the Uniform Standards when performing an evaluation as allowed under the federal Interagency Appraisal and Evaluation Guidelines would conflict with section 1103.405, insofar as an evaluation constitutes an appraisal under that chapter. A court would likely conclude the Texas Appraiser Licensing and Certification Board may not adopt such a rule.

Very truly yours,

KEN PAXTON
Attorney General of Texas

BRENT E. WEBSTER
First Assistant Attorney General

LESLEY FRENCH
Acting Deputy Attorney General for Legal Counsel

VIRGINIA K. HOELSCHER
Chair, Opinion Committee

CHARLOTTE M. HARPER
Assistant Attorney General, Opinion Committee