ARA Regulatory Compliance & Legal Framework 2 — Questions and Answers
Question 1: Under FIRREA, which federal agency has primary supervisory authority over appraisals conducted for federally related transactions involving agricultural real estate?
- The Federal Reserve
- The applicable federal financial institution regulatory agency (FFIRA) (Correct answer)
- The Appraisal Subcommittee (ASC)
- The U.S. Department of Agriculture (USDA)
Correct answer: The applicable federal financial institution regulatory agency (FFIRA)
FIRREA designates each federal financial institution regulatory agency (FFIRA) as the primary supervisor ensuring appraisals in federally related transactions meet USPAP and agency standards.
Question 2: A rural appraiser is engaged to value a property that includes wetlands designated under Section 404 of the Clean Water Act. Which statement best describes the appraiser's obligation?
- The appraiser must obtain a Section 404 permit before completing the appraisal
- The appraiser must identify and analyze the effect of wetland restrictions on market value (Correct answer)
- The appraiser should exclude wetland acreage from the land size reported
- Wetlands are exempt from disclosure because they are a natural feature
Correct answer: The appraiser must identify and analyze the effect of wetland restrictions on market value
USPAP requires appraisers to identify and analyze legal restrictions such as wetland designations that affect value, though appraisers are not environmental regulators.
Question 3: The Dodd-Frank Wall Street Reform Act added which significant requirement affecting appraisers of properties securing residential mortgage loans?
- Appraisers must be licensed in every state where they conduct business
- Customary and reasonable fees must be paid to appraisers and AMCs are prohibited from coercing appraisers (Correct answer)
- All appraisals must be completed using the sales comparison approach only
- Rural properties under 40 acres are exempt from standard appraisal requirements
Correct answer: Customary and reasonable fees must be paid to appraisers and AMCs are prohibited from coercing appraisers
Dodd-Frank's appraisal independence protections require that customary and reasonable fees be paid and prohibit coercion of appraisers by AMCs or lenders.
Question 4: Under USPAP's Ethics Rule, an appraiser who has a personal interest in a property being appraised must:
- Complete the appraisal but charge a reduced fee
- Disclose the interest and decline the assignment unless the client provides informed consent (Correct answer)
- Have a colleague review the appraisal before submission
- Complete the appraisal only if the interest is less than 5% ownership
Correct answer: Disclose the interest and decline the assignment unless the client provides informed consent
The USPAP Ethics Rule requires disclosure of any personal interest or bias and prohibits the appraiser from proceeding without the client's informed consent after disclosure.
Question 5: Which of the following best defines a 'federally related transaction' triggering mandatory USPAP compliance for real property appraisals?
- Any real estate transaction involving a purchase price over $250,000
- A real estate transaction in which a federal financial institution regulatory agency has authority over the financial institution involved (Correct answer)
- Any transaction involving agricultural land regardless of lender type
- A transaction reviewed by any state-chartered bank
Correct answer: A real estate transaction in which a federal financial institution regulatory agency has authority over the financial institution involved
A federally related transaction is one where a federal financial institution regulatory agency has jurisdiction over the institution involved, triggering appraisal requirements under FIRREA.
Question 6: An ARA appraiser in a rural state is asked to appraise a farm but holds only a Licensed Residential credential. What must the appraiser do?
- Complete the appraisal since farm appraisals are unregulated
- Decline the assignment because agricultural properties require at minimum a Certified General credential (Correct answer)
- Accept the assignment with a supervisory appraiser co-signing
- Complete the appraisal and disclose the credential limitation in the report
Correct answer: Decline the assignment because agricultural properties require at minimum a Certified General credential
Agricultural and complex rural properties typically require a Certified General credential; a Licensed Residential credential does not authorize appraisal of non-residential or complex properties.
Question 7: The Appraisal Subcommittee (ASC) was created to perform which primary function?
- Set minimum education requirements for all real estate agents nationwide
- Monitor and review state appraiser regulatory programs and maintain the National Registry of appraisers (Correct answer)
- Issue state appraisal licenses and certifications directly to applicants
- Conduct appraisals of federal government-owned real property
Correct answer: Monitor and review state appraiser regulatory programs and maintain the National Registry of appraisers
The ASC monitors state appraiser regulatory agencies for compliance with FIRREA requirements and maintains the National Registry of credentialed appraisers.
ARA Regulatory Compliance & Legal Framework 2
Under FIRREA, which federal agency has primary supervisory authority over appraisals conducted for federally related transactions involving agricultural real estate?