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Push to Regulate Property Data Collectors

by Isaac Peck, Publisher

Property data collections have been a slow burn.

For the last five years, powerful interests within the valuation industry have been arguing for mass adoption of hybrid appraisals and property data collections in lieu of traditional appraisals. So far, that hasn’t happened. While some lenders have adopted property data collection practices to value their internal portfolios, the latest reports issued by the American Enterprise Institute (AEI) indicate that roughly 3,000 property data collections are being completed each month by Fannie Mae and Freddie Mac combined. This is roughly 2 percent of all government-sponsored enterprise (GSE) valuations in a given month.

Nevertheless, strong advocacy for property data collections continues. At an appraiser conference Working RE just attended, one of the leading presenters (an appraiser himself) shared his vision of appraisers sitting on a beach and “inspecting” a home using virtual reality goggles—walking through the home virtually after a property data collector (PDC) had presumably scanned the home.

While the GSEs have set basic requirements for lenders that PDCs undergo annual background checks, meet the GSEs’ independence requirements, be “professionally trained,” and “possess essential knowledge to competently complete the property data collection,” the GSEs have offered little specifics in terms of what constitutes professional training. For their part, appraisers have raised questions about appraisal management companies’ (AMCs) and lenders’ diligence in their selection and training process.

There are safety concerns around having unlicensed individuals enter consumers’ homes. There are privacy concerns, too—what happens to the data, pictures and floorplan data after this unlicensed individual collects it?

What about liability? Are PDCs going to be required to carry insurance? At an appraiser conference in 2023, the CEO of one of the approved PDC vendors with Fannie Mae approached this author (not realizing my association with Working RE magazine) and openly declared that the PDCs they were hiring wouldn’t purchase insurance if he tried to require it because “it’s not a full-time job” and “these guys are just Uber drivers doing some data collections on the side.” (This vendor is not an AMC.)

In the face of these concerns, many appraisers believe that some type of regulation is needed around property data collections and PDCs individually.

Appraisers in Mississippi, Utah, Illinois and Washington have been working to introduce legislation and regulations to address these dangers. While each appraiser group has taken a different approach to the issue, it’s clear that—at least some appraisers—believe additional guardrails are needed to protect the consumer public and valuation professionals alike. And they’re taking action.

Here are the factors at play on this important issue.

NAR Concerns
In May 2023, the National Association of Realtors (NAR) conducted a survey to gauge members’ experience with PDCs and their thoughts on the issue. The results provide a great summary of some of the main concerns on the topic. Here are some of the highlights:

• Impersonation: 30 percent of respondents reported that a data collector had given them the impression that they were the appraiser or had a role other than merely collecting property data.
• Safety: 51 percent of respondents had safety concerns about unlicensed property data collectors.
• Data Privacy: 65 percent of respondents expressed concerns regarding the data collected and data privacy.
• Disclosure: 63 percent of the participants stated that they were not made aware of any third-party privacy policies or disclosures during their experience with data collection.
• Data Quality: 76 percent perceive the quality of property data collected by PDCs to be lower than that collected by appraisers.
• Licensing: 90 percent of respondents believe there is a need for property data collector licensing.

Based on this data, NAR, as well as its state associations, may be a potential ally to appraisers interested in regulations for PDCs.

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Mississippi
Mississippi was one of the first states to propose regulation of any kind for property data collectors. Shane Barnett, a Mississippi state representative and himself a certified residential appraiser, introduced HB 1663 into the state house in February, but the bill died in committee in late March. What exactly stopped the bill remains unknown, but some critics point out that the bill’s text was rough. Over 90 percent of the bill was a copy/paste of the Mississippi Appraiser Licensing and Certification Act, with a definition of a PDC written in and a requirement that the PDCs be licensed and functionally held to the same standards as appraisers.

Utah
Vern Meyer, a certified residential appraiser who is involved with several appraiser organizations in Utah, including memberships with the Utah Association of Appraisers (UAA), the Utah Coalition of Appraising Professionals (UTCAP) and the state chapters of the Appraisal Institute (AI), has been working with the Utah Division of Real Estate (UTDRE) and the Utah Appraisal Board for several years to address the PDC issue.

Meyer explains that several years ago, UTDRE put together a committee, which included AMC representatives, banking representatives and a few independent fee appraisers, to evaluate the issue and make recommendations on how to approach unlicensed property data collectors. After two years in committee, no official report was ever issued, but the UTDRE did publish updated rules that defined a property data collector and required that AMCs provide the PDC’s name to the appraiser—with no requirement for contact information.

Meyer has been regularly attending UTDRE and Utah Appraisal Board meetings, urging them to revise their policies and add additional requirements for AMCs and PDCs.

In his testimony to the Utah Appraisal Board on Aug. 28, Meyer shared the following: “It boggles my mind that an individual (appraiser trainee) who, after successfully completing the UTDRE-required 75 hours total of Qualifying Education (QE), completing 35 appraiser-accompanied residential property inspections, passing a background check and maintaining participation in the FBI’s RapBack program, and have supervisory approval over every appraisal inspection assignment, isn’t the minimum required qualification for residential property inspections. Compare that with the current training, education, aptitude, security, experience, and oversight requirements for AMC-selected property data collectors—NONE! There currently is no DRE oversight of these individuals nor any oversight requirement placed on AMCs.”

Meyer also argues that AMCs should be responsible for the people they’re engaging. “Just like an appraiser who utilizes an uncredentialed individual for clerical duties, if the individual mistypes the appraiser’s notes and comments into the appraisal report, transposes numbers or any action which results in a non-credible appraisal report, it is the appraiser who is held liable. AMCs who don’t properly manage and oversee individuals they engage for property inspections should likewise be held accountable for individuals (entities) that they employ or engage,” says Meyer.

In his interview with Working RE, Meyer points to the fact that if an appraiser relies on an incorrect property data collection report, it is the appraiser who will be investigated by the UTDRE and disciplined by the Utah Appraisal Board. “We’re seeing horrible information coming back. We have appraisers who have used that data and have been sanctioned by the state for not having a credible report. But no AMC has yet been investigated, let alone sanctioned, for their part in the breakdown of credibility,” reports Meyer.

One of the challenges in Utah is that the UTDRE does not license home inspectors, so they’ve tried to take a “hands-off” position. But Meyer and the appraisal organizations that make up the UAA are not giving up. “We continue working with the UTDRE and encourage them to engage with the state legislature. We feel very strongly that our statutes require inspections to be done by licensed appraisers and that additional AMC accountability or updated regulation is needed,” says Meyer.

After his presentation on Aug. 28, the Utah Appraisal Board committed to placing the topic on the agenda for the next meeting.

Illinois
In Illinois, the Illinois Coalition of Appraisers (ICAP) is currently working on legislation to ban the use of PDCs that contribute to a hybrid appraisal. This will be a very narrow piece of legislation because the majority of PDCs are used today in conjunction with appraisal waivers, and this law will only apply to hybrid appraisals. The bill is expected to be introduced in early 2025.

Washington
In Washington state, the Appraisers’ Coalition of Washington (ACOW) has been working for several years to communicate their concerns with state regulators. At a hearing of the House Consumer Protection & Business session of the Washington Legislature on Feb. 27, Dallas Kiedrowski, MNAA, testified on behalf of ACOW and raised serious concerns regarding the lack of regulation around PDC activities.

“If the report misrepresents the subject characteristics or location … or if there is evidence of bias and/ or discrimination in the report, there appears to be no recourse [for the consumer]. In contrast, if there is an issue with a report completed by a licensed appraiser, there are multiple paths for the consumer to seek recourse at the state licensing level as well as at the federal level through HUD,” testified Kiedrowski.

Also holding a Residential Evaluation Specialist (RES) designation from the International Association of Assessing Officers (IAAO), Kiedrowski pointed out to legislators that the GSEs data collection practices are substantially lower than IAAO Mass Appraisal standards, which are codified into law in many states. In the assessing world, if a property data collector is involved, they must work with a licensed appraiser who has the responsibility to make the subjective decisions around property condition, quality, location, and so on. Kiedrowski argues that PDCs are “required to analyze and provide an opinion on the overall quality and condition of the property, as well as rate characteristics such as view and location.” Senior leaders at AMCs deny this assertion, but Kiedrowski says he has signed up on several PDC panels and seen the reports for himself.

The result, Kiedrowski says, is that “data collectors working for lenders can make key subjective decisions such as assigning quality or view, but a data collector working for an assessor’s office in the state cannot. To put this another way, the taxable assessed value of your home is determined by a regulated, licensed appraiser, while the market value for a loan, which may be the largest investment in your life, can be valued by an algorithm in conjunction with an unregulated, unlicensed person. This inconsistency has the potential to harm the public’s trust in the appraisal process.”

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Independence and Professionalism
Speaking to Working RE in an interview this summer, Kiedrowski says he is hopeful that ACOW can find sponsors for a bill and get PDC licensing legislation passed in the 2025 legislative session.

While the GSEs have published their own PDC independence requirements for lenders, Kiedrowski says that falls short of what’s needed. “There is no law that loan officers or AMCs can’t just call PDCs and tell them whatever they want. This creates a massive risk for consumers,” asserts Kiedrowski. “The real estate crash of 2008 was a result, in part, because loan officers were not licensed. Before 2008, there was no National Multistate Licensing System (NMLS). We had a bunch of unlicensed people doing stuff that was unregulated. Today, a loan officer can lose their license if they try to influence an appraiser. But you can’t lose your license for trying to influence a PDC. We believe we’re heading into a similar situation unless we take action.”

Licensing for PDCs, Kiedrowski argues, is a way to guarantee there is a modicum of professionalism in the process. “There need to be real protections in place in terms of background checks and guaranteeing that these individuals have a certain level of training—that they take their jobs seriously. This will help move the process away from the Uber model; they have to get a license and E&O [errors and omissions] insurance, and so on. It ensures only people who are working towards that goal and have put themselves in that position can provide these services,” explains Kiedrowski.

Safety and Privacy
In front of the Washington Legislature, Kiedrowski raised public safety and privacy concerns in his testimony: “What recourse, if any, would a consumer have if they were harmed by a PDC, such as their property being damaged or their private information shared without their consent?”

In his interview with Working RE, Kiedrowski reports that legislators at the hearing were really concerned about the commodification of the consumer’s data. “We know that the data a PDC collects is being sent to the AMC and sent to the lender. The PDC also has it on their phone. What if the PDC starts selling those videos to criminals, so they can go break into your house? If this person has no license or reason to worry about discipline, that’s another risk the consumer is taking. Appraisers are regulated and have held to specific privacy standards, including the Gramm-Leach-Bliley Act, and this guarantees we’re going to protect consumer data. With PDCs, there are no such protections,” he argues.

Consumer Data
Beyond the concerns about what an unlicensed PDC might do with detailed data about the interior of a consumer’s home, there are also questions around how this data might eventually be sold to third parties by AMCs and software companies.

Here, Amazon’s attempted acquisition of Roomba maker iRobot is instructive. The Roomba is a robot vacuum that uses internal mapping technology to learn the floor plan of a user’s home.

Although Amazon abandoned its acquisition efforts earlier this year due to antitrust concerns raised by the European Union, many data-privacy and antitrust experts were ringing alarm bells in the U.S. as well.

Here is a quote from Ron Knox, who spoke forcefully against Amazon’s acquisition efforts: “The most advanced versions of Roomba collect information about your house as they clean. It knows where you keep your furniture, the size of each room and so on. This would allow Amazon, the company that wants to know everything about American consumers, to buy out a company with perhaps the most data on the size, shape and layout of the inside of our homes.”

The inference is that internal data collected in consumers’ homes could then be used to sell products to the consumer (among other things). If the vacuum goes around a dog, for example, dog food could be targeted to the consumer. This data could be used to market TVs, furniture, washing machines, and so on.

While the sale of PDC data may be solely aspirational today, it raises serious questions about who owns the data and what protections are in place for consumers. While some level of privacy regulations exist for appraisal data, do these protections extend to PDCs? And even if there are contractual obligations on the lender’s side around this data, what if the home scanning and measuring software used in the PDC (or the appraisal, for that matter) is owned by a separate software company? Do those protections still apply?

Appraisal Institute Support
The Appraisal Institute (AI) has quietly taken a role in supporting appraisers who believe PDCs should be regulated and has been advising various appraiser coalitions as well as AI’s state and regional chapters who have expressed interest in this issue. AI is rumored to be working on a piece of model legislation that could serve as the starting point and framework for language that would be considered by the state legislatures. It is believed to have made this template available to its chapters and several coalition groups in the hopes that they can use it as they work to develop their own bills.

While some states have proposed regulations that apply only to PDCs who perform inspections that are then passed on to an appraiser as part of a hybrid appraisal, the bill text the AI is reportedly working on would likely apply to PDCs in all types of situations—whether that is contributing to a hybrid appraisal or the PDC is just being submitted to one of the GSEs for use in underwriting the transaction (Fannie’s waiver + PDC program, for example).

There also would likely be a carveout for appraisers and trainees in any legislation. After all, appraisers are uniquely suited to perform this type of work.

While AI is not pursuing this issue directly in state legislatures, AI is reportedly doing what it can to support its chapters and sister organizations that have an interest in this issue.

Next Steps
While discussions around hybrid appraisals and PDCs have been ongoing for years, their use is still not mainstream. However, the GSEs have been slowly increasing their usage over the last 12 months. As they become more popular, it is clear that appraisers, and even NAR members, share concerns around the potential dangers and pitfalls that exist for these currently unregulated, unlicensed actors on the valuation scene. Whether appraisers will be able to build momentum and address this issue with their state regulators and legislatures remains to be seen. We’ll find out in 2025.

Home Inspection Licensing?
One challenge for the PDC movement is that roughly 35 states across the country have home inspector licensing and require individuals who “inspect” homes to be a licensed home inspector. While proponents of PDCs are quick to argue that property data collection is not a home inspection, the wording of state laws makes it a murkier issue.

For example, Illinois’ Home Inspector Licensing Act defines a home inspection as follows:

“Home inspection” means the examination and evaluation of the exterior and interior components of residential real property, which includes the inspection of any 2 or more of the following components of residential real property in connection with or to facilitate the sale, lease, or other conveyance of, or the proposed sale, lease or other conveyance of, residential real property:

(1) heating, ventilation, and air conditioning system;
(2) plumbing system;
(3) electrical system;
(4) structural composition;
(5) foundation;
(6) roof;
(7) masonry structure; or
(8) any other residential real property
component as established by rule. 

The argument would be that if a PDC is opining about the condition of the home and reporting any material defects—such as the structural composition, roof or foundation, for example—they are performing a home inspection. It’s worth noting that Illinois’ definition above is specific to inspections related to the “sale, lease or other conveyance” of real property and—if read in isolation—would not apply to refinance transactions.

While no public records are currently available, Working RE has spoken with several individuals who have verbally confirmed the existence of board complaints being filed against PDCs with home inspector licensing boards and commissions —presumably for performing unlicensed home inspection activity.

Some AMCs have already considered this potential issue. Our sister company, OREP Insurance, currently serves nearly 2,000 home inspectors across the U.S. and we’ve begun receiving coverage requests for property data collection activities from inspectors.

In a conversation this author recently had with an OREP-insured home inspector, the inspector was being offered four data collection assignments for a total of $500 ($125 each). Since home inspectors typically make $400-$600 per inspection, the inspector was not particularly motivated to meet the AMC’s requirements.

About the Author
Isaac Peck is the Publisher of Working RE magazine and the President of OREP Insurance, a leading provider of Appraiser E&O insurance that includes additional Discrimination Claim Coverage for appraisers (many programs exclude this important coverage). OREP serves over 10,000 appraisers with comprehensive E&O coverage, competitive rates, and 14 hours of free CE for OREP Members (CE not approved in IL, MN, GA). Visit www.OREP.org to learn more. Reach Isaac at isaac@orep.org or (888) 347-5273. CA License #4116465.

OREP Insurance Services, LLC. Calif. License #0K99465