UAD 3.6, Certification 25, and the Appraisal Quality Disconnect
Appraisal Industry Analysis
A closer look at appraisal data rights, institutional incentives, and the difference between collecting more information and producing a credible valuation.
The rollout of UAD 3.6 has generated considerable discussion about software problems, additional reporting requirements, and whether appraisers will be compensated for the extra work. Some of those problems should improve as software providers work through implementation, although that doesn't necessarily mean the additional reporting requirements won't continue to take more time.
Another issue receiving attention is Certification 25, which expands the permissions granted to certain parties to use appraisal information after a report has been completed. The certification doesn't change how an appraiser develops an opinion of value, but it raises a question about why appraisers are being required to authorize uses of their work that extend beyond the services they were engaged to perform.
Considered alongside the industry's approach to appraisal fees, assignment selection, and increasingly detailed reporting requirements, the change highlights a broader concern about whether the organizations directing much of the appraisal process are placing enough emphasis on the quality of the underlying valuation analysis.
Certification 25 and the Use of Appraisal Information
Under the previous Certification 21, lenders were permitted to disclose or distribute appraisal reports to certain parties involved in mortgage lending. Certification 25 goes further by expressly allowing certain recipients to store, copy, reproduce, analyze, use, and distribute appraisal data for internal or external purposes without obtaining additional consent from the appraiser.
Isaac Peck, publisher of Working RE and president of OREP Insurance, examines the change in his analysis of Certification 25. He explains that questions about subsequent use of appraisal information have existed for more than 20 years, although the new language makes the authorization more explicit.
Appraisal certifications ordinarily address the appraiser's professional responsibilities, including independence, the work performed, and the credibility of the analysis. Clients can establish assignment conditions, but authorizing other organizations to reproduce, analyze, or distribute appraisal information after the assignment is completed seems like a different matter.
Consider an appraisal completed for an estate or divorce. The appraiser identifies the intended use, develops an appropriate scope of work, and produces a credible opinion of value without granting broad permissions for unrelated uses of the report. What makes those permissions necessary for a mortgage appraisal?
Certification 25 isn't a separate agreement that an individual appraiser can negotiate with Fannie Mae or Freddie Mac. It's incorporated into the required reporting format, effectively creating a take-it-or-leave-it condition for appraisers completing GSE-compliant assignments. An appraiser can decline that work, but it may not be a practical alternative for someone whose business depends on conventional mortgage lending.
The certification doesn't automatically transfer copyright ownership. Property facts such as square footage, room counts, and lot dimensions generally aren't protected by copyright, while original written analysis, photographs, and reconciliation commentary may qualify for protection. The concern is that appraisers are required to grant broader permissions to use and reproduce information, potentially including original professional work, through a standardized certification rather than a separately negotiated agreement.
Client Control, AMC Incentives, and Professional Independence
Phil Crawford of Voice of Appraisal has raised concerns about Certification 25 and its potential legal and regulatory implications. In a LinkedIn discussion about the certification, appraiser Michael Nicora, RA, ASA, MNAA, made an observation that speaks to a larger concern:
“This is what happens when appraisers allow clients to run their profession.”
Fannie Mae and Freddie Mac have substantial influence over residential appraisal practice because their reporting requirements shape much of the conventional mortgage market. The issue isn't necessarily whether the GSEs care about appraisal quality, since they have a financial interest in reliable collateral valuations. It's whether their requirements consistently prioritize credible analysis or increasingly reflect the operational interests of the organizations receiving the information.
Consider how appraisal management companies operate within mortgage lending. Many appraisers are familiar with assignments being shopped primarily on fee and turnaround time. Under compensation arrangements where an AMC retains the difference between what it charges and what it pays the appraiser, finding someone willing to complete the assignment for less can directly increase its profit.
Fannie Mae's Selling Guide, B4-1.1-03, Appraiser Selection Criteria, states that the requirement for high-quality appraisal work must outweigh fee or turnaround time considerations. Yet parts of the appraisal management industry operate under incentives that can favor the opposite approach.
An appraiser who spends additional time investigating unusual property characteristics, analyzing conflicting market evidence, or identifying legitimate collateral concerns may provide better risk mitigation, but that effort isn't necessarily rewarded when assignments are awarded primarily on cost and speed.
Appraisers are prohibited from accepting compensation contingent on a predetermined value or a result that facilitates a transaction because independent valuations are intended to protect against the financial interests of the parties involved. Meanwhile, completed loans generate revenue for lenders, and loan originators may receive compensation when loans close. Those arrangements are subject to their own regulations, but the incentive to complete transactions can still shape expectations placed on appraisers.
An appraiser who identifies a concern requiring further investigation may delay a closing, while someone who consistently delivers quickly and raises fewer questions may be easier for an AMC to work with. Nobody has to request a predetermined value for those pressures to influence which appraisers receive assignments. Formal independence matters, but so does whether the purchasing process protects it in practice.
Privacy, Copyright, and the Potential Insurance Gap
An appraisal inspection may involve photographs of bedrooms, personal belongings, security equipment, and other interior features homeowners wouldn't ordinarily expect to be widely distributed. Most understand that photographs are collected for a mortgage appraisal, but may not know how the information could subsequently be stored, analyzed, or shared.
Financial institutions remain subject to applicable privacy and information-security requirements, including provisions of the Gramm-Leach-Bliley Act. Appraisers also have confidentiality obligations under USPAP, and Certification 25 doesn't automatically create a USPAP violation when an authorized recipient subsequently uses information. Those protections and distinctions matter, although they don't resolve every question about downstream use.
Peck's discussion of professional liability identifies a more specific uncertainty. He notes that OREP hasn't encountered this particular type of claim in approximately 20 years and doesn't necessarily expect Certification 25 to increase E&O claims. After reviewing six appraiser E&O policies, however, he identified questions about coverage for privacy-related disputes involving subsequent uses of appraisal information rather than negligent appraisal services.
Certification 25 states that additional recipients don't automatically become intended users and that the appraiser has no liability for uses unrelated to the mortgage transaction and related activities. Those provisions offer protection, but they don't necessarily prevent a claim from being filed. If a dispute arises over how appraisal photographs or property information were subsequently used, who pays to defend it?
That isn't evidence that insurers will deny coverage or that litigation is likely. It is a question worth resolving when appraisers are required to grant permissions over information they no longer control. The organizations benefiting from broader reuse rights should bear responsibility for the legal and financial risks arising from their subsequent use of that information.
Granular Data and the Limits of Market Evidence
Modernizing appraisal reporting isn't inherently a bad idea. The previous format was outdated in several respects, and more consistent property information may help lenders compare collateral, identify reporting errors, and analyze risk across large portfolios. Those are meaningful benefits, but improving the quality of a property database isn't necessarily the same as improving the credibility of an individual appraisal.
Appraisers already encounter requests to quantify relatively minor differences between comparable properties even when available sales don't establish a measurable market reaction. Increasing the number of fields in a report doesn't create market evidence that wasn't there before.
Consider two waterfront homes with similar living areas, condition ratings, and general water views. One might offer substantially better boating access and privacy, but the available comparable sales may not provide enough evidence to precisely isolate the value contribution of each characteristic. An appraiser can recognize the overall difference and explain its influence on marketability without pretending the market supports an exact dollar adjustment for every feature.
Buyers respond to the overall utility and appeal of a property, the alternatives available to them, and circumstances that can't always be isolated statistically. More granular reporting can encourage artificial precision if appraisers feel compelled to quantify every identified difference, even when the supporting evidence is limited.
This distinction also matters when considering hybrid appraisals and third-party property data collection. A collector might accurately record square footage, room counts, and finishes while overlooking a functional limitation or signs of moisture intrusion that an experienced appraiser would recognize as potentially affecting marketability. The issue isn't simply whether a characteristic can be recorded, but whether someone recognizes its significance and investigates it appropriately.
UAD 3.6 makes property information easier to structure and analyze across large numbers of assignments. That could improve quality control and support more sophisticated automated valuation systems, including AI, although Certification 25 doesn't establish AI training as its intended purpose. Any system built on this information will still depend on the reliability of the underlying observations and whether relevant market characteristics were identified.
Better data can support better collateral risk management, particularly when it improves the evidence available to an appraiser or helps identify inconsistencies. But standardized information, however extensive, can't substitute for competent market interpretation or make an unsupported valuation conclusion credible.
Keeping Appraisal Quality the Priority
Certification 25 may prove to be a relatively minor change, or its implications could become more significant as appraisal information is incorporated into automated systems and other analytical products. Either way, it raises a question about how the organizations directing much of the mortgage appraisal process balance their operational interests against the need for independent, credible valuations.
As discussed earlier, Fannie Mae's Selling Guide places appraisal quality ahead of fee and turnaround time, yet the economic incentives involved in purchasing appraisal services don't always appear consistent with that standard. UAD 3.6 presents a related concern: more detailed reporting can improve the collection and reuse of property information without necessarily improving the underlying valuation.
These objectives aren't incompatible, but there should be a clearer connection between what appraisers are required to produce and how those requirements improve collateral risk mitigation. More efficient data collection and broader access to appraisal information may benefit the organizations receiving it, while the credibility of an appraisal still depends on competent observation, relevant market evidence, and sound analysis.
For homeowners and real estate professionals, that distinction matters when choosing an appraisal service. Understanding who will inspect the property, what the assignment is intended to accomplish, and how the opinion of value will be supported is more useful than assuming a longer or more detailed report is necessarily a better one. Homeowners may also wish to remove sensitive documents and personal information before interior photographs are taken.
The industry should continue improving its systems, but the measure of progress ought to be whether those changes produce more reliable valuation conclusions and better risk decisions, rather than simply more information to collect and distribute.
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For property owners, attorneys, and real estate professionals who need an independent opinion of value, the quality of the underlying analysis should remain the primary consideration. Gulf Stream Residential Appraisal LLC provides residential appraisal services throughout Southwest Florida, with an emphasis on credible market evidence and well-supported valuation conclusions.