Honolulu, Hawaii



RE:    S.B. No. 1258

       S.D. 1




Honorable Donna Mercado Kim

President of the Senate

Twenty-Seventh State Legislature

Regular Session of 2013

State of Hawaii




     Your Committee on Commerce and Consumer Protection, to which was referred S.B. No. 1258 entitled:




begs leave to report as follows:


     The purpose and intent of this measure is to require real estate appraisers, acting as arbitrators, to record arbitration awards, the records of the awards, if separately issued, and any supplementary, dissenting, or explanatory opinions with the Bureau of Conveyances within ninety days of the determination of the award and its notification to the parties.


     Your Committee received testimony in support of this measure from the Hawaii Council of Associations of Apartment Owners; Citizens For Fair Valuation; Hilo Bay Printing Co., Ltd.; Pacific Jobbers Warehouse, Inc.; Grace Pacific Corporation; Bacon Universal Company, Inc.; Earle M. Alexander, Ltd.; Sofos Realty Corporation; Mutual Plumbing Supply Co., Inc.; Ginoza Realty, Inc.; JN Group, Inc.; and thirty-three individuals.  Your Committee received testimony in opposition to this measure from the Professional and Vocational Licensing Division of the Department of Commerce and Consumer Affairs; Appraisal Institute, Hawaii Chapter; and Land Use Research Foundation.


     Your Committee finds that Act 227, Session Laws of Hawaii 2011 (Act 227), was intended to require real estate appraisers, when acting as arbitrators in long-term ground lease rent valuations, to provide relevant data related to the findings of fact and methodologies employed to support their conclusions, within the record of the award.  Act 227 was intended to bring data, openness, and transparency to a market controlled by few landlords and very few commercial and industrial appraisers.  Unfortunately, since the enactment of Act 227, many real estate appraisers when acting as arbitrators have required participants in an arbitration to agree to confidentiality agreements that limit the disclosure of the arbitration award details and processes.  Your Committee further finds that these agreements frustrate the legislative intent of Act 227 and constrain the development of an open market valuation process.


     Your Committee additionally finds that Act 227 requires appraisers in arbitration proceedings to certify compliance with the most current Uniform Standards of Professional Appraisal Practice (USPAP).  Although your Committee has heard testimony that this measure might be in conflict with USPAP's ethical rule, your Committee notes that USPAP has a jurisdictional exception rule that "provides a saving or severability clause intended to preserve the balance of USPAP if compliance with one or more of its parts is precluded by the law or regulation of a jurisdiction.  When an appraiser properly follows this Rule in disregarding a part of USPAP, there is no violation of USPAP."


     Your Committee also finds that because the USPAP rule of jurisdictional exception applies to this measure, there is no ethical conflict with USPAP.  Your Committee notes that in subsequent conversations between the Professional and Vocational Licensing Division of the Department of Commerce and Consumer Affairs and interested stakeholders, the Professional and Vocational Licensing Division indicated it would be withdrawing its opposition to this measure based on further review of the USPAP.


     Your Committee concludes that this measure supports the openness and transparency originally contemplated by Act 227 by requiring the recordation of arbitration data with the Bureau of Conveyances.


     Your Committee has amended this measure by making technical, nonsubstantive amendments for the purposes of clarity and consistency.


     As affirmed by the record of votes of the members of your Committee on Commerce and Consumer Protection that is attached to this report, your Committee is in accord with the intent and purpose of S.B. No. 1258, as amended herein, and recommends that it pass Second Reading in the form attached hereto as S.B. No. 1258, S.D. 1, and be placed on the calendar for Third Reading.


Respectfully submitted on behalf of the members of the Committee on Commerce and Consumer Protection,