Licensing of Appraisers Gets Support : Professionals Back Move to Establish Standards in Field
If you want to go into the hair-cutting business in California, prepare yourself for 1,500 hours of training at an accredited barber college, followed by an extensive eight-part exam covering both theory and practice.
If you want to go into the real estate appraisal business in California, get yourself a $35 name plate from a sign shop, hang it on your office door and buy an ad in the Yellow Pages proclaiming yourself a “Real Estate Appraiser.”
And if the situation seems like an anomaly--in terms of state regulation versus public interest--you are in good company, with both of the nation’s top professional appraiser organizations currently stumping for either national or state legislation requiring the licensing, or at least certification, of these practitioners.
Hang a Shingle
“It blows our minds,” Monica M. Moore, a Corona del Mar-based appraiser says. “Absolutely anyone who wants to, can hang out a shingle and go into business. And it’s not unique with California--only about six states have any kind of law, and these simply specify that whoever does an appraisal has to be a licensed real estate broker. They have no teeth at all.”
In contrast, ironically, only one state--Alabama--permits hair cutting without a license, according to the California Board of Barber Examiners.
Additionally, Moore said, two-thirds of all the state’s present appraisers do not belong to professional societies that have set up standards for the practice and a code of ethics.
Moore, a member of the Society of Real Estate Appraisers, is the designated spokeswoman for the 17 California chapters of the Washington-based group and has testified in hearings before the California Senate Committee on Business and Professions in support of Senate Bill 764--introduced last year as a “spot bill” (not in its final form) by Sen. Joseph B. Montoya (D-El Monte), to stimulate discussion of the measure. Two parallel spot bills, SB-1601 and SB-1613, containing essentially the same language as SB-764, are already making the rounds this year, according to Amiel Jaramillo, principal consultant to Montoya’s committee.
“Legislation to require certification for appraisers--setting up certain requirements before you can call yourself a Certified Real Estate Appraiser--has been kicking around for almost 30 years,” Jaramillo notes, “but there has always been opposition from the realtors and from some splinter groups among the appraisers, too.”
Currently, Moore feels, the chances of passage have greatly improved with the two dominant professional organizations--the Society of Real Estate Appraisers and the American Institute of Real Estate Appraisers--loosely joining forces, nationally, in plumping for better regulation of appraisers, even though significant differences still exist in their approaches.
“And,” Moore adds, “we think in the past that appraisers, generally, haven’t been too supportive of licensing, but because of the bad publicity they’ve had the last five years, there’s a lot more incentive now to clean up the industry’s image.”
There is some irony in the new finding of common goals by the two national appraisal organizations, Doug Gillies, vice president of government relations for the California Assn. of Realtors, admits, since the American Institute is an affiliate of the National Assn. of Realtors and the parent group is inalterably opposed to both licensing and certification.
“It’s really amazing that they (the states) let just anyone into a group that is so critical in the financing process,” said Robert Morin, chief legislative counsel for the society in Washington. “And I can’t understand the opposition of the realtors--the appraisal field has gotten tremendously complicated, and more and more the courts are holding realtors liable for not disclosing all the facts about a property to a seller. This is nothing to be taken so casually.”
Unlike a bad haircut, local appraisers say, a “bad” appraisal on a home--grossly over market value or grossly under market value--can have a long-term and grievous economic impact on a family.
“We’ve got a lot of people,” Moore adds, “who were shafted right at the beginning by an appraisal that was too high. And they’ve been trying, without success, to sell the house for the past five years. At this point it’s almost impossible to tell what the market for the house is.”
Had Rude Awakening
Conversely, West Los Angeles condominium owner Lilly Schwartz had a rude awakening 18 months ago when she attempted to refinance her unit to take advantage of dropping interest rates--from the 14 1/2% prevailing in 1981 when she bought it, to the 11 1/2% rate prevailing in late 1984.
Instead of enjoying the sizable drop in monthly payment for principal and interest that she anticipated, Schwartz found the decline in her monthly payments negligible. The unit which she had purchased for $72,900, with 20% down, was, for refinancing purposes, appraised at $64,000--enough of a decline to drop her financing from an 80% loan to a 91% loan that made mortgage insurance mandatory and the premiums on which canceled out much of the decline in payments she had expected.
“And this,” Schwartz adds, “was in spite of the fact that there were at least two comparables--two other similar units--that had sold in the same complex at about the same time for just about what I’d paid for mine three years earlier. The appraiser didn’t spend more than two minutes in my place. He just walked in, sniffed, and left.”
“Sometimes,” Moore adds, “if you go back to the lender with more information that you feel the appraiser overlooked, he may change his mind. Or, sometimes, you can get your own appraiser to come in--of course, that’s more money out of your own pocket--and give a second opinion, and if he has a good reputation with the lender, then the lender may reconsider the original one. But, I’ll admit, it’s tough.”
When the market in second trust deeds “started rolling a couple of years ago,” Moore said, “lenders would assign appraisers who were willing to be a sort of mill--most of these properties didn’t require a full appraisal, just a ‘short appraisal,’ which is a one-page form, and the appraisers would simply drive by the property. Frequently, they wouldn’t even go inside to verify anything and they were using students and retired people to do so many drive-bys a day. Maybe there were some unscrupulous appraisers involved in all of this but, mainly, it was just a matter of ignorance.”
With the lack of state or federal regulation of appraisers, Morin said, the two national professional organizations have tried to step into the breach by conferring designations on professionals who have met their own education and experience requirements. The society confers the SRA (Senior Residential Appraiser), the SRPA (Senior Real Property Appraiser) and the SREA (Senior Real Estate Analyst) designations. The American Institute confers the RM (Residential Members) and the MAI (Member, Appraisal Institute).
But in spite of the availability of these designations for those qualified, Moore, adds, no more than a third of the estimated 150,000 to 250,000 appraisers in the country belong to any professional organization through which they are subject to any standards of practice or code of ethics. “Which means, too, that about 65% of the appraisers in the state need not adhere to any set of appraisal standards, and may practice without any ethical constraints whatsoever.”
Four Classifications
Under the legislation currently discussed in California, Moore said, four classifications would be created based on the appraisers’ education, experience and ability.
The Class I designation would cover appraiser trainees who need only a high school education and are authorized to assist a licensed appraiser. Class II (Residential Appraiser) would include one year of experience as a Class I trainee, a bachelor’s degree, 80 classroom hours in valuation theory and application and completion of an examination.
Class III (Senior Residential Appraiser) would have to have one year of experience as a Class I trainee, two years as a Class II appraiser, pass an advanced course of at least 40 hours and complete an examination. If born after Jan. 1, 1965 he must also have a bachelor’s or associate degree with real estate and related course credits.
The Class IV appraisal consultant is authorized to appraise all types of real estate and must have a specified number of years in each of the other classes as well as completing two advanced appraisal courses of at least 40 hours each and pass a comprehensive exam which will be conducted twice a year. If, again, born after Jan. 1, 1965, he must have a bachelor’s degree.
As far as the state’s realtors are concerned, according to the CAR’s Gillies, the licensing proposal “is considered to be ineffectual in dealing with what has been described as being the problem,” and the experience and educational requirements are seen as unrealistic.
“There’s been a lot of media coverage on alleged conflicts of interest between appraisers and others, but licensure isn’t going to help that situation any. This isn’t an exact science and it just isn’t the public interest to pretend that it is.
“As far as the experience requirements are concerned,” Gillies adds, “you’ve got a lot of small towns in the state where there simply isn’t the opportunity to get a year or two of experience because there’s not that much work, and which means that you’re going to have to send to Los Angeles to get somebody to do the work--which drives the cost up.”
An earlier realtor objection to appraisal licensing regulation--that it would bar realtors from making informal appraisals on real estate listed with them--has been dropped from the Senate bill now making its way around the state for discussion.
