On Borrowed Time : Realtors Fret Over Law Requiring Certification of Appraisers
State officials say a new state law requiring real estate appraisers to be licensed, effective Sunday, will for the first time give them an accurate picture of this important slice of the real estate industry.
However, some realtors and lenders are worried that the law, which grew out of the national savings and loan debacle in which fraudulent and inflated property appraisals were a key factor in many thrift failures, will slow down the home refinancing boom--one of the few bright spots in an otherwise moribund California housing market.
The law requires that any appraiser working on a “federally related real estate transaction” meet certain educational and professional standards and either be licensed or certified by the state. That covers millions of property loans, including refinancings, made by government-insured banks, credit unions or thrifts.
Lenders that make loans insured by the Federal Housing Administration or guaranteed by the Veterans Administration are also expected to insist that their appraisers be licensed, although it is not required by the law.
California now doesn’t test or license appraisers.
Realtors worry that there will be a temporary shortage of appraisers as overwhelmed bureaucrats in the state Office of Real Estate Appraisers struggle to process all the licensing requests and administer the new test.
“Appraisers are already backlogged because so many homeowners have been refinancing,” said Chuck Lamb, a real estate broker and president of the California Assn. of Realtors.
“If an appraiser isn’t licensed or certified come Nov. 1, he’s going to have a tough time finding work. People are going to have to wait longer for their appraisals, and that’s not good news for a (housing) market that could use some.”
Appraisers started being flooded with requests about midyear, when fixed-rate, 30-year loans dropped below 8% for the first time in two decades.
Although the rate drop didn’t trigger a surge in sales, millions of homeowners decided to refinance their existing mortgages to lower their monthly payments.
“We’ve been swamped,” said Catherine Wieland, an appraiser in La Canada-Flintridge.
“Before rates dropped, we could get to a job within a week or two. Now it’s taking three to four weeks, and I’ve heard some appraisers quoting six to eight weeks.”
If the new law creates a shortage, those waits could grow even longer.
“Fewer appraisers and a lot more refinancing translates into longer waits,” said Sam Lyons, senior vice president of Great Western Bank. “It’s that simple.”
If the appraisal industry’s backlog grows, homeowners hoping to refinance are expected to be hurt the worst because most lenders are giving priority to borrowers who want to buy a house.
“Purchase-related loans get priority over refinancings because they’re more deadline-oriented,” Great Western’s Lyons said. “If a loan to buy a house doesn’t come through, it can have a domino effect on several other transactions. People who are just refinancing their loans have a little more flexibility.”
State officials claim that such fears are unfounded.
Thousands of appraisers have been scrambling to get licensed in time for the deadline, state officials said. “We have authorized nearly 13,000 people to take the exams, and we’ve already issued more than 9,000 licenses and certificates,” said Loretta Maxwell, the agency’s deputy director.
“We figured that 7,500 appraisers would be enough to prevent any major interruption in service, and we’ve already exceeded that goal. I don’t think there will be much of a problem.”
Schools that teach people how to appraise property report a surge in business. “We’re getting 20 to 30 people for each class, and they don’t flinch at the $700 tuition,” said Bob Miller of Miller Schools, a Granada Hills-based company that offers the courses.
Still, even Maxwell admitted that it will take a few months to assess the impact of the new regulations, in part because the previous lack of a licensing program prevented the state from knowing how many people do appraisals.
Maxwell said one state study estimated that there could be as many as 40,000 appraisers doing business in California--more than four times the number who have already been licensed or certified.
Congress ordered all states to establish licensing and certification programs as part of a 1989 bill aimed at bailing out the savings and loan industry.
“I think our program will lead to better quality appraisers and better quality appraisals, and that should help the banking business,” Maxwell said.
The federal deadline for states to institute licensing programs is Jan. 1, 1993.
A Look at Appraisers
As of Nov. 1, real estate appraisers will for the first time be required to pass an exam and obtain either a license or a certificate. The law splits appraisers into the following three categories:
Certified general: Has the most latitude. Can do any appraisal, without regard to transaction value or complexity.
Certified residential: Can appraise homes and apartment buildings of up to four units, without regard to the building’s purchase price or the job’s complexity.
Licensed: Can make simple appraisals of houses, condominiums and apartment buildings with up to four units as long as the purchase price is no more than $1 million. May also accept complicated appraisal jobs as long as the transaction value doesn’t exceed $250,000.
Source: California Office of Real Estate Appraisers
