How did we get to licensing and certifying real estate appraisers? What was wrong with the old way of doing things?
Where We Were
You may recall studying about the Great Depression of 1929, which lasted up to about the beginning of WWII. At the depths of the depression, the official unemployment rate was 24.75%. By 1940, the annual rate had declined to 14.45%, and by 1941 the annual rate was 9.66%, which is about where we were during the Great Recession that began in 2008.
The original Great Depression began in 1893. When the Great Depression began in 1929, the Great Depression of 1893 was changed to the Panic of 1893. The Panic of 1893 was at least as ugly — if not uglier — than the Great Depression of 1929. If you get a chance, give it a read.
As an example of the 1929 Great Depression, if one had $1000 on September 3rd 1929, it would have gone down to $108 by July 8th, 1932 — end of the deepest decline — or an 89.2% loss. To recover from such a loss, one would have to watch one’s portfolio go up by 825%! (ATCA: The Asymmetric Threats Contingency Alliance as to the last sentence.)
It was after the stock market crash in 1932 that people in the real estate valuation business began to think about bringing professionalism to real estate valuation. As a result, professional non-profit real estate appraisal organizations formed — American Institute of Real Estate Appraisers (AIREA), Society of Real Estate Appraisers (SREA), and American Society of Appraisers (ASA). The AIREA and the SREA unified in 1991 to form the Appraisal Institute (AI). The ASA is a multi-disciplinary organization offering designations in real estate appraising, machinery and equipment, gems and jewelry, and fine art. The National Association of Independent Fee Appraisers (NAIFA, also known as the IFA) formed in 1961.
Earning a designation from one of these professional organizations means that you have achieved recognition of a high level of professionalism in the appraisal of real estate with that recognition divided between either residential and/or non-residential expertise. While this arrangement seemed to work reasonably well, it had its critics, especially in the area of enforcement of those who violated ethical standards. The criticism was aimed primarily at what some considered the self-serving interests of the professional organizations in that they were loathe to bring disciplinary action against their own members and possibly lose membership.
Whether or not you believe the criticisms, the professionalism of the real estate appraisal organizations was severely tested in the collapse of the savings and loan industry in the 1980s. One can point to many causes, but real estate appraisers were frequently blamed for causing or continuing the problems through the performance of faulty (generally meaning “high”) real estate appraisals. The S&L collapse compelled Congress to take regulatory action, which created the current national/state real estate appraisal regulatory environment.
Where We Are Today
The Appraisal Foundation (TAF), created by eight appraisal organizations, is responsible for maintaining and updating the standards and qualifications of the regulated real estate appraisal industry. Generally, real estate appraisals conform to the Uniform Standards of Professional Appraisal Practice, which are promulgated by TAF. Further, TAF establishes the qualifications to become a real estate appraiser.
The AI, the ASA, and the IFA continue to survive and award designations. Generally, the MAI designation awarded by the AI is considered the premier designation in the real estate appraisal profession. It is awarded only after the successful completion of a series of increasingly difficult appraisal courses (each followed by an examination), the successful completion of a technically challenging demonstration appraisal of a non-residential property, the successful completion of a four-part examination (similar in scope and breadth to the CPA examination), and a peer review of years of experience.
Since 1989 under federal regulation, states now regulate who can become a real estate appraiser and whether that appraiser will be licensed, certified residential, or certified general. For more information, download The Appraisal Foundation’s “How to Enter the Appraisal Profession.”
Briefly, you do not need a college degree to obtain the lowest level of appraiser licensing — a licensed appraiser. You will need some college education, though.
To become either a certified residential or certified general appraiser, you need a college degree.
The following links will help you get started if you’re interested in pursuing an appraisal designation: