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Todd Sheppard

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Why license appraisers? Who needs ’em? Who regulates ’em?

State licensing of real estate appraisers began in the 1980s as an effort to prevent recurrences of valuation improprieties resulting from that decade’s savings and loan scandal.


In that scandal — also the more recent mortgage meltdowns that contributed to the Great Recession — substandard appraisals and unethical appraisers produced inflated valuations of real estate demanded by speculators and some bank loan department officers.


As a result, regulatory responses to those valuation abuses have made state licensing and stricter federal regulations now universal in the United States (links and details, below).

Licensed appraisers versus those with designations

State licensing requirements establish basic appraisal standards.


Other appraisal bodies such as the Appraisal Institute and the American Society of Farm Managers and Rural Appraisers offer certifications and designations whose standards for education, expertise and experience exceed those established by state licensing.


Significant differences exist between state licensed appraisers and those with designations from national appraisal bodies. Although not directly parallel, the difference is similar to an accountant versus an accountant with a CPA. Designated appraisers are almost always required for major real estate transactions.

Any expression or opinion of value is an appraisal

Significantly (and often misunderstood), any opinion of a value — even verbal — is an appraisal, including Broker Price Opinions:


“USPAP is clear that when developing an opinion of value, regardless of the reporting format … an appraisal is being performed.” — California Bureau of Real Estate Appraisers


Thus, a broker, appraiser or other professional may discuss the actual prices of comparable properties — for example in setting the offering price of a property.


However, regulations forbid expressing an opinion of the value on any specific property without a full appraisal done by a licensed appraiser.

The complicated web of appraiser regulation

The current appraiser licensing system began with the 1989 passage by the Federal Deposit Insurance Corporation of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA).


As illustrated below, the system, qualifications and standards are now a conglomerate of state, federal, quasi-governmental and non-governmental institutional requirements and compliance procedures.

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Source: Appraisal Foundation

Real estate appraisers have been licensed in the state of California since the Bureau of Real Estate Appraisers was established in 1990.


California, like other states, requires appraisers to conform to “Uniform Standards of Professional Appraisal Practice (USPAP)” as adopted by the Appraisal Standards Board of the Appraisal Foundation. The U.S. Congress designated the Appraisal Foundation as the authorized body to create and maintain national USPAP standards.


California USPAP rules are embodied in Title 10 of the California Code of Regulations.


According to the Appraisal Subcommittee, there are 10,361 active licensed appraisers in California. Of those, there are 3,167 active certified general appraisers who would be approved by the state to value major commercial properties.

Federal Reserve

In addition to direct licensing of appraisers, the Federal Reserve Board has mandated that state licensed appraisers must prepare the appraisals of major real estate transactions underwritten by any federally licensed lenders such as banks. Those rules can be found in Federal Reserve Regulations TITLE 12 … Appraisals, Section 225.63. (Excerpts, below.)


While the Fed allows banks to waive appraisals in certain circumstances — all transactions less than $1 million or non-residential transactions of less than $250,000 (full verbiage, below) — audits and strict regulations required by Dodd-Frank have prompted most banks to require state-licensed appraiser valuations for all but the most insignificant real estate loans.


In addition, licensed appraiser valuations are not required for loans financed entirely by private money without any hint of federal regulatory strings.


This is a simplified explanation as can be seen by the state and federal links above.

Federal Reserve Regulation Excerpts

Full regulations at: Federal Reserve Regulations TITLE 12 … Appraisals

225.62 Definitions.

6. Federally related transaction means any real estate-related financial transaction entered into on or after August 9, 1990, that:

  1. The Board or any regulated institution engages in or contracts for; and
  2. Requires the services of an appraiser.

225.63 Appraisals required; transactions requiring a State certified or licensed appraiser.

4. Transactions requiring a State certified appraiser.

  1. All transactions of $1,000,000 or more. All federally related transactions having a transaction value of $1,000,000 or more shall require an appraisal prepared by a State certified appraiser.
  2. Nonresidential transactions of $250,000 or more. All federally related transactions having a transaction value of $250,000 or more, other than those involving appraisals of 1-to-4 family residential properties, shall require an appraisal prepared by a State certified appraiser.
  3. Complex residential transactions of $250,000 or more. All complex 1-to-4 family residential property appraisals rendered in connection with federally related transactions shall require a State certified appraiser if the transaction value is $250,000 or more. A regulated institution may presume that appraisals of 1-to-4 family residential properties are not complex, unless the institution has readily available information that a given appraisal will be complex. The regulated institution shall be responsible for making the final determination of whether the appraisal is complex. If during the course of the appraisal a licensed appraiser identifies factors that would result in the property, form of ownership, or market conditions being considered atypical, then either:
    1. The regulated institution may ask the licensed appraiser to complete the appraisal and have a certified appraiser approve and co-sign the appraisal; or
    2. The institution may engage a certified appraiser to complete the appraisal.