Appraising the profession.

Author:Martin, Vernon, III
Position:Appraisal industry in the real estate market

What ails the appraisal profession? Extensive hearings before a congressional subcommittee during 1986 and 1987 documented fraud and incompetence throughout the profession. The subsequent unfolding of the savings nd loan scandals brought further shame upon the profession as seemingly reputable appraisers were implicated in mortgage loan frauds. Congress has attempted to solve the problem with a new regulatory system, as prescribed by Title XI of the Financial Institutions Reform, Recovery and Enforcement Act (FIRREA), requiring state licensing and certification of appraisers involved in practically all mortgage lending activity in this country.

The causes of problems with appraisal quality are inherent to the appraisal profession; income property appraisers are not properly brought into the profession, trained, given credentials and monitored. These problems are deep rooted and cannot be solved by having appraises take examinations and hold licenses.

There are several unsolved problems, including the qualifications of new appraisers; the training of new appraisers; the use of inappropriate or obsolete methodologies and the inability of appraisers to recognize and adjust to changing market conditions; and the appraisal profession's lack of interaction with real estate market partcipants.

Othe issues that should be brought to light are:

* misguided notions of what constitutes a good" appraisal

* slavish devotion to appearance instead of accuracy and analysis

* inappropriately placed credentials

* conflicts of interest

* counterproductive leadership of the professional appraiser organizations

* lack of scrutiny by users of appraisals

Appraiser's backgrounds

When compared to other professions, appraisers generally require less formal education. On the other hand, among those appraisers who hold the MAI designation (Member of the Appraisal Institute), a top credential in the appraisal profession, only 68 percent had bachelor's or advanced degrees, according to a Society of Real Estate Appraisers' 1990 membership survey. Many members who hold degrees have them in subjects unrelated to real estate appraisal.

Today's newer entrants to the appraisal profession, however, are more likely to be recent college graduates schooled in fianancial analysis and other relevant subjects. Indeed, the complexities of many investment properties today demand some college-level training in finance. Candidates for designations from the Appraisal Institute now require a college degree, but these standards did not appear until the 1970s.

In the views of leading appraisal educators, the academic preparation of most appraisers is still too narrow. Noted academics have advocated an interdisciplinary approach to the study of valuation, incorporating education in finance, microeconomics, architecture urban georgraphy, business law, statistics, English composition and even behavioral sciences. Cognizant of these deficiencies, the Appraisal Institute has propsed a "body of knowledge" curiculum, consisting of real estate law, building construction and design, finance, mathematics and other necessary subjects. Preparation in these subject is not a requirement for entry into the appraisal profession, though.

Reforms mandated by FIRREA and written by the Appraisal Foundation (a consortium of eight leading appraisal organizations) now require appraisers to take approximately 165 classroom hours of instruction (varied by state) in appraisal courses to become certified to conduct income-property appraisals. There is no requirement to take other related courses such as finance, enconomics, statistics of English composition. In other words, FIRREA and the Appraisal Foundation do little to elevate the educational level of the appraisal profession other than to increase the number of appraisal course taken, many of which are redundant.

Although the academic preparation of new entrants to the appraisal profession is constantly improving, there is still the problem of how to attract the best and brightest to a profession where the starting salaries rarely exceed $25,000 per year (much like the teaching profession). Many people who are capable of earning an MBA or law school degree are already discouraged from entering the appraisal profession, and better-quality college graduates with undergraduate business degrees have recently been finding better opportunities elsewhere.

Another problem is that many appraisers enter the profession without any other type of real estate experience. Appraisers must predict how the market will react to property that we appraise; yet, few young appraisers today have ever leased, sold or managed income properties, let alone residential property.

Insufficient continuing education

What the appraisal profession lacks in intellectual caliber and academic preparation it tries to make up for in the professional educational programs of the various appraisal organizations. Such organizations have texts that represent the input of university scholars and experienced...

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