The History of Our Industry
By Charlie Elliott, Jr., MAI, SRA

Sometimes the best way to determine where something is going is to take a look back at where it has been. With that in mind, let’s take a look at the history of real estate appraisals.

The real estate appraisal industry didn’t start until the 1930s, and that’s a shame. If there had been professionals accurately evaluating the worth of collateral on all mortgage loans during the 1920s and before, the Great Depression would not have been as severe. Instead, came the terrible domino effect of job losses, foreclosures, not enough collateral, bank failures, lost savings, more job losses, etc.

These tragic circumstances highlighted the necessity of having professionals with the ability to accurately calculate and to state with authority the value of a house or other real estate property. In fact, in the early days of my industry, most appraisers were actually employed by banks. Eventually, independent real estate appraisers started operating on a fee-per-appraisal basis.

The American Institute of Real Estate Appraisers was founded in 1932 as an affiliate of what is now the National Association of Realtors. In 1935, the U.S. Building and Loan League (which became the U.S. Savings and Loan League) helped start the Society of Residential Appraisers. The American Society of Appraisers began in 1936. This particular organization includes appraisers of all types, including antiques, jewelry, businesses; you name it.

These organizations had a lot of power because they were, for all practical purposes, the quality control arm of the industry. They had specific requirements for membership and designations. A would-be appraiser who didn’t or couldn’t perform the criteria necessary to gain membership in one of these organizations also found himself or herself unable to get work in the appraisal field.

Another notable financial disaster led to a new chapter in the real-estate appraisal industry. The Savings and Loan Crisis of the 1980s led to, not only the demise of many financial institutions, but also a lot of finger pointing. Some of those fingers pointed at real estate appraisers. Sure, a few specific cases in which appraisers acted irresponsibly. That still happens, as it does in all professions, but I have a hard time believing the appraisers, as a whole, were responsible for the failure of so many savings and loans.

This crisis, however, did promote an atmosphere that something needed to be done. That’s when the federal government required each individual state to license appraisers and require that state licensed appraisers be used on all federal government backed mortgage loans.

Since the great majority of real estate appraisals are done for mortgage loans and the great majority of mortgage loans are government backed, this requirement drastically changed our industry. State licensing requirements were, and still are, very similar to the minimum membership requirements that the appraiser associations hold. Therefore, this action took the wind out of the sails of these appraisal organizations. Many of the appraisers who had been members of these organizations resigned their membership as a result of this. In 1991 the American Institute of Real Estate Appraisers and the Society of Real Estate Appraisers, the two strongest organizations in this category, merged to become the Appraisal Institute, by far the strongest such association today.

Some of the more advanced designations, especially those of the Appraisal Institute, have meaning, but the basic ones pretty much mean an appraiser has done what it takes to get a state license. To give an example of how important some of these designations are, one appraiser actually got one of the designations awarded to his cat, just by filing the necessary paperwork and, of course, paying the necessary fees.

There is still talk of fraudulent appraisers since the state licensing requirement started in about 1990, but there are some changes. For the most part, the appraisal organizations, as I have previously mentioned, no longer have the power and financial resources they once did. And the governments of all 50 states have been saddled with the extra financial burden of handling what had once been taken care of by these associations.

Nine organizations combined to draw up the Uniform Standards of Professional Appraisal Practice (USPAP) in 1986. The following year the Appraisal Foundation was formed by these same organizations. The Foundation updates USPAP each year, but it doesn’t discipline the appraisers who violate it. That responsibility belongs to the governments of the 50 states.

As most readers of this column realize, there are different levels of licensure for appraisers. Unfortunately, that is left up to each state so sometimes it can get confusing. For example some states call someone who has just taken the initial training and passed the first state appraisal exam a trainee. Others call such a person an apprentice. North Carolina has four levels; trainee, residential license, residential certification and finally, certified general, which allows an appraiser to perform appraisals on commercial, industrial or agricultural property as well as residential.

Four levels of licensed appraisers are not that unusual, but these levels are not always the same as you go from state to state. Because of different boards and different political philosophies, you don’t always get the same terms.

As I wrote in this column last month, I see it getting harder and harder for someone to get licensed. Therefore, I wouldn’t be surprised if, in the future, most states cut the levels down to three: the trainee level, the residential license and the general category.

As for now, I’d say we’ve gone full circle. We had a good system when it was managed by the associations. Now that’s been taken over by the state governments and the Appraisal Foundation, and frankly I’m not so sure that our appraisals are any better.

But I do think that it’s a more open system and it’s easier for anybody who wants to get involved to do so. You don’t have to worry so much about the competing organizations all claiming their designations are better. A person’s credibility is now based on the level of his state license, with the exception of higher-level designations, such as the MAI.

Charlie W. Elliott, Jr., MAI, SRA, is President of ELLIOTT® & Company Appraisers, a national real estate appraisal company. He can be reached at (800) 854-5889 or at charlie@elliottco.com or through the company’s Web site at www.appraisalsanywhere.com.