Chapter 1 - The Appraisal Profession

Overview

The value of real estate has risen dramatically during the past 30 years, yet market demand still fluctuates and not every property will increase in value over time. Some may actually lose value. Under such market conditions the appraisal process is even more important; shortcut assumptions that work in a time of rising prices will produce devastating results in a time of falling prices. Recent declines in real estate prices in many parts of the country have caused numerous appraisals to be questioned. Appraiser qualifications inevitably have become part of the discussion of ways to avoid the "overappraisal" or "underappraisal" of property.

After many years of debate, the federal government now has mandated state-regulated appraiser licensing or certification for most federally related real estate transactions. The major impetus came with the enactment by Congress of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA). Some states require licensing or certification for all transactions.

This chapter takes a look at the appraiser's role and discusses some of the qualifications that can help ensure a reliable appraisal. The chapter also covers licensing and certification requirements and includes discussion of the Uniform Standards of Professional Appraisal Practice (USPAP) promulgated by the Appraisal Standards Board of the Appraisal Foundation.

The Appraiser's Work

The professional real estate appraiser estimates the value of real property (land and/or buildings). Value may be sought for any number of reasons, such as setting a sales price or determining insurance coverage. The appraiser's client can be a buyer, a seller, a corporation, a public agency or a real estate broker. Although real estate brokers make many informal estimates of value, it is common practice to rely on the practiced judgment of a professional whose sole interest is in estimating the value of real property.

An appraiser's estimate of a property's value usually is in writing and may be a letter simply stating the appraiser's estimated value. Most often, however, it is a longer document called an appraisal report. To make such a report, the appraiser must conduct a thorough study of the appraised property, its geographical area and economic trends. The appraiser must be able to read a legal description and recognize the exact boundaries of the subject property. The appraiser also must have some knowledge of building construction to recognize the quality and condition of the subject property.
The appraiser must know market conditions-why some properties are more desirable than others-as well as how to analyze income and expense statements so that an evaluation of a property's potential earnings can be made.

In short, the appraiser needs some of the expertise of the surveyor, the builder, the broker, the accountant, the economist and the mortgage lender. An appraisal takes into account the many factors that influence a property's value; therefore, an experienced appraiser can make an important contribution to any real estate transaction.

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