I recently attended a meeting of the Appraisal Foundation Advisory Council as a newly appointed member representing the Massachusetts Board of Real Estate Appraisers.

In this volatile economy and banking debacle the country now faces, I was encouraged by the plan that the Appraisal Foundation has to present Congress with their vision on ways to improve the existing appraiser regulatory system.

According to the president of the Appraisal Foundation David Bunton, “As an organization specifically referenced in FIRREA, The Appraisal Foundation is in a unique position to offer its observations and recommendations on how to improve the current real property appraiser regulatory system” and it has plans to offer Congress a regulatory white paper identifying those issues and offering recommendations.

Among those recommendations is the inclusion of an enforceable set of best practices and core principals regarding real estate appraisal methodology. The valuation profession already has performance and ethical standards known as USPAP (Uniform Standards of Professional Appraisal Practice). With the enactment of FIRREA in 1989, the U.S. Congress gave the Appraisal Standards Board and the Appraisal Qualifications Board substantial responsibilities. Now what the profession lacks is the enforceable set of core principals and best practices regarding the methodology of real estate appraisal.

Professional Outlook

This would be similar to the medical profession or the accounting profession’s established collection of best practices. A very recent example of a best practice issue in the medical profession would be the case of the newly born octuplets in California. It appears that what the physician did was not in violation of any ethical or performance standard, but was it a violation of the profession’s best practices? The ability of the medical ethics board to refer to their published compilation of what is in the best interests of the medical profession will help in determining any misconduct.

In the appraisal profession, according to Bunton, “the lack of a clear-cut, enforceable body of knowledge has proven to be a significant challenge for state appraiser regulatory agencies (and others) in enforcing USPAP.” The Uniform Standards only requires appraisers to be aware of, understand and correctly employ the appraisal standards, recognized techniques and methodology in the effort to produce credible results. State enforcement agencies find themselves having to prove what the appropriate methodology is or should have been when faced with administrative hearings or judicial proceedings for questionable appraisals.

“Having the ability to refer to a publication of established best practices or core principals would likely be an immeasurable help to those attempting to enforce USPAP” according to Bunton.

The Appraisal Subcommittee, the federal authority established as a result of FIRREA, has expressed its strong concern to the Appraisal Foundation that “there is a current lack of timely guidance to appraisers in the area of best practice issues.” Being involved in the appraisal profession, I would concur. Unfortunately, when the private sector authority known as The Appraisal Foundation was established in 1987, that was the one component that was missing from an otherwise well planned system to establish minimum standards for the appraisal profession.

Because of this current economic crisis we now face, Congress will find itself having to focus on revising the financial institution’s regulatory structure similarly to what they did after the Great Depression in the 1930’s and the Savings and Loan Crisis in the 1980’s. In the process of this revision, the appraisal component, or Title XI of FIRREA, will in all probability be reviewed and quite possibly modified.

This, being the 20th anniversary of the Appraisal Foundation, would be the perfect time and opportunity for the Foundation to offer Congress its members’ observations and to add the component of best practices that was missing from the original structure in 1989. I applaud the Appraisal Foundation and the work it has done thus far to raise the bar and implement standardization in the appraisal profession. I also support its continued efforts to improve the existing system and hope Congress takes notice.