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All About Appraisal and Appraisal Reports

The Early Years:

The Real Estate Appraisal Profession actually grew out of the real estate property management business of the late 1800's and very early 1900's where property managers were considered expert in the Income and Sales Potential of various properties that they managed. This predated Real Estate Agent and Broker Licensing, as in these early days of American urbanization, most sales transactions were handled by lawyers and auctioneers. Eventually, the unlicensed real estate profession began to splitting into specialties with some agents acting as salesmen, some as managers and some as appraisers. Frequently real estate agents performed all three functions, and until about 90 years later, in the early 1990's, with the enactment of FIRREA, many brokers and real estate agents (and managers) continued to acts as appraisers. Formal (National Standard) Real Estate Appraisal Licensing came in the early 1990's.  Until then unlicensed appraisers operated in many states, though many were formally trained and designated as members of a society. In the early 1900's the real estate industry began to develop  specific industry groups (The National Association of Realtors, or NAR, was founded in Chicago in 1908, for instance) and appraisal, brokerage and management began to be recognized as particular different endeavors. Still most states lacked actual licensing laws. By 1922, the NAR recognized different real estate specialties and created different specialty divisions for appraisers, brokers, mortgage finance professionals, property managers and even home builders and developers. Some of these specialties later became licensed professions in some states, some never did (for instance there is a National Association of Home Builders, the HBA, but no home builder's license in most states). By the 1930's and 1940's many states began actually licensing real estate agents and brokers, and some new professional societies were formed specifically to create education and standards for the  Appraisal Profession (the Society of Appraisers, and others). In 1932, the Society of Appraisers was formed. in 1935 the American Institute of Real Estate Appraisers was formed. These were the two largest Professional Appraisal Associations, but there still are others to this date. In January 1991, these two largest associations merged to form the Appraisal Institute, the AI, which is a voluntary professional society created to further the profession and educate new appraisers and promote ethics and competency. The Appraisal Institute provides Two main designations to highly qualified and experienced appraisers who meet rigid morals, ethics, experience, educational, and competency requirements  and who complete a series of rigid exams, interviews, and a doctoral thesis of sorts, known as a Demonstration of Knowledge Requirement (formally known as the creation of the Demonstration Report). The AI confers two main designations: the MAI and the SRA designations. Commercial Appraisers at the top of their profession can be designated as an MAI. Residential Appraisers at the top of their profession can be designated as an SRA. The MAI designation is understood to imply status at the top of he profession in both commercial and residential appraisal practice, and qualification to review appraisals, teach and provide testimony, research and academic endeavors in the profession. It is often referred to informally as the "PhD of Appraisal".     

Appraisal as a Formal Industry, Separate from other Types of Valuation:

Real Estate Appraisal is a very specific subset, or classification, out of the broader spectrum or universe of Real Estate and Property Valuation Services and Valuation Products. The broader universe of Valuation includes variable similar things like like Broker's Opinions of Value, a Real Estate Agent's or Realtor's CMA or Comparative Market Analysis, Automated Valuation Models or AVMs, and even things like jewelry or vehicle or personal property valuations.The bid difference in these other valuations and appraisal is the expectations of the valuation users. Appraisers are required to unbiased and independent, while many other valuers are specifically unbiased, often with a hidden agenda or with a future interests in the property being valued (seeking a listing, for instance, which may cause them to overvalue property to get the listing listing assignment).

Real Estate Appraisals are only provided by licensed or Certified Appraisers, so they are a very narrow part of the spectrum. What makes them different is the special education, testing, experience, procedures and practice and Mandatory Ethics of Appraisers. Every Appraisal must contain  a  Written & Signed Certification, which spells out why it is an unbiased and reliable appraisal report.  It is the Certification that makes it An Appraisal Report. Real Estate  Appraisers are also specifically licensed and certified by each state government and must adhere to the Rules and Regulations of the Uniform Standards of Professional Appraisal Practice, commonly referred to as USPAP (the Appraisal Bible, More or Less). National Licensing and certification Standards were established by the US Congress in a government act called FIRREA, after the Real Estate Recession of 1988-1992 (many of us will remember the Savings & Loan Bailout). Congress concluded that part of the cause n of the Savings & Loan Crisis was inconsistent and lax appraisal behavior. This was thought to be a contributing factor in the Savings & Loan Collapse and Debacle. The federal government decided that appraisal standards, education, training and licensing was not consistent and reliable from state to state (some states had no licensing) so Congress created a uniform industry standard by establishing the AQB (the Appraisal Qualifications Board) and the ASB (the Appraisal Standards Board).  Consistent education, qualifications, testing and licensing was created, so that by the early 1990's all real estate appraisers were required to be licensed and certified.  

Under the current version of USPAP, there are only three (3) appraisal "reporting" options:

An Appraisal Report: which was formerly known as a Summary Appraisal Report, and which is typially between 30 and 300 pages in length, and which summarizes the appraisers value conclusions (succinctly) and which provides enough detail and description to convince the reader that this appraisal is correct and complete. This will typically include photos of the property and sales comps and maybe even rental comps, and adjustment grids explaining the appraisers reasoning , adjustments and value conclusions. It contains a Reconciliation and of course a Written Certification.  These reports range in cost dependent upon complexity from about $1,500 to as much as $25,000 or even $50,000 a report (more infrequently) with about $2,500 to $3,500 a report perhaps the most common fee. Sometimes a "Self-Contained Report" will be requested (usually well over a 100 pages, and usually developing all aspects of the report in extreme depth and great detail. For now these are just considered just very thick and long Appraisal Reports, technically.

A Restricted Appraisal Report: which briefly  states the appraiser's value conclusion, usually with minimal or no in depth discussion, and with brief but appropriate property and market descriptions, and a reconciliation and written certification.  The appraiser in depth analysis and comps are contained in his own work file, and teh typical length may be from about 10 to 30 pages, more or less. The typical cost is about $1,000 to $1,500, but thsi can vary by complexity and sometimes can be higher or even a little lower. An Evaluation may be produced as a Restricted Appraisal Report, but it requires much more documentation, so it can be more expensive. 

An Oral Report: As the name implies, this is an oral report by an appraiser with a written and signed certification and supporting documentation and notes of the oral presentation contained in  the appraiser's work file. Oral Testimony can vary by complexity, but is often $250 to $500 an hour, plus the cost of prep time and research and often travel time and costs.  

Self-Contained Reports and Evaluations (for now) are simply considered variations on the first two written report options. Under a Scope of Work Agreements between Client and Appraiser, certain flexibility is granted in specific report type development, and reporting, so long as the report complies with these three main report options.  

Recently many sates are allowing appraisal work to be performed by licensed or certified appraisers for federally chartered or insured banking institutions under Federal Banking Regulation Laws, which proscribe how such work may be performed under the formal name of "Evaluations" or "Evaluation". They can take many forms and could includea spreadshett valuation. These Evaluations are a specialty valuation product used primarily by banks and federal banking agencies and do not necessarily have to conform to USPAP, though they may possibly conform if reported as a Restricted Report in a Valuation Option. Again these are primarily for banks and federal institutions, so most consumers will not be utilizing them. 

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