The state Assembly is expected to vote this week on a bill that would require many of California's estimated 25,000 appraisers to be licensed, as lawmakers try to prevent a potentially serious disruption in the popular FHA, VA and Farmers Home Administration loan programs across the state.
The legislation comes as the appraisal industry is drawing increasing fire, in part because appraisers in California and many other states are virtually unregulated and are not legally required to prove their competence or skill to go into business.
"All it takes to be an appraiser in California is to print up some business cards and hang out a sign," said Department of Real Estate Commissioner James A. Edmonds Jr., whose agency would oversee appraisers if the bill becomes law.
The measure, introduced by Assemblyman Thomas M. Hannigan (D-Fairfield), would create a two-tier system for licensing and certifying appraisers. Under the program, appraisers would be required to take state-approved courses and pass an exam before they could go into business.
The bill was prompted by actions by the federal government that threaten to seriously disrupt lending activity in California and other states where appraisers are not licensed or certified.
The federal Office of Management and Budget said last fall that beginning July 1, 1991, all properties financed through a variety of federal loan programs would have to be appraised by either a licensed or certified appraiser.
Because appraisers are not licensed in California, the OMB's edict threatens to shut down or seriously disrupt the low-down-payment loan programs offered by the FHA, VA and Farmers Home Administration across the state.
Supporters of Hannigan's licensing measure say it could prevent a near-shutdown of the loan programs, produce better-educated appraisers and provide government oversight in an industry that previously has had none.
Critics--including many appraisers--say it would not do enough to ensure more accurate appraisal reports and that it will allow some of the most incompetent individuals to keep working in the field.
"If you really want to get tough with the appraisal industry and increase professionalism, this bill just won't do it in its present form," said Sara Schwarzentraub, a La Mesa appraiser who heads a coalition of eight different appraisal organizations seeking tougher standards in the bill.
Nearly every American is affected, sooner or later, by the appraisal industry and the quality of appraisers.
For example, the reports are used to determine whether a home buyer gets a loan or an existing owner is able to refinance. Appraisers are often asked to determine how much a home is worth during divorce cases, how much money a property owner must pay to the tax collector and even how much cash the government must pay when it takes a person's land through eminent domain.
Congressional studies have found that faulty appraisals have also been a prime factor in the growing number of bank and savings and loan failures--a problem that could ultimately cost taxpayers more than $100 billion to remedy.
But despite the importance of their jobs, appraisers in California and several other states have largely been able to operate with little governmental supervision.
Unlike real estate agents, mortgage brokers, termite inspectors and most other real estate professionals, the state does not require appraisers to be licensed. They do not need to demonstrate any knowledge about the property-valuation process or even take courses designed to learn evaluation techniques.
Many full-time appraisers say this lack of regulation and testing has drawn too many inexperienced operators seeking a fast buck, and the resulting troubles that their poor appraisals create--from bad real estate investments to insolvent lending institutions--have hurt consumers, the economy and appraisers' public image.
To counter those problems and improve their skills, thousands of appraisers have voluntarily joined professional organizations that require members to meet certain standards, pass exams and take several educational courses.
Many of those same groups also have called for more regulation of their industry and strict licensing programs to weed out the relatively few appraisers who are incompetent or dishonest.
Although those calls have sometimes led to the introduction of such measures in the state Legislature, the bills never got far because they were often opposed by more powerful real estate interests.
Played Key Role
The influential California Assn. of Realtors, in particular, has traditionally opposed licensing of appraisers and has played a key role in beating back such efforts.
In the past, realtors have publicly explained their opposition by claiming that licensing would do little to stop fraud in the appraisal and lending business.