CALIFORNIA'S
OFFICE Licensing of Real Estate Appraisers is a relatively recent event. After the Federal bailout of the Savings and Loan problems in the 1980s, Congress passed FIRREA in 1989, in part to increase appraiser competency and require licensing of appraisers in all 50 States. As a result of this legislation, California has a licensing agency to oversee and implement the licensing and certification of real estate appraisers. California’s is just -- well it’s just very California compared to most other states in the Union! The way it has been implemented in California, it is readily apparent that the competency of appraisers has diminished on the whole, compared to the way it was in the old days prior to licensing. Most professional licensing agencies have a “board” made up predominately of well respected and long standing professionals that are competent in their field. These professional boards generally provide the agencies they oversee everything from “advisory” to “regulatory” control over these professional licensing agencies. I am not aware of any professional licensing agency or department in the State of California that does not have a board… besides the Office of Real Estate Appraisers (OREA). In fact, 48 of the 50 states in America have either “advisory” or even stronger “regulatory” boards that provide guidance and/or influence the way the licensing (and certification) of real estate appraisers is handled in their states. My research reveals that besides California, only Minnesota does not have any kind of board for their appraisal regulatory agencies. The Office of Real Estate Appraisers is an obscure state agency to be sure. It was created in 1991 and was established to be self-funding. That is no monies from the state’s general fund are to be provided for its operations. Therefore, all monies must come from the fees generated by applications, course approvals, testing, and the actual licenses and certifications that the Agency issues. The fees are among the highest in the State of California for any professional licenses. The highest license levels, Certified Residential or Certified General, currently have $305 per year fees. OREA is rolling in the money right now because of these high fees. There are about 7,000 more licensees in 2005 than there were in 2001, and these new licensees have brought tremendous revenues to the Agency. The annual operating budget for OREA has remained relatively constant at about $4,100,000 for the last several years. As of May 2005, I personally heard the Acting Director of OREA say that the Agency has reserves in the amount of $12,000,000, or roughly three-years’ operating budget. Incidentally, he also sees no need to lower the licensing fees anytime soon, either! Nor does he have any plans to add investigators or any additional staff to deal with the surge in licensees. OREA has a troubled history and has never been scrutinized much. It really does deserve some scrutiny. There has only been one permanent Director of the Agency who was dismissed in 1998. Both Acting Directors since then have never been appointed to a permanent position. In fact, I’m not even sure that Governor Schwarzenegger knows that the Office of Real Estate Appraisers exists. He has too many other more pressing issues (humongous budget deficits, a do nothing legislature, pension plan promises that cannot be kept, among many others) to be bothered with such an obscure agency. It is worth exploring the troubled past of the Agency. The first Director was a practicing appraiser before he was appointed to run the office. The first few years were all about getting everyone licensed and then building an investigative arm and hiring appraiser investigators. Unfortunately the complaints began to backlog by the second half of the 1990s. In 1998 the California State Auditor prepared a less than complimentary review of the Office of Real Estate Appraisers citing numerous problems with personnel matters, inadequate policies for prioritizing complaints, and taking too long to process and clear complaints. (The full report may be downloaded at: http://www.bsa.ca.gov/pdfs/reports/97112.pdf) Shortly after the Audit was performed, an article was written in the April 29, 1998 issue of the Wall Street Journal where several former employees blew the whistle on alleged shredding of file documents in the week prior to the State Auditor’s arrival at OREA. Soon thereafter the original Director was terminated, and replaced by an Acting Director that moved from the state’s Alcohol and Beverage Control agency. His tenure was short and he left the Agency after only a couple of years. A third Acting Director remains on the job today. He has made many changes to the Agency including the firing of the Agency’s staff counsel and the elimination of that position. Now the OREA must hire Deputy Attorney Generals on an hourly basis to assist with all investigation and enforcement actions. At one time, OREA had a staff in excess of 40, but now gets by with only about half as many employees. Most of these positions were eliminated by the current Acting Director. It should also be noted that shortly after his removal as the original Director of OREA, this individual’s appraisal license was surrendered to OREA in 2000 (after he left the Agency) after conviction of a felony. The penal code for which he was convicted is not a pretty one. The OREA web site indicates the actual penal code number, which is for pimping and pandering prostitution. The crime is a shocking one and if it is any barometer to his ethics in running the OREA during his tenure as Director, the public should be concerned. Among many other changes during his tenure, the original Director had the enabling legislation amended to remove the original provision that allowed for a nine-member Board to oversee the Agency. We wouldn’t want any scrutiny to see how many problems there were, would we? Neither of the Acting Directors have any appraisal experience, as both have been career state bureaucrats. To be sure, there are many competent appraisers that staff the OREA’s Investigations Division and work diligently to investigate and enforce the laws with problem appraisers, however there is no overall guidance on what is best for both the Appraisal profession in California and for the California Public. The current Acting Director states publicly when speaking at Appraisal Institute events, that the primary mission of his Agency is to protect banks and lenders, despite the fact that the OREA web site states differently (it says they protect the consumer/public). OREA desperately needs to have at least an advisory board comprised predominately of top caliber, highly experienced appraisers that will provide much needed oversight of an Agency that never really has had the leadership needed to get the job done right. A Director who is a long standing and competent real estate appraiser, backed by an advisory board would be a huge improvement from the current way that OREA is handled. The current credit bubble has no bigger potential for bursting than in California. Home prices in the Golden State have reached unimaginable levels than cannot be sustained. Of the approximately 17,800 licensed appraisers in California at present, over 6,100 of these are “trainees” licensed in the last two years. And OREA expects over 1,000 more trainee applications before the end of 2005. Now I’m sure some of these trainees are working under the supervision of qualified certified appraisers that are providing meaningful training to them and in time they will become competent appraisers in their own right. What troubles me are the all too common horror stories I hear from OREA investigators who report of uncovering shops where a licensed appraiser will take on one or two dozen “trainees” where this appraiser will provide absolutely no training, mentoring, or supervision of any kind. But he will sell his supervisory signature (needed by trainees until they have two years experience and can upgrade their license level) for over $100 per report to as many reports as the trainees can line up, allowing them to keep the remainder of the fee. Of course greed usually kicks in and since these trainees have the “supervisors” digital signature on file, they quickly decide they don’t need to pay the fee for the signature, and they start forging his name on some reports while only paying him to sign a limited number. Since the beginning of the year, OREA has investigated several of these set-ups, but it takes them up to a year to actually shut down the operation and stop this fraud from occurring. Can you imagine how many bad appraisals are delivered for loans every month by shops like this in California? In the last month, I have personally witnessed the problems with real estate appraisers in the State of California. My parents just recently listed their home of 38 years for sale. They worked with a highly competent Realtor who marketed the home at a reasonable asking price, and the property was pending sale after one week, just 1% over the asking price – tame by current California market activity. In the course of the buyer arranging for their financing, the property needed to be appraised. What happened next has me absolutely shocked and stunned. The first appraiser (recently licensed as a trainee in California), received the assignment and pulled up MLS information about the house and recent comparable sales in the neighborhood. Without inspecting the property, he called the Realtor and stated that he could not appraise the property for any more than 7.5% less than the pending sale price! The Realtor politely thanked him and asked the mortgage broker to at least send an appraiser who would inspect the property. This second appraiser (also a recently licensed trainee) arrived in sneakers, blue jeans with no belt and a white undershirt. He spent less than 10 minutes at the property, did not measure it, did not go into the back yard, took some comparable sales information from the Realtor and on his way out the door announced that he would be able to appraise the property for 7.5% over the pending sale price! How both of these appraisers could be so good as to be able to deliver an opinion of value without doing the work I’d need to do to arrive at my value opinion, and also do this without consulting with the supervisor who is required to co-sign a report with any trainee licensed appraiser is most amazing to me. Even worse, 8 days went by after the second appraiser inspected the property. He did not provide a completed report, and he did not return any phone calls made to him. So a third appraiser was summoned by the mortgage broker. Of course this is another appraiser trainee. This genius inspects the first floor bedroom which is adjacent to a half bath. He announces that this has to be considered a den because the adjacent bath has no shower. The Realtor corrects him by stating that it is a bedroom because it has a closet. He gets mad and says he knows what he is doing. The stunned Realtor asks him how long he has been an appraiser and his reply is “Well almost a year, but I know what I am doing.” Ehhh…I beg to differ! My guess is that a fourth appraisal will be required. The property is pending sale in the middle of a range that could be supported with numerous comparable sales in the immediate neighborhood. It really isn’t a very complicated appraisal for anyone with more than a couple years experience as a property trained real estate appraiser. Never in my wildest dreams did I ever think that my family would be placed at financial risk in the course of selling their home because of several incompetent appraisal trainees selected by a buyer’s mortgage broker. Obviously Appraisal Regulation is in a not so Golden State in California! After over a decade of neglect and mismanagement, the Office of Real Estate Appraisers needs a very strong Director who is a Real Estate Appraiser and an Advisory Board to guide and oversee real enforcement action over all licensees in the state. The public deserves protection even if the current Acting Director doesn’t see fit to provide it. My biggest concern is why the appraisal profession in California isn’t up in arms about the way that their licensing agency in Sacramento is run? I’ve been asking these questions loudly for a couple of years now and most California Appraisers tell me I’m crazy and that I shouldn’t bother. “We’re better off the way things are” is a typical response. Sadly, when the bubble bursts – and we all know that what goes up most go down – there will be many appraisal problems found with such a large pool of unqualified appraisers legitimized as “professionals” by a licensing agency that is not doing the job that it was created to accomplish. I doubt that competent real estate appraisers who are true professionals will be better off when the public finally figures out just how badly Appraisal Regulation in California went awry. Just ask any CPA if the public distinguished between tax preparers and auditors after Enron, WorldCom and Arthur Anderson. I bet you get an earful! It is quite obvious that centralization and control over the real estate valuation community in California as a result of FIRREA 1989 has not increased appraiser competency or professionalism. In fact it has complicated the issues and helped to create one of the biggest real estate bubbles in the 6th largest economy on the planet. On the whole, appraisers in California are far less competent than they were prior to the enactment of licensing in the early 1990s. The public, and the appraisal profession, deserve much better. The competency of realty valuation professions and the market value of real estate, are very important to the California Economy. California’s citizens deserve much better than they are getting from the Office of Real Estate Appraisers. © 2005 Bruce M. Hahn for Realty Reality Bruce
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