Why are appraisers regulated?

In response to the failure of a large number of savings and loan institutions in the 1980s, Congress conducted several hearings to determine the root cause of the crisis and took steps to ensure that a similar crisis would not occur in the future.

During the course of its investigation, Congress was surprised to learn that appraisers, the individuals determining the value of the underlying collateral of loans, were generally unregulated. While professional licensure issues generally fall into the domain of state governments, Congress was concerned about protecting the future integrity of deposit insurance funds.

Accordingly, when passing legislation in 1989 to address the financial institution crisis (known as the Financial Institutions Reform, Recovery and Enforcement Act or FIRREA), Congress included a provision known as Title XI mandating the regulation of real estate appraisers by the states. The regulatory program contained three components:

• each state government is to establish an appraiser regulatory body to issue licenses and certificates and to address enforcement or disciplinary issues;
• private-sector expertise regarding appraisal standards and appraiser qualifications is provided by The Appraisal Foundation; and,
• a small federal government agency (the Appraisal Subcommittee) was created to oversee the program to ensure it remained consistent with the original intent of Congress.