Appraiser Regulation in the State of Colorado
From time to time, I have heard criticisms about how the Division of Real Estate (the “Division”), or more specifically the Board of Real Estate Appraisers (the “Board”), regulate real estate appraisers. Over the years, we have received complaints about licensing requirements for appraisers, particularly certified appraisers. We have received complaints from lending institutions and home builders that there is an appraiser shortage, and we need to be relaxing the license criteria and recruiting people into that segment of the real estate industry. We also receive a lot of complaints about credentialed appraisers not “hitting value”. I am hoping that this article will dispel some of the myths about the type of oversight we have on the
appraisal industry.
Regulation of appraisers is a result of the passage of a federal law, the Financial Institutions Reform, Recovery and Enforcement Act (“FIRREA”) in 1989. The law was in response to the savings and loan debacle of the late 1980s. The federal law created the Appraisal Subcommittee, which is charged with monitoring the state and federal credentialing and licensing of appraisers involved in federally related transactions. Essentially, the Appraisal Subcommittee serves as the Board’s federal regulator. The Appraisal Subcommittee is also charged with monitoring the procedures and activities of the Appraisal Foundation. The Appraisal Foundation establishes the professional standards and qualifications for appraisers. It also provides guidance on recognized valuation methods and techniques. The Appraisal Qualifications Board within the Appraisal Foundation sets the requirements to become licensed or credentialled as an appraiser regarding education, experience, and examinations. The Appraisal Qualifications Board also sets the continuing education requirements for appraisers. The Appraisal Standards Board within the Appraisal Foundation sets the professional standards for appraisers to follow, otherwise known as the Uniform Standards of Professional Appraisal Practice (USPAP).
In 1991, the Colorado Board of Real Estate Appraisers began credentialling and regulating real estate appraisers. The enabling language of the legislation that was passed in 1990 included, “The general assembly further finds, determines, and declares that sections 12-10-602 to 12-10-623 are intended to implement the requirements of federal law in the least burdensome manner to real estate appraisers…” Aside from the fingerprinting requirements and the errors and omissions insurance requirements, the Board cannot deviate from the education, experience, and examination criteria set by the Appraisal Foundation for licensed and certified appraisers. Periodically the Appraisal Qualifications Board will modify the education and experience requirements for licensed and certified appraisers. When those changes occur, the Board must also adopt the changes. When there is a perceived or actual shortage of appraisers to perform appraisals, the Board does not have the ability to relax the licensing criteria to entice people into the profession. It is also not the Board’s role as a regulatory body to recruit individuals into the profession. The only appraiser license type that the Board does set education and examination standards for are the Licensed Ad Valorem appraisers, who work for county assessor offices. Licensed Ad Valorem appraisers do not fall under the purview of the FIRREA. Ad Valorem appraisers cannot perform fee appraisals or any appraisal services for federally related transactions.
In 2022, the Board’s statutes were amended due to a Sunset Review of the program. One of the changes made was to incorporate the professional standards, USPAP, by reference. Prior to 2022, the current, applicable version of USPAP was adopted through rulemaking by the Board. Colorado law supports the incorporation of professional standards into state statute. When the Board receives a complaint against an appraiser, the Board evaluates whether the appraiser complied with the USPAP established by the Appraisal Foundation. The USPAP establishes standards for the development and reporting of appraisal services, it does not address the actual value conclusion. If you are dissatisfied because the appraisal did not come it at the contract price or was not the amount needed to complete a refinance, the Board does not have jurisdiction over that issue. Instead, the Board investigates complaints such as using dissimilar comparable properties, not analyzing property characteristics or legally permissible use, making unsupported adjustments, appraising beyond one’s level of competency, appraising to a predetermined value, or advocating on someone else’s behalf. Complaints regarding the value conclusion can be addressed with the lender, if it is a mortgage transaction, by requesting a reconsideration of value (“ROV”). There is no guarantee that the final value opinion will change though.
When it comes to the regulation of real estate appraisers, the Board does not deviate from the federal license criteria, continuing education requirements, or application of practice standards. State law requires that the Board follow the federal criteria. As part of the Appraisal Subcommittee’s monitoring duties, they ensure that the Board complies with the federal criteria. If the Board doesn’t comply, the Appraisal Subcommittee has the authority to sanction our state, which can be detrimental to all our licensees and consumers combined.
