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Real Estate Appraisal Liability

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					LICENSING OF REAL ESTATE APPRAISERS




             Prepared by the

       LICENSING COMMITTEE


      ALBERTA ASSOCIATION
              OF THE
  APPRAISAL INSTITUTE OF CANADA




              October 2001
TABLE OF CONTENTS


PURPOSE ......................................................................................................................................11


BACKGROUND ...........................................................................................................................11
    Overview............................................................................................................................11
    Introduction........................................................................................................................11
    The Alberta Context.............................................................................................................2
    The United States Experience............................................................................................44
    The Canadian Experience ..................................................................................................66
    Alberta’s Preference ..........................................................................................................66
    Endorsement ......................................................................................................................77


DEFINITIONS...............................................................................................................................77


RECOMMENDATIONS...............................................................................................................77
    Who will be licensed..........................................................................................................77
    Who will not be licensed ...................................................................................................77
    Membership in RECA........................................................................................................77
    Licensing Requirements ....................................................................................................88
    “Grandfathering” ...............................................................................................................88
    Standards............................................................................................................................88
    Recertification....................................................................................................................99
    Peer Assistance Program ...................................................................................................99
    Liability Insurance .............................................................................................................99
    Consumer Complaints and Investigation ...........................................................................99
    Compliance ....................................................................................................................1010
    Cost ................................................................................................................................1010
    RECA Council ...............................................................................................................1010
    Conclusion .....................................................................................................................1010


QUESTIONNAIRE ...................................................................................................................1212
PURPOSE

The purpose of this proposal is to solicit comments regarding licensing of appraisers in
Alberta from stakeholders.

Please review the discussion paper and the questionnaire. Completed questionnaires
may be mailed to:
Alberta Association of the Appraisal Institute of Canada
#245, 495 – 36 Street NE.
Calgary, Alberta, T2A 6K3
Attention: Suzanne Teal, Executive Director.

Questions may be directed to Suzanne at (403) 207-7892

Please return completed questionnaires by November 20, 2001.

Your views are important to us. Thank you


BACKGROUND


Overview

The Alberta Association of the Appraisal Institute of Canada shares with the Real Estate
Council of Alberta the desire for high quality standards of education and communication
within the real estate industry as a means to achieve and maintain acceptable standards
of real estate products and services provided to consumers.


Introduction

Society requires that individuals, companies, institutions and governments act and
operate in a transparent manner. Transparency, as the word suggests, not only
demands that the internal workings be open and apparent, but that the public or the
consumer be allowed to actively participate. It is not surprising therefore, that self-
regulation with public input is viewed as best the method to deliver the transparency
promise.

The Alberta Association of the Appraisal Institute of Canada believes that licensing of
real estate appraisers is in the best interests of both the consumers of appraisal services
and the appraisal membership at large. It is not so much a matter of “When?” but rather
of “How?”. Before examining either of these questions, the bigger question of “Why?”
must be understood.




                                                                                   Page 1.
The real estate appraisal profession, like other real estate industry disciplines has
experienced numerous changes over the last decade. One of the single largest
influences has been the Appraisal Institute of Canada’s pursuit of delivering
“accountability”. This pursuit included establishment in April, 1988 of a self-administered
professional liability insurance program, implementation in January, 1987 of a voluntary
continuing education and re-certification program and subsequent implementation in
January, 1992 of a mandatory re-certification program. Part and parcel of these
initiatives was the concurrent reorganization of the structure of the Appraisal Institute of
Canada, which, together with other objectives, facilitated the future prospect of provincial
licensing.

To some extent, these initiatives have been self-serving. When the near total collapse of
the saving and loans industry in the United States prompted “imposed” state licensing of
appraisers, the Canadian choices appeared simple. Be proactive in defining the future of
the appraisal industry in Canada or wait for regulation to occur, possibly without the
opportunity for input.


The Alberta Context

The Alberta Association of the Appraisal Institute of Canada first considered provincial
licensing in the late 1980s and early 1990s. Pursuit of licensing was deferred until the
redistribution of responsibilities and costs between the provincial and national offices was
established.

Alberta’s choices are effectively the same today as they were in the early 1990s.

1.     Secure licensing through stand alone legislation similar to that in place in New
       Brunswick, and Nova Scotia.

2.     Secure registration (without licensing) through inclusion under the Professional
       and Occupational Associations Registrations Act (“POARA”);

3.     Secure licensing through a collaborative effort with the Real Estate Council of
       Alberta (“RECA”).


Option 1. - Stand Alone Legislation

While this option provides an element of control over our own destiny, it is not practical
for the Alberta Association of the AIC, given the number of members in our organization
and the perceived preference of the current provincial government for professional
organizations to register either under POARA or under other existing legislation.




                                                                                    Page 2.
Elsewhere in Canada, New Brunswick and Nova Scotia elected in the early 1990s to
pursue stand alone legislation. New Brunswick succeeded in becoming the first
jurisdiction to provide licensed appraisal services under Chapter 105 in 1995. Nova
Scotia then implemented the Real Estate Appraisers Act in 1998.


Option 2. - Professional and Occupational Associations Registrations Act (“POARA”)

Registration under POARA is an option available to appraisers. Several professional
organizations have registered under POARA including the Alberta Assessors Association
and the Community Planners. However, while Assessment and Appraisal are related
disciplines, the services provided by Assessors differ from those provided by Appraisers.
 Assessors are employees of, or contractors to, municipalities or the Province. A
legislated review process exists to ensure that property owners are treated fairly and
equitably. In addition, legislation requires that at least one of the assessors employed by
the jurisdiction be designated by the Alberta Assessors Association, the Appraisal
Institute of Canada or the International Association of Assessing Officers. No legislated
consumer protection framework exists in Alberta for appraisal services. Individuals and
corporations, some with limited real estate knowledge, hire appraisers to provide
valuation services. There is currently no legislated requirement for appraisers to have
any training or certification.

Registration under POARA will not ensure that the public is protected from unqualified
and uninsured persons purporting to be qualified appraisers. If the Alberta Association of
the Appraisal Institute of Canada became registered under POARA, non AIC members
wanting to provide appraisal services would not be required to register. For this reason,
registration under POARA provides the consumer with no added protection. It would not
change the fact that there are persons performing appraisal services, who have no
recognized training or education in appraisal, and may not offer any form of liability
insurance or protection to the consumer. The consumer could not reasonably be
expected to make the distinction between a qualified appraiser “registered” under
POARA and any other person providing valuation services.


Option 3. - Exploration of Licensing through the Real Estate Council of Alberta (“RECA”).

Licensing in collaboration with RECA is viewed by the Alberta Association of the
Appraisal Institute of Canada as the most viable option because we have a common
mandate.




                                                                                   Page 3.
RECA states this as:

       the “model supports the development of a professional real estate industry
       by establishing appropriate educational requirements, setting standards of
       conduct for industry members, and protecting consumers through an
       effective complaint handling and investigation process.”

The Appraisal Institute of Canada’s Mission Statement proposes:

       “to represent, support and advance our members as the professionals of
       choice in the counseling, analysis and appraisal of real property, and
       protect the public interest by developing and maintaining high standards of
       professional practice.”

Consistent with the concept of only licensed individuals being permitted to provide real
estate sales services to the public in Alberta, we believe that only those persons with the
appropriate education, skills and experience, should be permitted to offer real estate
appraisal and consulting services in the province. Licensing will ensure that a minimum
level of competence is enforced in the appraisal profession, for the protection of the
consumer.

The licensing committee has discussed the proposal with RECA. Changes to the Real
Estate Act will be required in order to be regulated under the RECA umbrella. RECA is
currently studying the issue and has taken a neutral position.

In summary, we are concerned that real estate appraisal services provided to consumers
in the Province of Alberta are not presently required to meet a minimum, acceptable
standard. We wish to design an appropriate system to ensure that an acceptable
standard of real estate appraisal practice is ensured.


The United States Experience

Looking to our neighbours to the south, our research suggests that most States license
providers of appraisal services. There appears to be a broad spectrum of qualification
criteria. Typically, if you meet the criteria and pass the (often multiple-choice) exams,
you then qualify to appraise various categories of real estate. Practitioners are not
required to be members of the Appraisal Institute (US) However, all licensed appraisers,
in the course of conducting appraisal activities and delivering appraisal services, are
required to adhere to the Appraisal Institute’s - Uniform Standards of Professional
Appraisal Practice (“USPAP”). Examples of typical licensing criteria are shown in the
following tables:




                                                                                     Page 4.
                         COLORADO APPRAISER LICENSING CATEGORIES
Type of License                 Education                 Experience
Registered Appraiser            75 hours*                 None
Licensed Appraiser              90 hours*                 2,000 hours
Certified Residential Appraiser 120 hours*                2,500 hours obtained over two
                                                          year period
Certified General Appraiser     180 hours*                3,000 hours obtained over two
                                                          and one half year period
                                                          including 1,500 hours on non-
                                                          residential
*Must include 15 hours of USPAP



                      TEXAS APPRAISER LICENSING CATEGORIES
Type of License               Education              Experience
Appraisal Trainee             None                   None
Provisional Licensed          90 hours*              None
Appraiser
State Licensed Appraiser      90 hours*              2,000 hours
Certified Residential         120 hours*             2,500 hours obtained over a
Appraiser                                            two year period
Certified General Appraiser   180 hours*             3,000 hours obtained over
                                                     two and one half year period
                                                     including 1,500 hours on non-
                                                     residential
*Must include 15 hours of USPAP

The following are comments from practicing and institutional appraisers, some of
whom are members of the Appraisal Institute in the United States.

The bad news reads:

The bar is set too low. It is easy to “get licensed”. Exams are easy and minimal study
time is required. Licensing has made appraisers a commodity and diluted the
Appraisal Institute’s designations ... a licensed MAI (an accredited appraiser of the
Appraisal Institute) is more equal to a licensed candidate in the eyes of the client.

The good news reads:

It forces all appraisers to meet USPAP. It provides a vehicle to eliminate bad
appraisers. It sets a higher standard than before. Work quality improved. It has been
good for the consumer.




                                                                                  Page 5.
The Canadian Experience

In January 2001, the Appraisal Institute of Canada introduced the Canadian Uniform
Standards of Professional Appraisal Practice (The Standards). While the Standards
are similar to USPAP, they are specifically Canadian in form and content.

Two Canadian Provinces, New Brunswick (1995) and Nova Scotia (1998), have
licensed appraisers through stand-alone legislation. Licensing requirements include
the following:

     •Appraisers must:
        o Have passed examinations or provide proof of qualification to the
           Committee of Examiners;
        o Carry liability insurance;
        o Agree to recertify; and
        o Adhere to the Standards

The Maritime experience with licensing has been positive to date. We understand
that in the early stages of licensing in Nova Scotia, some initial discussions occurred
between provincial association of the AIC and regulators of real estate in that
province, regarding the possibility of the appraisers becoming licensed in collaboration
with the realtors. The conclusion of senior regulators at that time was that appraisers
could not be licensed in this manner. Minutes of meetings held do not provide a
definitive statement as to the reasons for this conclusion.


Alberta’s Preference

We believe licensing in collaboration with RECA is the correct choice. Joining with
RECA ensures that all real estate related professions within Alberta are licensed
under one Act. We can add AIC expertise to RECA’s education and training
programs and gain from each other’s knowledge.

Together, we can better serve Alberta consumers. The AIC programs aim to protect
consumers by improving the quality of appraisal work. Through RECA we hope to
better communicate consumer awareness initiatives on appraisal-related issues,
adding appraisal-related topics to existing initiatives such as tipsheets on mortgage
fraud, concerns regarding reverse mortgages, and others.

Information and warnings would be more quickly disseminated through a joint
organization. Together we can provide better internal communications and quickly
alert all RECA members to potential problems such as real estate “scams” or
mortgage frauds.




                                                                                 Page 6.
Endorsement

The Licensing Committee of the Alberta Association of the Appraisal Institute of
Canada received the unanimous endorsement of members at the 1999 and 2000
Annual General Meetings to explore and pursue, if possible, licensing in a mutually
satisfactory form between RECA and the Alberta Association. Moreover, the National
Governing Council of the Appraisal Institute of Canada, at its February 2001 sessions,
acknowledged the Alberta Association’s efforts in this regard and unanimously
endorsed the Alberta Association entering into exploratory discussions with RECA.


DEFINITIONS

“Real estate appraisal” means a formal opinion of value: prepared as a result of a
retainer; intended for reliance by identified parties, and for which the appraiser
assumes responsibility.


RECOMMENDATIONS

We envision that within two to three years from today, being an appraiser in Alberta will
encompass:


Who will be licensed

All persons appraising real property for compensation would be licensed appraisers.
This includes “in-house” appraisers employed by government, institutions or others.


Who will not be licensed

Realtors estimating the list price would not require licensing.

Assessors employed by or contracted to the province or municipalities in property
assessment (Ad valorem taxation) would be excluded from licensing. Assessors
valuing property for non-assessment purposes would require a license.


Membership in RECA

Not all licensed appraisers would necessarily be members of the Alberta Association of
the Appraisal Institute of Canada, however all appraisers would be members of RECA.




                                                                                  Page 7.
Licensing Requirements

The minimum requirements for licensing would be:

   •   Completion of BUSI 330 through UBC or equivalent (60 hrs)

   •   Completion of the Standards seminar (14 hrs)

   •   Adherence to Standards

   •   Possession of direct appraisal experience in the property type appraised or
       license under persons with direct appraisal experience

   •   Completion of 60 hours of related studies in 5 years. (recertification)

   •   Proof of $1,000,000 liability insurance or provision for equivalent consumer
       protection (ie surety bonding)


“Grandfathering”

When licensing is initiated, all persons currently appraising would make application to
RECA for a license. Once proof of $1,000,000 in liability insurance coverage or
provision for equivalent coverage is provided and an agreement is entered into to
ensure adherence to Standards and recertification, a license would be granted.

All unaccredited persons currently appraising would have two years to meet the
minimum requirements for a license. Equivalencies for education and experience may
be granted by RECA. (An AACI with 20 years experience may be granted
equivalencies for BUSI 330).


Standards

The Canadian Uniform Standards of Professional Appraisal Practice (the “Standards”)
are the recognized appraisal standard. The Alberta Association of the Appraisal
Institute would provide professionals trained in the Standards to conduct courses and
provide assistance with consumer complaint investigations. Copies of the “Standards”
may be downloaded from the AIC National website (www.aicanada.org).




                                                                                  Page 8.
Recertification

Licensed appraisers must complete 60 hours of related studies in a five-year cycle.
The 60 hours may include courses taken by AIC candidates towards their designations
or activities allowed by AIC for recertification of designated members. RECA courses
would qualify for recertification credits.

The Alberta Association of AIC would provide resources towards the review of each
licensed appraiser’s 60 hour requirement. The 60 hours must include the 14 hour
Standards seminar.


Peer Assistance Program

To improve the quality of appraisal and consulting services, a process audit program
would be available to appraisers.

This program is provided to those appraisers who request a review. The review
focuses on the processes used by the appraiser to complete their work, and provides
suggestions to improve quality and to ensure Standards compliance.

The program will be funded through donations, grants and small fees paid by
appraisers requesting reviews.

At a future date peer assistance may become a mandatory compliance program.


Liability Insurance

All licensed appraisers would be required to carry $1,000,000 liability insurance.
Alberta Association of AIC members would continue to carry insurance through the AIC
nation-wide policy. Private insurance may be available to non-AIC members through a
number of carriers.

Insurance claims can be made in conjunction with or independent of a consumer
complaint.


Consumer Complaints and Investigation

The Alberta Association of the Appraisal Institute of Canada expects that Appraisers,
when contacted by consumers, will quickly resolve factual errors (eg. building sizes or
land use is incorrect) and will provide prompt, reasonable explanations of judgments
and opinions (eg. condition and quality of the property).




                                                                                 Page 9.
Consumers will be encouraged to discuss their concerns with the Appraiser and if the
concerns remain unresolved, to file a written complaint with RECA.

The Executive Director of RECA will appoint an investigator. The investigator will
gather information from both the consumer and the appraiser and make a
recommendation. The Executive Director will review the investigation report and
convene a hearing panel if required.

Investigations may be conducted if other sources such as advertisements or articles
indicate a contravention of the standards.


Compliance

Appraisers found to be in violation of the Standards or Licensing requirements will be
fined, censured, suspended or expelled. A list of potential offences and the
consequences will be developed by the Executive Director of RECA and the Executive
Director of the Alberta Association of the Appraisal Institute of Canada. This
information will be available upon request.


Cost

The following are the estimated costs of licensing of individual appraisers with RECA.

Licensing fee (RECA)                            $ 225
Insurance
 Residential                                    $1300
 Commercial                                     $3000
 Non-Fee                                        $ 100
Professional Association Dues (if applicable)   $ 600


RECA Council

RECA will appoint an Alberta appraiser to sit on the RECA board.


Conclusion

There are many ways for the Alberta Association of the Appraisal Institute to improve
the quality of appraisal activities in Alberta. We would prefer to achieve this goal
through membership and licensing under RECA, as we believe it best suits the




                                                                                Page 10.
collective best interests of the Appraisal Institute, the Real Estate Council of Alberta
and the consumer of appraisal and related real estate consulting services.




                                                                                   Page 11.
QUESTIONNAIRE

Please mail the questionnaire to:

Alberta Association of the Appraisal Institute of Canada
#245, 495 – 36 Street NE.
Calgary, Alberta, T2A 6K3
Attention: Suzanne Teal, Executive Director.

Or fax to : (403) 207-7857

Or email to: abaaic@cadvision.com


   1. Who will be licensed
      All persons appraising property for compensation should be licensed
appraisers
      Agree         Disagree     If you disagree what do you propose and why?

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    2. Who will not be licensed
       Realtors estimating the list price
       Assessors valuing property for ad valorem taxation
       Agree         Disagree       If you disagree what do you propose and why?

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    3. Licensing Requirements
       Are the minimum licensing requirements listed on page 8 acceptable?
       Agree        Disagree     If you disagree what do you propose and why?

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                                                                                                       Page 12.
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                                                                                                       Page 13.
    4. Grandfathering
       For persons currently appraising property is two years a sufficient amount of
       time to meet the minimum requirements?
       Agree         Disagree    If you disagree what do you propose and why?

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    5. Standards
       Should the Canadian Uniform Standards of Professional Appraisal Practice be
       the standard for Alberta?
       Agree         Disagree    If you disagree what do you propose and why?

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    6. Recertfication
       Is 60 hours of recertification in a 5 year cycle sufficient?
       Agree         Disagree       If you disagree what do you propose and why?

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    7. Peer Assistance Program
       Is a voluntary peer assistance program useful?
       Agree         Disagree      If you disagree what do you propose and why?

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    8. Liability Insurance




                                                                                                       Page 14.
        Is $1,000,000 liability insurance sufficient?
        Agree        Disagree        If you disagree what do you propose and why?

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                                                                                                       Page 15.
    9. Consumer Complaints and Investigation
       Is the described complaint and investigation process appropriate?
       Agree         Disagree     If you disagree what do you propose and why?

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    10. Compliance
       Should penalties for non-compliance with the Standards or licensing
       requirements be imposed?
       Agree        Disagree      If you disagree what do you propose and why?

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    11. Affiliation
       Are you currently a member of the Appraisal Institute of Canada
       Yes          No

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                                                                                                       Page 16.

				
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