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An Abridged History of the Appraiser Profession
by Kendra Budd, Editor
For most of the 20th century, there was nothing stopping anyone from calling themselves an appraiser.
Licensing didn’t come about until the early 1990s as a result of FIRREA, but the roots of the profession were laid down nearly a century before that. The theoretical framework behind the three approaches to value was developed by economists in the late 1800s. Then the Great Depression and the creation of the FHA in the 1930s gave the profession its first real structure. By the time FIRREA passed in 1989, the industry had already been shaped by decades of self-regulation, technological innovation, and the savings and loan crisis.
To dig into that history, Working RE spoke with Greg Stephens, a recently retired appraiser whose career began in 1977, and Byron Miller, a former engineer turned appraiser who chairs the North Star Chapter of the Appraisal Institute. What follows is an attempt to trace the building blocks and turning points that shaped the profession as we know it today.
Early Appraisal Methods
The concept of appraising property is older than most people think. In the Book of Numbers of The Holy Bible, God commanded Moses to commission one person from each of the 12 tribes to determine the highest and best use of the Land of Canaan. According to Appraisal Today, many consider these tribal leaders to be the first appraisers.
For most of recorded history, property valuation was informal and subjective. In ancient Mesopotamia, a home’s value was tied to its owner’s social standing. Larger homes with courtyards, gardens, and adobe brick construction reflected wealth and status. In feudal Europe, land was owned by lords and leased to those who worked it, tying valuation directly to the owner’s power rather than the land itself. Property assessment was common throughout colonial America, but it was not until the late 1800s that a theoretical basis for property valuation began to take shape.
The earliest known publication on the subject was Thomas Cochran’s 1874 paper Methods of Real Estate Valuation for Taxation, presented to the Social Science Association of Philadelphia. Cochran proposed standard procedures for property valuation and even offered an early definition of market value. But the real breakthrough came from British economist Alfred Marshall, whose 1890 book Principles of Economics merged supply-cost theory with demand-price theory. As J. Wayne Moore notes in the Journal of Property Tax Assessment & Administration, Marshall’s writing “provided the theoretical basis for the three basic approaches to value in use today: replacement cost, market comparison, and capitalization of income.”
Marshall’s work inspired a wave of publications that brought economic theory into appraisal practice. Richard M. Hurd published what is widely considered the first book about property valuation in 1903, Principles of City Land Values, covering rent capitalization and spatial economics. Irving Fisher followed in 1906 with The Nature of Capital and Income, which expanded on Marshall’s teachings and presented what Moore describes as a fully developed form of the income theory of value. These economists gave the profession its intellectual foundation, but it took an economic catastrophe to give it structure (i.e. the Great Depression).
It was Frederick Morrison Babcock who left the most lasting mark on the profession. “Babcock was a second-generation appraiser out of Chicago … he claims to have trained over 3,000 appraisers in his career. That has an indelible impact,” says Byron Miller, a Minnesota appraiser and co-author of Valuation Bias: The Invisible Fence of Racial Discrimination, a popular online class offered by the Appraisal Institute. Miller spent months researching the history of the appraiser profession in preparation for his class.
Babcock’s 1932 book, The Valuation of Real Estate, applied the three approaches to value in ways that were distinct by property type. Babcock believed “only one method [should] be used on any one property type (not all three approaches for the one property …,” wrote Moore. He preferred the income method but recommended market comparison for properties that could not generate income, stating, “In this method of valuation a qualitative analysis is made of the future amenities offered to the prospective purchasers of the property.” Babcock would also go on to write the original FHA underwriting manual. “Babcock was one of the founding members of the American Institute of Real Estate Appraisers (AIREA),” says Miller. His fingerprints are on nearly every corner of the modern profession.
The federal government’s involvement in appraising began in earnest during the Great Depression. The National Housing Act of 1934 established the Federal Housing Administration (FHA) and the Federal Savings and Loan Insurance Corporation (FSLIC), while also increasing support for the Veterans Administration (VA), all aimed at stabilizing the housing market through standardized underwriting, mutual mortgage insurance, and reduced foreclosures. These agencies played a crucial role in shaping appraisal standards by establishing guidelines and promoting uniform, reliable property valuations.
Professional organizations followed. The Society of Real Estate Appraisers (SREA) formed in 1935 to standardize the appraisal process. According to Stephens, the SREA was “primarily servicing the banks at the time because prior to that, you had real estate brokers providing valuation services to the lending industry.” The AIREA, which had formed in 1932 as an affiliate of the National Association of Realtors®, went national that same year. The AIREA is best known for creating the MAI and SRA designations. “The MAI being commercial, and the SRA being residential,” Stephens says.
Fannie Mae followed in 1938, established by Congress to provide liquidity and stability in the mortgage market. Fannie Mae purchased FHA-insured mortgages from private lenders and resold them to ensure a steady flow of mortgage money at favorable interest rates, beginning a relationship between Fannie Mae and the appraisal industry that continues today. But the federal government’s involvement in housing during this period also had a dark side.
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Redlining
Redlining was the practice of denying mortgage access based on the neighborhood a property was located in. In 1933, Franklin D. Roosevelt implemented the New Deal, a series of programs aimed at providing relief, recovery, and reform during the Great Depression. Part of the New Deal aided federal backing of loans, but the FHA limited these loans to prospective white buyers.
The term “redlining” comes from the FHA using color-coded maps to identify neighborhoods deemed risky for lending. These neighborhoods were disproportionately Black and minority communities, making it significantly harder for Black, Indigenous, and People of Color (BIPOC) to obtain housing. The connection to the appraisal profession is direct. Some of the original redlining maps were created by Babcock at his former job. Miller explains, “He went on to utilize … and proliferate those redlining maps in the appraisal profession,” by including them in the original FHA underwriting guidelines. Babcock even addressed racial segregation in his book The Appraisal of Real Estate, writing that “residential values are affected by racial and religious factors.”
How was the FHA able to differentiate between predominantly minority and white neighborhoods? That goes back to the early 1900s when zoning laws were adopted. Zoning laws were originally enacted to keep industrial and manufacturing buildings out of residential areas but began to be used for racial segregation. This was a direct effect of Jim Crow laws at the time. The first racial zoning laws were adopted in 1910s Baltimore by Mayor J. Barry Mahool, stating:
Blacks … should be quarantined in isolated slums in order to reduce the incidence of civil disturbance, to prevent the spread of communicable disease into the nearby White neighborhoods, and to protect property values among the White majority.
Many major cities followed. In addition to zoning laws, deed restrictions and restrictive covenants were inserted into property deeds to prevent people from certain racial, ethnic, or religious groups from buying or occupying land. These restrictions laid the foundation for redlining by making it easy to pinpoint which neighborhoods to discriminate against. Although redlining was outlawed on April 10th, 1968, its effects are still felt throughout the real estate industry today. Miller cites that at least in his market:
… deed restrictions, redlining, [and] building covenants that were set in place over 120 years ago are still impacting neighborhoods today because those decisions were backed by police power, and they determined where infrastructure went, where schools went, where you put in green space, where you invested, where you put in retail and shopping, or lack thereof, where [you put] the high performing schools. Over time, when you don’t invest in a community with infrastructure and community, or should I say, public dollars of support … it’s going to cause a price differential. And I think that’s really what happened.
These restrictive practices made it nearly impossible for BIPOC and families of certain religions to purchase housing and build intergenerational wealth.
Technological Advancements
After the Great Depression, more scholars and economists came forward with their own publications on appraisal theory, and the FHA continued to shape the industry. But the practice of appraising remained relatively stagnant until the 1980s.
Stephens gave us some background on what it was like coming up as an appraiser before technology changed the profession. “My toolkit, if you will, consisted of a Polaroid™ camera, measuring tape, and a Peugeot 504 diesel,” Stephens recalls. During what he calls the “Wild West” of appraisals, reports were completed by pencil or electric typewriter. “You had to get [the reports] aligned just perfectly, or they would be off and you’d have to reprint the whole thing all over again,” he says. Polaroid™ photos were glued directly onto the report. Comps were photocopies of maps with hand-drawn arrows pointing at specific properties. According to Stephens, the process was so time-consuming that you could only complete about one or two appraisal reports per day.
That changed with the introduction of computer software in the 1980s. Personal computers allowed appraisers to store and analyze larger sets of data, reducing the time needed to complete a report. But according to Stephens, the competing software platforms (like ACI and a la mode) created a new problem: there was “no data standard.” You could only electronically send a report if the bank had the same software. Different banks required different programs. It wasn’t until 1999, with the introduction of the Mortgage Industry Standards Maintenance Organization (MISMO) by the Mortgage Bankers Association, that the problem was resolved. “It was MISMO that really enabled us to be able to transmit regardless of what client it was and what software program they were using,” Stephens recalls.
The internet in the 1990s brought its own changes. Before going online, appraisers had to sketch measurements onto graph paper by hand and, according to Stephens, had to become a member of a local real estate board to access property information—which often meant becoming a real estate broker first. The internet gave appraisers access to property data, industry publications, and MLS information without those barriers.
Then came automated valuation models (AVMs) in the early 2000s, which used algorithms and property databases to estimate values without a physical inspection. AVMs were primarily used for quality control purposes, but more recently have also been used by lenders in pre-lending decisions to assess whether an appraisal might be waived.
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Appraisal Licensing
Prior to 1989, the appraisal industry was almost entirely self-regulated. “Back in the 1980s, you had these savings and loans that were failing,” due to botched appraisals and lax lending guidelines Stephens says. This led to the passing of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA).
FIRREA was established to tackle the savings and loan crisis, but it also created a federal framework for real estate appraisals to protect the financial system by ensuring reliable property valuations. According to Stephens, a 1988 study by lenders determined that approximately 30 percent of practicing appraisers were credentialed. “That means 70 percent of the practicing appraisers had no accountability.” Congress passed FIRREA shortly after.
Out of FIRREA, states were charged with regulating appraisers through a certification process. FIRREA also formed the Appraisal Subcommittee (ASC), charged with overseeing the Appraisal Foundation (TAF) and state regulatory authorities. Two boards followed: the Appraiser Qualifications Board (AQB) to set qualifications, and the Appraisal Standards Board (ASB) to set standards. Appraisers were now required to maintain adequate documentation, complete training courses, and conform with the newly formed Uniform Standards of Professional Appraisal Practice (USPAP).
Not much would change about the regulatory process until 2008.
The 2008 Crash
The 2008 housing market crash was driven by subprime lending, excessive debt, and a lack of regulation (depending on who you ask). Appraisers were under immense pressure from lenders and mortgage brokers to inflate values. The crisis highlighted the need for reform in the appraisal industry for the first time in nearly 20 years. The first response was the Home Valuation Code of Conduct (HVCC), a private agreement between New York State Attorney General Andrew Cuomo and the GSEs. HVCC was not a federal regulation, but it created a barrier between a lender’s loan production staff and the appraiser that was badly needed at the time.
HVCC was short-lived. The Dodd-Frank Act, passed in July 2010, replaced it with permanent appraiser independence provisions added to the Truth-in-Lending Act (TILA) and implemented through Regulation Z. Similar language was built into the GSEs’ Appraiser Independence Requirements and the Interagency Appraisal and Evaluation Guidelines.
Dodd-Frank also established the Consumer Financial Protection Bureau (CFPB), required customary and reasonable fees be paid to appraisers, and mandated that states register and regulate appraisal management companies (AMCs), which had proliferated in the wake of HVCC.
The passing of Dodd-Frank was over 15 years ago, and its requirements are still debated among appraisers. Since then, the GSEs introduced the Uniform Appraisal Dataset (UAD) and the Uniform Collateral Data Portal (UCDP), while the FHA implemented its own changes through Housing Policy Handbook 4000.1 and new rules surrounding FHA assignments and appraisal trainees.
Conclusion
The appraisal profession has survived economic catastrophe, decades of self-regulation, a complete overhaul of its licensing framework, and two major housing crises. It has adapted to every technological shift from Polaroid™ cameras to iPhones and digital tablets.
Now, as the appraiser profession once again faces a new wave of technological change, Stephens urges appraisers to get ahead of it. “It’s a lot easier for appraisers to get up to speed with these changes that are being mandated by the GSEs. So going forward, we will see fewer appraisers and those appraisers will be far more tech savvy,” he says. For what Stephens calls the “old guard,” the time to adapt is now, not later.
Miller sees the resistance as understandable but costly. “What you’re seeing with a lot of the people that are pessimistic, is the uncertainty. It’s the uncertainty of the future,” he says.
Appraisers have always found a way to adapt. Whether the current generation does the same will depend on how willing they are to evolve alongside the technology and regulations reshaping the industry around them.
About the Author
Kendra Budd is the Editor of Working RE magazine and the Marketing Coordinator for OREP, a leading provider of appraiser E&O insurance—trusted by over 10,000 appraisers. She graduated with a BA in Theatre and English from Western Washington University, and with an MFA in Creative Writing from Full Sail University. She is currently based in Seattle, WA.