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Qualified appraisers are crucial to process

Effective July 1, 1991, if you want to obtain a "federally related" mortgage, such as a FHA, VA, bank, or S&L loan, a licensed appraiser will have to make the appraisal. If the property is worth more than $1-million, a certified appraiser will have to make the appraisal. But don't panic if you have never met a licensed or certified appraiser. Now, only a few states license appraisers, but virtually every state has new laws providing appraiser license procedures. However, most states are not ready to implement licensing procedures by July 1, so they will be allowed to postpone their appraiser licensing laws until Jan. 1, 1992.

Buyers, sellers and lenders need to know the fair market value of properties. The job of appraisers has been to provide impartial expert opinions of market value, based on recent sales of comparable nearby properties, replacement cost of the structure, or the rental income produced by the property.

Most experienced appraisers did an excellent job. But a few appraisers made dishonest inflated appraisals, resulting in the financial losses for many lenders. The result was the new federal law requiring each state to set minimum appraiser license standards.

The task of an appraiser is to write an expert opinion of a property's fair market value. But the problem is that even experienced appraisers will differ about real estate valuations. Appraisal is an art, not an exact science.

The traditional market value definition is the price at which a property will most likely change ownership between a willing seller and a willing buyer, neither being under pressure to buy or sell. But until 1986 the nation's two most influential lenders, Fannie Mae and Freddie Mac, used the market value definition of the highest market value estimate. Now their appraisal definition is "the most probable sales price."

As a result of confusion over market value definitions, appraisers can't be blamed for not agreeing on a property's valuation. Ask three experienced appraisers to appraise a property and rarely will they agree on its exact value. Since appraising is highly subjective, the experience of each appraiser will enter into the estimate.

Even after most appraisers are licensed within the next few months, choosing an appraiser will be as subjective as selecting your doctor, dentist and lawyer. Recommendations from local mortgage lenders such as banks, S&Ls and mortgage brokers will still be especially valuable.

For example, when I recently phoned my banker for advice on selecting an appraiser, he gave me the name of several appraisers approved by the bank. I first phoned the individual appraisers only to find out they couldn't appraise the property for several weeks because they were too busy. Fortunately, one of the appraisal firms on the list could send out an appraiser within a few days, and he did a very competent job.

If you are obtaining a new mortgage loan on your property and the lender asks you to pay for the appraisal, be sure you will receive a copy of the appraisal. Should the lender refuse, be wary.

Borrowers and property owners should be permitted to see the appraisals on their properties, so they can be certain the appraiser did an accurate job.

For example, several years ago I applied for a second mortgage on my home from Shearson American Express. They sent out an appraiser who, in my opinion, didn't know what he was doing. Several weeks later I received a phone call from the lender who said my loan couldn't be approved because my home didn't appraise for what I thought it was worth. Although the appraiser refused to send me a copy of the appraisal, I learned he used recent home sale prices from across town of houses that weren't comparable to those in my neighborhood. As a result I obtained my loan from another lender who sent out a competent appraiser.

Appraisals are very important for borrowers and lenders. New federal and state laws requiring real estate appraisers to be licensed should raise the competency of the appraisal profession. The property owner's best assurance is to ask for a copy of the appraisal to be certain the appraiser performed accurately.

Robert J. Bruss is a nationally syndicated columnist on real estate. Write in care of At Home, St. Petersburg Times, P.O. Box 1121, St. Petersburg, FL 33731.