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Welcome To The Club: IRS May Require Membership In Trade Groups

The Senate recently approved S. 2020, the Tax Relief Act of 2005 that allows the IRS to define an appraiser as being a member of an appraisal trade group [Valuation review] [1]

The measure, which got the Senate nod last month, requires appraisers performing valuations for tax purposes to be designated by the Appraisal Institute or another professional appraisal organization or meet comparable requirements to be determined by the IRS in forthcoming regulations.

“The appraisal reforms contained in S. 2020 are consistent with recommendations that have been made by the Appraisal Institute, American Society of Appraisers and the American Society of Farm Managers and Rural Appraisers,” said Bill Garber, director of Government Affairs for the Appraisal Institute. “The Senate-passed bill has effectively ‘raised the bar’ with regard to appraisals performed for tax purposes, which is a move that is welcomed by the professional appraisal community.”

Wrong.

These appraisal trade groups have worked very hard for passage of this bill since the passage of appraisal licensing in 1991 rendered them inconsequential to the appraisal process and their membership has been in decline ever since. Their argument is that membership or designation would improve quality of appraisals that the IRS sees. This seems hypocritical since licensing came into effect for the very same reason – these trade groups were ineffective at influencing quality, or if they did, it was so poor that it didn’t really matter. It also gives bad appraisers something to hide behind. In other words, I think these organizations are worthy and expand the base of information a professional appraiser has access to, however, it is not the panacea for quality appraisals.

In fact, it has been our experience that appraisal quality is not improved if the appraiser has a designation. The poorest reports we review for lenders appear to be equally represented by members of these organization and those that are not.

The real problem is not whether an appraiser is a member of a trade organization, it has more to do with the structure of the industry and the bad habits it creates so that appraisers can survive.. We need to install some sort of controls to protect appraisers from influence because a change in the structure of the industry is how quality will improve.