An appraisal is an opinion of the value of a property as of a specific date. Appraisers generally consider a property’s value from three points of view—cost, income, and comparable sales—and determine an estimated value based upon weighing the three valuation methods. The comparable sales approach, which compares and contrasts the property under appraisal with recent offerings and sales of similar property, is usually considered most appropriate for estimating the value of residential real estate. The primary role of appraisals in the mortgage loan underwriting process is to provide evidence that the collateral value of property is sufficient to avoid losses on loans if the borrower is unable to repay the loan. Consumers often mistakenly assume that appraisals are intended to validate the purchase price of the property in question. Furthermore, appraisals are sometimes confused with home inspections, which are intended to warn consumers about serious defects in the home being purchased that should be repaired. In a loan transaction, the lender rather than the borrower engages the appraiser, and this usually occurs after the borrower has agreed to purchase the property. The primary purpose of the appraisal reforms contained in Title XI was to assist in protecting the federal deposit insurance funds—and, by extension, mortgage lenders—from avoidable losses. Officials of the federal financial institution regulators noted that faulty and fraudulent real estate appraisals have been associated with losses incurred by federally insured financial institutions and have resulted in financial harm to individual consumers. However, all of the regulators stated that real estate appraisals have not been a major factor in the failure of depository institutions since the passage of Title XI. Private, state, and federal entities have responsibilities under the Title XI regulatory structure. Private entities—the Appraisal Standards Board (ASB) and the Appraiser Qualifications Board (AQB)—establish minimum standards for the development and reporting of real estate appraisals and minimum qualification criteria for certified appraisers. States are responsible for certifying appraisers, using education and experience requirements that, at minimum, meet AQB criteria, and for enforcing compliance with appraisal standards. States may also license appraisers using state-established licensing criteria. (For those states that had both, experience and education requirements for certified real estate appraisers exceeded those for licensed real estate appraisers.) The federal financial institution regulators establish appraisal requirements for the insured depository institutions under their jurisdiction and monitor compliance with their regulations. Lastly, the Appraisal Subcommittee has primary responsibility for monitoring and reviewing the actions of the private, state, and federal entities as they relate to Title XI. The Appraisal Foundation, a nonprofit educational organization composed of groups from the real estate industry, provides the organizational framework for the ASB and AQB to carry out their Title XI-related responsibilities. The ASB is responsible for setting standards for appraisals, which are contained in its Uniform Standards of Professional Appraisal Practice (USPAP). Under Title XI, these minimum standards apply to all federally related transactions for which an appraisal is required. The standards cover both the steps appraisers must take in developing appraisals and the information the appraisal report must contain. The AQB establishes the minimum education, experience and examination requirements for real estate appraisers that are set out in Real Property Appraiser Qualification Criteria and Interpretations of the Criteria. The AQB’s criteria cover four categories of appraisers—certified general, certified residential, licensed, and trainee—each with specific education, experience, examination, and continuing education requirements. Title XI does not require states to adhere to AQB criteria for licensed appraisers or for trainees. The ASB and the AQB regularly evaluate USPAP and the appraiser qualification criteria to determine whether revisions are needed. According to the Appraisal Foundation, both boards solicit comments from appraisers, users of appraisal services, and the public before making final changes. Since the AQB set its original criteria in 1991, for example, it has issued numerous interpretations and approved two revisions of its criteria. Under Title XI, states may establish agencies to certify and license appraisers. At the time of our survey, all 50 states, the District of Columbia, and 4 of the U.S. territories had established such agencies, which typically oversee the activities of appraisers for all types of transactions, including those that are federally related. All of the states and territories had established programs for certifying appraisers, and nearly 70 percent reported that they had introduced qualifications in addition to those established by the AQB. At the time of our review, 6 states did not provide for licensed appraisers, according to the Appraisal Subcommittee. Those that did and responded to our survey reported a variety of licensing requirements. For example, some states did not require licenses unless appraisers planned to work with federally related transactions, while other states required appraisers to be either licensed or certified to perform real estate appraisals, even for transactions that are not federally related. The states’ programs typically included temporary and reciprocal licensing provisions, though as discussed below, the provisions varied. (Title XI requires states to recognize on a temporary basis real estate appraisers who have been certified or licensed by another state if certain conditions are met, and encourages states to develop reciprocity agreements that readily authorize appraisers who are licensed by and in good standing with their home state to perform appraisals in other states.) In addition to conducting certification and licensing activities, states with certifying and licensing agencies are required under Title XI to provide the Appraisal Subcommittee with the names of those appraisers who become certified or licensed in accordance with Title XI, and to collect from them an annual registry fee that goes to the subcommittee. All of our survey respondents reported that they approve courses for appraisers’ education or training, enforce state regulations concerning appraisals, and investigate complaints. Over half of the states reported that they had adopted appraisal standards in addition to those set by the ASB. Although the states are responsible for the certification and licensing of appraisers, the Appraisal Subcommittee has a role in ensuring that state qualifications satisfy Title XI objectives. Under Title XI, the federal financial institution regulatory agencies are to accept a state’s certifications and licenses unless the Appraisal Subcommittee issues a written finding that the state certifying and licensing agency has failed to recognize and enforce the standards, requirements, and procedures of Title XI; does not have enough authority to carry out its functions under Title XI; or does not make decisions on appraisal standards and qualifications or supervise appraiser practices in a way that carries out the purposes of Title XI. Title XI requires that the federal financial institution regulators prescribe the categories of federally related transactions that should utilize a state certified appraiser and those that should utilize a state licensed appraiser. The statute provides that certified appraisers must be used for federally related transactions having a value of $1,000,000 or more. The federal financial institution regulators generally require the use of certified appraisers for commercial transactions of $250,000 or more and “complex” residential transactions of $250,000 or more. The regulators are responsible for determining whether other types of transactions warrant the use of a certified appraiser. All other federally related transactions, unless subject to an exemption as authorized under Title XI, may utilize a state-licensed appraiser. Also, under Title XI the federal financial institution regulators may establish a threshold transaction amount at or below which neither a certified or licensed appraiser is required. As of March 15, 2004, each of the five regulatory agencies had regulations in place setting this threshold at $250,000. Thus, for federally-related mortgage loan transactions of $250,000 or less, financial institutions have the option of obtaining either an appraisal or some other form of an evaluation of the property’s value. The regulators have issued guidelines to the institutions under their jurisdiction that specify the requirements for evaluating real estate collateral for those transactions that do not require an appraisal. Title XI also requires the federal financial institution regulators to ensure that real estate appraisals used in connection with federally related transactions are performed in accordance with standards developed by the ASB. The regulators require that all appraisals for federally related transactions (1) conform, at a minimum, to USPAP, (2) be written, and (3) contain sufficient information and analysis to support the institution’s decision to engage in the transaction. The federal financial institution regulators may take informal and formal enforcement actions, including memorandums of understanding, removal, prohibition, and cease and desist orders and the imposition of civil money penalties, against institutions that violate their appraisal regulations. These actions can apply to contract (fee) appraisers as well as appraisers who are employees of the institutions and institution-affiliated parties. Moreover, pursuant to the FDIC Improvement Act of 1991, the federal financial institutions regulators can take action against institution- affiliated parties such as appraisers. Title XI created the Appraisal Subcommittee within the Federal Financial Institutions Examination Council and established it as the principal federal agency responsible for monitoring the activities of the other components of the real estate appraisal industry oversight structure. The subcommittee has six board members—designated by the five financial institution regulatory agencies that make up the Federal Financial Institutions Examination Council, and HUD—and seven staff members. The subcommittee funds its activities through a portion of the fees assessed by the states against individual appraisers for licensing and certification. Among other things, the subcommittee is responsible for: Monitoring and reviewing the practices, procedures, activities, and organizational structure of the Appraisal Foundation, including making grants in amounts that it deems appropriate to the Appraisal Foundation to help defray costs associated with its Title XI activities.