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Tips for finding an appraiser in this crazy market

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“Help. We can’t find an appraiser to come to the property. Everyone is saying NO. What do you suggest?” I’ve been getting this question multiple times every week, so here are some thoughts.

Market update: By the way, in case you needed some background noise, here’s an hour-long market update I gave for SAFE Credit Union this week.

The problem: Appraisers have been dealing with record refinance volume and strong purchase volume – even in the midst of more appraisal waivers happening. Seriously, there has been an avalanche of work and not enough hours in the day to finish it. Unfortunately finding an appraiser to do a job quickly is about as easy as finding a contractor.

Four considerations:

1) Expectations: Everyone wants speed, but the appraisal is one of the slower parts. Sure, some appraisers could be more efficient, but keep in mind there is an incredible volume of work right now AND the system has also helped create this problem. Appraisers are being asked to write longer reports than ever and the scrutiny after the appraisal is delivered is unreal. In short, it’s important to have reasonable expectations about appraisers being busy and that today’s reports simply take longer. I’d recommend ordering the appraisal sooner too rather than waiting until the last minute.

2) Is the appraiser getting the full fee? A buyer might be paying good money for an appraisal, but how much of the fee is the appraiser getting? If you didn’t know, Appraisal Management Companies (AMCs) skim part of the appraisal fee and then advertise a lower fee to an appraiser. Sometimes the skimmed fee can be a huge chunk of what the buyer paid too. No wonder why an AMC can shop a fee for weeks and not get anyone to say YES. Here’s the question to ask the lender: How much of the buyer’s fee is the appraiser actually getting? This is hands-down the starting place if you can’t find an appraiser.

3) Rush fee = silver bullet: Money talks and if you aren’t having success, pay a rush fee. If you want to go to the front of any vendor’s line, a higher fee can often help make that happen. I don’t say this to pad my pockets as I only do private appraisals these days (so I don’t benefit from this advice). I’m just saying if you are struggling to find an appraiser for a loan, paying a rush fee can matter. How much? I have ideas, but this really comes down to your market. Feel things out and find the sweet spot until an appraiser says YES. Two weeks ago I gave this advice to a Realtor friend and the AMC said they were not allowed to charge a rush fee. I told my friend to press the issue because that didn’t sound right. Well, it turns out when a rush fee was offered and pressure was felt they found an appraiser. Also, I would ask how much of the rush fee the appraiser is getting in case the AMC is skimming that too.

4) Cherry-picking easy stuff: I do hear of appraisers passing up difficult assignments because there are too many easier ones out there. I mean, why would an appraiser endure huge scrutiny on a complex property for the same pay? If the lender you use cannot seem to attract competent appraisers willing to say YES, then either they’re going to have to solve that problem by adding more appraisers to their panel or you’re going to have to go elsewhere.

5) Other: What has worked for you? What did I miss? Any advice to give the real estate community. I welcome tips from agents, loan officers, and appraisers.

Closing thoughts: Ultimately there isn’t a one-size-fits-all formula for finding an appraiser, but hopefully some of my basic advice is helpful.

Thanks for being here.

Questions: What do you think of the points above? Anything else to add? Any stories to share?

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Get rid of appraisers while nobody’s looking

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Did you hear the news? There’s a proposal from the FDIC, Federal Reserve, and others to not require appraisals for some mortgages under $400,000. This is a big deal and I have some thoughts. Actually, Ken Harney in the Chicago Tribune penned a fantastic piece about this today (I was quoted too).

Dude, this will save us money: The idea is to do away with traditional appraisals so consumers can save money and the loan process can speed up. Here’s the thing though. Regarding cost, the appraisal is one of the least expensive elements in a transaction. Of course to be fair the Borrower might pay a much higher fee for the appraisal because of what Appraisal Management Companies (AMCs) charge the consumer. Regarding turn-times, if an appraisal was ordered right away that would speed things up. It also doesn’t help if an AMC offers an absurdly low fee and shops around for an appraiser willing to work for that amount.

A 60% change in a slowing market: It’s troubling to hear a proposal to increase the appraisal threshold from $250,000 to $400,000. This 60% change hurts appraisers, but let’s be real about who it is helping. This is a ploy for banks and big corporations to make money by controlling the valuation process. This rule of course doesn’t necessarily mean appraisals won’t be required in all situations, but the danger is it paves the way. More than anything though this looks like a move in the agenda to usher in an era of “evaluations” (see below).

Systems of checks and balances: Consumers are certainly not being protected here. Why are we diminishing the role of the appraiser, one of the systems of checks and balances for our financial markets? What could possibly go wrong? This seems like very convenient timing for banks too because it helps position them to operate with looser standards as the market is softening.

The people behind the rules: We have nearly 95,000 appraiser credentials across the country, so changing the rules can put lots of people out of business.

Evaluations instead of appraisals: There’s been a big push to introduce “evaluations” in lieu of appraisals. As Ken Harney writes, “Instead of a formal appraisal, these homes would receive an “evaluation” by individuals who have no appraisal licenses or certification and would not be subject to current state regulatory oversight requirements that govern appraisers. The evaluators could be an “independent bank employee” or unnamed “third part(ies).” They would, however, have to be “competent” and possess “knowledge of the market, location and type of real property being valued.”” I’m guessing these “evaluators” will be real estate agents who do BPOs, employees at banks and data firms, and probably some appraisers who need the work at $75-$100 a pop.

Hybrid appraisals: Speaking of changing the appraisal process, it’s worth mentioning there is a hybrid evaluation product where someone else does the inspection part while the appraiser does the value part. I’m not certain if all evaluations would work this way, but here’s the gist. An individual would measure the property, take photos, make notes, and then send everything to the appraiser to do the value part. I really don’t like this idea because it treats value like it’s only crunching numbers at a desk instead of seeing the fuller picture of a property. I want to see the home, walk the parcel, smell the property, observe the street, understand the layout, etc…. instead of relying on someone else’s photos and notes – especially if that person is inexperienced.

But less appraisers is good news: I realize some might be excited to have less appraisers. I get it. But here’s some honest questions. If you work in real estate or you’re purchasing or refinancing a home, what’s going to happen when less experience is infused into the valuation space? Do you think that’s going to help protect consumers? If you’re frustrated now, what are you going to be feeling in the future? Does it bother you the banks are changing the rules to their benefit?

ACTION STEP: If it’s within your power to say something, please speak up right away. Maybe ask your local and state associations to make a statement and put pressure on the FDIC, Federal Reserve, and Trump administration. Thank you for your consideration.

SIGN THE PETITION: There is now a petition, so please sign here to make your voice heard.

I hope that was interesting or helpful.

Questions: What do think of this? Is this a good move? What are any positives and negatives you see? I’d love to hear your take.

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The ugly truth about appraisal fees

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I had a bad experience with an AMC recently and I want to share it. This is not because I’m wanting to rant or be negative, but only to highlight some of the ugliness that happens behind closed doors when it comes to appraisal fees during loans. This is especially worth knowing about for any home owners and real estate agents for the sake of their clients. Any thoughts? I’d love to hear your take. 

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The Issue: I was asked to appraise something challenging, so I quoted a fee that was higher than a standard fee in Sacramento but still reasonable for the job because the house was funky. Anyway, I was comfortable with the fee and it was accepted by the AMC (Appraisal Management Company) that the lender hired to manage the appraisal ordering process. But then things got interesting because through the course of the transaction someone showed me an email from the loan officer where I learned the AMC was actually charging the buyer $345 higher than the fee I quoted. What the? That seemed excessive, but the real clincher for me was the email showed a chain of conversation with the AMC where they said I was the one who quoted the much higher fee. Not only was the AMC gouging the buyer in my opinion, but there was a blatant lie that I was the one dictating this fee that was 43% higher than the one I quoted.

Look, I’m not a complainer and I am a total optimist, but this is not okay on so many levels.

Why this matters:

1) Anger & The Real Fee: Let’s remember the appraisal fee charged to the buyer might be far different from what the appraiser actually gets. Thus before becoming angry at the appraiser for charging so much, try to find out what the appraiser is being paid (and what a market rate is for your area too). Is the appraiser actually getting that rush fee your buyer paid too? Keep in mind many AMCs tell appraisers not to discuss fees, so unfortunately it’s not likely you’re going to get an answer from the appraiser (maybe ask the loan officer to dig around). To complicate matters, it’s common for AMCs to tell appraisers NOT to attach an invoice to the appraisal report, so it’s not easy for anyone to find out how much the appraiser made from the fee the buyer paid unless there are disclosure rules from the state.

2) Appraisal Quality: In many cases AMCs are scraping so much off the top that the appraiser really isn’t making a reasonable market fee. It’s easy to gloss over this as insignificant, but it matters because over time if appraisers do not earn market rate fees it is going to weed out more experienced appraisers from doing loan work. Could this impact quality? I think so. By the way, if you didn’t know, an Appraisal Management Company is NOT used during a private valuation such as a divorce, pre-listing appraisal, estate planning, litigation, hard money loan, bankruptcy, etc… By the way, let me make it clear that not all AMCs are bad either.

3) Longer Turn-Times: At times it’s difficult for an AMC to find an appraiser because a property is so unique or it’s in a rural area. This can be frustrating for everyone else in the real estate transaction because it hands-down makes an escrow longer. Yet sometimes the problem isn’t the lack of an available appraiser, but rather the AMC broadcasting an absurdly low fee to countless appraisers for weeks. If the AMC would have simply started the process with a market rate fee and a realistic turn-time, maybe the order would actually be finished by now.

4) Lack of Transparency: California does not require disclosure on the HUD-1 of the fee paid to the appraiser vs the fee paid to the AMC. Since these fees are not separated, there isn’t any transparency as to what the appraiser and AMC are getting. I would think some buyers would be shocked to learn the appraiser didn’t get the full fee in the first place – not to mention a $345 AMC fee. Why would we not disclose these fees? Can’t we do better at being transparent?

I hope this was helpful or interesting. Any thoughts?

New Video: I made a video called “The market isn’t doing the same thing in every neighborhood.” It’s a quick look at three neighborhoods. Watch below (or here).

Questions: What stands out to you most about what I mentioned above? Anything else to add? Did I miss something? What is the best way to avoid working with bad AMCs?

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5 things to consider about higher appraisal fees and longer turn-times

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Appraisal fees have been going up and turn-times have been getting longer. Why is this happening? Why is it taking longer to get appraisals done? Is there really a shortage of appraisers? Let’s consider a few points below to help think through some of the bigger pieces to this conversation. I hope this will help you better explain the issue to your clients also. Any thoughts? I’d love to hear your take.

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5 things to consider about higher fees and longer turn-times:

1) Appraiser “Speculators”: Did you know there are actually 45% less licensed appraisers in California today compared to 10 years ago? This sounds alarming, but is it a shortage? The number of appraisers climbed exponentially before 2007 because the market was good and it was fairly easy to become an appraiser in California at the time. This hefty increase was more about the market though rather than there actually being a need for more appraisers (key point). In fact, many of the appraisers who entered the field were more like speculators hoping for easy money –  but then the economy unraveled. We can’t therefore look at 20,000 appraisers as being a normal or healthy number of appraisers in California.

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2) Rate of Decline Slowing: According to a phone conversation with the Bureau of Real Estate (BREA) last week, in 2009 the state was losing about 190 licensed appraisers each month, and that number is now 34 per month. It’s great news the decline has slowed, but it’s also going to be a big problem if we don’t see the decline stop at some point. The good news is last week BREA actually announced new rules that essentially make it easier to become an appraiser trainee. Now let’s hope lenders/AMCs will encourage trainees to be used in reports (this needs to happen). Of course one factor worth mentioning is we don’t really know how many of the nearly 11,000 appraisers are actually actively working. For reference, the average age of an appraiser in California is nearly 52 years old (73% male and 27% female).

3) Shortage: When talking with BREA on the phone, they said there is NOT an appraiser shortage. Their sense is there are enough appraisers to handle current appraisal volume, though they said certain markets definitely have a shortage (such as rural northern California), while other markets are still saturated with appraisers (they said Orange County and even Sacramento). This reminds us what Jonathan Miller says, that there is NOT an appraiser shortage, but a shortage of appraisers willing to work for low fees.

4) Not Getting All the Money: A loan officer I spoke with was frustrated that his Borrowers were paying $550 for conventional appraisals and $750 for jumbo appraisals – and still experiencing longer turn-times. When he told me the Appraisal Management Company (AMC) he uses though, that’s where the problem comes in. This AMC regularly pays appraisers $350, which means they’re pocketing 40% of the fee the Borrower thinks is going to the appraiser. A few days ago on Facebook there was an appraiser who had an offer from an AMC to appraise a property for $850, but the AMC was charging the Borrower $1,385. Let’s remember appraisers are supposed to be paid “customary and reasonable” fees under Dodd-Frank, but a reasonable fee is what the appraiser gets – NOT what the Borrower pays.

5) Markets Change: The market has been experiencing a correction after years of low-ball fees from AMCs. Maybe some of it is due to there being less appraisers, and we’ll feel that out over time, but before sounding the appraiser shortage alarm, we have to respect the reality that fee markets don’t remain the same forever. For instance, a local architect friend has been so busy lately that he’s been quoting much longer turn-times and “blow off” fees that clients wouldn’t possibly accept (but they are accepting them). We see a similar market change with contractors as they are incredibly busy right now and not taking the little jobs since the big jobs pay more. Keep in mind appraisers are juggling appraisals for purchases, refinances, and private situations. When things get busy, appraisers understandably gravitate toward clients who pay better. This means low-paying AMC clients get dropped and anything that is not a “piece of cake” valuation might struggle to be accepted unless the fee is reasonable. As a consequence this also means AMCs may have to shop for many extra days or weeks to find an appraiser to take on the assignment. It’s not easy to digest this, but we have to respect the way markets move and then change our expectations too. Otherwise we are left feeling entitled to the way things have been when the market is simply different now.

I hope this was helpful.

Recent Woodworking: By the way, from time to time I like to share some things I’ve built so you know I have a life outside of appraising. Yes, I’ve built a few skateboards recently with my oldest son. It’s like re-living the 80s for me.

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Questions: Which points stand out to you the most? What else would you add? Did I miss something?

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