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.
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.
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.
Questions: Which points stand out to you the most? What else would you add? Did I miss something?
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Hey Ryan, great post! I see many interviews coming from this one…
The only thing I would add is that folks who care should use companies that treat appraisers with respect. Use the lenders who manage their own fee panels or use AMCs working on a cost plus basis.
Hey, maybe now’s the time to separate appraisal fees from appraisal management fees on loan closing documents?
Excellent point Joe. Thank you. I think that’s a great addition. On a practical level, it’s easier to get shorter turn-times with higher fees too, so this is surely a reason to care and do as you say. I find the best Appraisal Management Companies are the ones that already pay appraisers customary and reasonable fees to begin with.
Some states require the separation of fees and I would love to see California do the same. Why not? Seems fitting.
NOTE: This is not about price fixing. There is no one rate that is reasonable for the market. I would argue there is no one size fits all fee too for every property type or every market. The same is true for a mechanic charging different amounts depending on the complexity of fixing the problem.
Analyzing the BREAs figures may sound good but can be misleading. FNMA tracks individual license activity but the reports it receives. (aka C.U.) I was listening to a recent podcast by Phil Crawford or Dustin Harris (can’t recall which at the moment) that noted the number of unique active licenses in FNMa’s CU system is a much lower figure than the published national total of licensed appraisers. We are talking in the neighborhood of half as much….!! Granted not all deals go through FNMA and some appraisers such as myself are mostly private appraisal work but, in my opinion, it is a more realistic look as it measures actual appraiser activity rather than just counting licenses and assuming there are active working appraisers behind each of those licenses.
Thanks Mike. I appreciate your take. I didn’t know Fannie Mae was tracking license numbers like that, but it’s not really a surprise. I mentioned above, “Of course one factor worth mentioning is we don’t really know how many of the nearly 11,000 appraisers are actually actively working.” This is a big factor. I know some appraisers are working in other fields, but they’ve kept their licenses up to date. Others are planning to retire soon and they’re doing very little volume.
We can make numbers say whatever we want. If the number was really half, then I’d say either we have a legitimate and clear shortage or there are simply more appraisers opting out of the AMC game. It’s too bad we don’t have access to this type of data. BREA did not have it unfortunately. I would also ask what a normal ratio of lender / non-lender vs. appraisal license ratio would be. For many months I’ve been hovering around 90% private work, so my name is not on many lender appraisals this year. I would be very curious if someone has some supplementary stats. Speak on.
Thanks again.
All great points Ryan. I think that the market will fix the appraiser shortage as fees come up. I’m already getting many unsolicited applications for appraisal assistant positions and even some people who have come to me for help to reactivate their license. I’m hoping that legislators resist the reflex to quickly fix the problem by not requiring appraisals on some loans or drastically reducing requirements to becoming an appraiser. Those actions would just cause damage to the appraisal industry and put the public at increased risk of market failures.
Well said Gary. The market will fix any shortage indeed. I’m also concerned about legislators “fixing” the issue, I’m also wondering if lenders will start leaning toward hiring more staff appraisers (or AMC staff appraisers) instead of independent fee appraisers. Markets change all the time. It’s going to be interesting to see what changes here.
It’s started already. AMCs and a few major lenders are lobbying hard to allow staff trainee appraisers to complete inspections alone. Yep, thats right!. AMCs will once again try to dominate and control the market by direct hire of trainees. And you can bet these will be salaried employees with a quick turn time bonus. “Fast and cheap” thinking still reigns supreme, unfortunately.
Seems like a conflict of interest to have AMC staff appraisers, but I guess it can be legit as long as the appraisal department is separate from the ordering department. Fast and cheap isn’t a good motto for just about any business.
Turn time is a big part of this so called, sometimes reported “shortage” of appraisers. Back at the top of the market in 2006, typical turn times were 2 weeks and there was not all the additional requirements, many of which have nothing to do with value. Extra addendums, photos, verbiage etc. that are now “required” by many lenders and AMC’s run amok with pages of requirements. So what is “extended” time frames? That term is not clear at all. I get calls wanting a “rush” and they mean 2 days (ok they are not in tune with the market or do not care if they get garbage) or it could mean 2 weeks. We have to define more clearly what is expected and agents and lenders that want it quick and fast at some point should realize that means it will not be good or well supported and will result in extended times after they receive the appraisal with all the “corrections”. FNMA is not a good indicator of a “shortage”, many appraisers work only for VA which is not in FNMA’s numbers. Where is FNMA getting their numbers? From the reports that go thru them? That misses a lot of appraisers out there. The good lenders that understand the markets and want well written and supported reports are paying reasonable fees (not using the AMCs that steal the fees) do not have an issue with finding appraiser’s willing to work for them. The loan officer you were talking to that thought $550 unreasonable for a standard job is clearly not aware that it takes 2 – 3 times as long to do a job with all the new requirements and appraisers are not getting 2 – 3 times the fee. Even at $550 the appraiser is getting paid less than they did 10 years ago due to scope creep.
Nail on the head. Fantastic comment, Cynthia. Thanks for making the post better. I remember 2-3 week turn-times around 2002/2003 also. We seem to be so short-sighted. Granted, markets change, so in some markets a typical turn might be quick (like 2008-2010 where 5 days was commonplace), but today’s market is not a 3-5 day market – especially in light of how much more is required. When markets change we need to adjust our expectations. It’s sort of like the short sale market a few years back. If I was going to buy a short sale I would need to potentially wait for months for that to happen. If I want to buy a short sale today though it’s going to be a much smoother process (and not take several months either most likely).
You are right Ryan, markets do change. Appraisers have been paid pretty much the same fees for the past 10 years so at some point you would expect prices to go up. It just happens to be that it is a good point in time, given current demand for work and supply of appraisers that we are able to ask for and receive the higher fees. The best point you have made though is that consumers should not confuse what they have to pay with what the appraiser receives. There is one party responsible for that scenario and that is the AMC who is pretty much reaping what they’ve sowed since then started.
Thank you Tom. Well stated. Yes, that is a standout point we cannot fail to see. Customary and reasonable is what the appraiser gets – NOT what the AMC collects. Amen. 🙂
Another point that I have yet to see has to do with the number of AMC’s that are popping up in the market place. I have not done the research but I’d be willing to guess that opening an AMC is much easier and less time consuming than becoming an appraiser. With that said, I have several regular clients that provide me with ample work in good times and bad times. They lean on me to provide them with reasonable fees and turn times in return for loyalty. Consequently, I take care of them no matter how busy I am. However, if I receive a request from an out of town AMC, I expect to get paid a premium in order to complete this job. After all, another one of my regular client’s jobs is getting put on the back burner in order to accomodate this out of towner. Also, what are the chances I’m going to ever receive another request from this AMC? I’d guess not likely.
Thanks Brad. I appreciate your take. I would be very curious too to see the number of AMCs. Let’s see a graph of AMCs to see how many are staying and going. Out-of-town solicitations aren’t the most attractive offers right now. There are many AMCs sending out blast emails. I wonder how they get all the email addresses of appraisers. Do other AMCs sell the addresses maybe? I’d love to hear from an insider how this works. I just click “unsubscribe” from solicitations like this.
Not to highjack the thread here Ryan, but has anyone noticed the recent prevalence of Berkshire Hathaway listed homes? This is a very recent phenomenon where I am seeing them with this frequency. An obvious leading indicator when institutional players perceive a market top. Maybe something to look into.
Interesting. Are these local listings? And are they actually owned by Berkshire Hathaway (or an investment firm) or simply listed by their agents? Thanks.
Thanks Ryan! I have heard bits and pieces of this from appraisers. It’s not right that the third party companies are taking so much of the appraisal fee paid!
Thanks DeeDee. In a system like this the consumer often ends up paying more for an appraisal and thus expects more from the appraiser too. For instance, a consumer might see an $850 appraisal fee but the appraiser is actually being asked to work for $450 from the AMC. The bulk of AMCs actually mandate the appraiser to not include an invoice with the appraisal too, so the consumer would never know what the appraiser actually gets. In a handful of states the distinction in fees is clearly spelled out in the HUD1, but not so in California yet for whatever reason. Seems like a no-brainer to begin to convey who is getting what. We’ll see how this all unfolds and what happens in the near and distant future.