Blah, blah, blah. That’s what people tend to hear when we start talking about issues facing the appraisal industry. But here’s the deal. What happens to appraisers can absolutely impact the public AND the entire real estate industry. Let’s take a minute to consider some current trends. Any thoughts?
Some important appraisal issues going on right now:
- Turn-times & 30-day escrows: Many Appraisal Management Companies (AMCs) order an appraisal and expect the appraiser to turn around the finished product in seven days or less. It seems like the better AMCs give appraisers more time whereas the worst ones expect reports in only 3 or 4 days. Here’s the thing though. Appraisers in Sacramento and many parts of the country have been turning down an avalanche of work every single day because AMCs are asking for unrealistic turn times for today’s market. Just the other day a colleague told me he literally turned down 19 appraisal orders in one day alone because he couldn’t meet the deadlines. It seems like seven days has been the benchmark of a reasonable turn-time, but that’s not doable right now for many appraisers. Remember, turn-times are not written in stone and they should change according to the market. Moreover, if nobody accepts the appraisal report because the due date is too fast, it will eventually get to someone who may not be an ideal candidate to appraise the property. Thus a quick turn-time rule ends up catering to whoever is going to get it done faster (and maybe cheaper). On a related note, appraisers being so busy can cause escrows to slow down, which means it can be far more difficult to close in only 30 days. Keep in mind though appraisals are often one of the very last things ordered during the loan process, and that’s surely part of the problem in closing escrows more quickly.
- Increasing fees: For years many appraisers have dealt with below-market rate fees from lenders because of Appraisal Management Companies skimming off the top. Well, lately fees have been increasing, and you’ve probably noticed that if you work in real estate. The increase is a byproduct of appraisers being very busy, the fee market changing after years of being stale, a shortage of appraisers willing to work for low-paying AMCs, and many appraisers having left the business over the past 10 years. A few years ago AMCs were in control and appraisers were desperate to get approved to be on their panels, but these days AMCs are desperate to get appraisers to work for them. For more thoughts on fees, check out Jonathan Miller’s Housing Notes from a few weeks ago (scroll to the bottom of the post for some really sharp commentary that influenced some of my thoughts above). Also, I wrote an article for Working RE magazine recently called The True Cost of Low Fees, and it helps show just how much of a financial impact there is when fees are below market rate.
- Letting trainees inspect: If you didn’t know, before becoming a full-fledged appraiser you have to train under a supervisory appraiser. In California, a trainee actually has to do 2000 hours of work under a supervisor (and have a 4-year degree if the trainee wants to eventually get a certified appraiser’s license). Anyway, many lenders have actually not allowed trainees to sign appraisal reports or inspect properties alone without a supervisor. On top of already lower fees from AMCs, this has created a real lack of incentive for existing appraisers to train the future generation of appraisers. It’s understandable that lenders require a certified appraiser to do the bulk of the report and inspect the property, but if trainees are not allowed into the mix under the supervision of a trainer, there is going to eventually be a big shortage of appraisers. This will only cause longer turn-times and higher fees. Seriously, this is a huge deal and it would be wise for real estate organizations to get behind this point to advocate for appraisers and pressure lenders to relax their short-sighted regulations.
- Replacing appraisers: There have been a number of recent articles about lenders eliminating appraisals or even potentially allowing real estate agents to do BPOs in lieu of appraisals. For those who don’t like appraisers, this may sound like welcome news, though the truth is any new valuation system would inherit all the problems we have in today’s system. It’s easy to think the grass would be greener and consumers would save money on expensive appraisals, but we’ll still have issues with turn-times, fees, valuation disputes, pressure to “hit the number”, skill level, interpreting the market, choosing comps, making adjustments, etc…. To me this issue reminds me of people who say we need to just get rid of all politicians. As much as that sounds appealing (particularly for some candidates right now), it wouldn’t solve the problem because we’d still need new leaders to take their place. Maybe that’s not the perfect comparison, but do you catch my drift?
I hope this was interesting or even helpful.
Questions: Which points stand out to you the most? Agents, are you seeing any of these trends in your escrows? Loan officers, what are you experiencing? Appraisers, anything you’d add?
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