AI Connect

[Stephen J. Vertin MAI]

I went to AI Connect last week in Dallas. Personally, I never learned so many cutting edge things at one place in several days in my career. Some of the software and other innovative technologies were truly amazing. One of the interesting seminars I took was actually by accident. I wanted to see the series on drone technology but ended in the wrong room. Since I got into a conversation with the instructor before the class and he was such a nice man I felt uncomfortable leaving. It was basically about attracting new (or younger) people into the appraisal industry.

Interesting facts, last year more people were designated as MAI's and SRA's than in the last 20 years and the second highest in AI's history (the highest was 1995). Over 1 billion people on the planet have purchased text books or related information published by AI.

However, only 1 percent of all appraisers (not just AI members) are 25 years old or younger. I believe it was 3 percent for 30-years or younger (but don't quote me). I do remember that slightly over 60 percent were 55 years or older. They showed a curb and believed in the next 15 years at least 40 percent of this 60 percent will retire. The number of appraisers are declining. By the most accurate count there are approximately 80,000 licensed real estate appraisers in the US today down from about 100,000 in 2000. If trends continue it means there will only be 60,000 real estate appraisers in the coming decade and a half. We are in a dying industry and cannot get new blood.

Amazingly under declining numbers fees are declining based on AI's annual survey where roughly 10,000 appraisers participate annually. That is roughly 15 percent of the industry which is statistically significant. So how is that possible? How could we be declining in numbers and experiencing declining fees? What happened to Adam Smith's invisible hand (supply and demand)?

According to the panel the biggest factor was regulations. It is believed they are killing our industry. They have limited (at least in many appraisers minds) the products we can produced and allowed numerous other industries such as accounting, financial planning and others to cannibalize our market. They have no control of these people. Stats show while our market share in industries we should be providing services is shrinking others taking over are growing. It is hard to compete when your hands are tied and the other fellow can hit you any way he wants.

Regulations have set up barriers to entry and made it very hard for anyone to hire college graduates in a fee based market. Many appraisers believe they are hiring their competition and in two years after prolonged training young appraisers becomes valuable and leave for higher pay. Further most appraisers no longer want to assume the liability of a trainee. In theory, they are doing the job themselves since they are totally responsible for the work product so why pay someone else?

There are people coming out of grad school majoring in finance and immersed in valuation theory who have to sit through appraisal 101 to be licensed. These graduates look at our industry as out dated and unworthy of their attention. They go to work on Wall Street or for REITS, pension funds with some ending in the larger brokerage firms. However, even these firms are having problems attracting talent due to accounting firms snatching up the brightest and best. No one is coming into the business. There is little attraction and significant liability.

The biggest pledge I heard over and over by AI leaders is the vow to stop these continues changes in our industry and start lobbying for industry relief before we die out. It was stated by the current President, Vice President and the coming President and Vice President. You would be knocked down by the number of appraisers who were stating they are working longer and harder than ever. It will be an interesting next 5 or 10 years.

 

[Meandering]

thank you for posting.

It's nice they are getting around to thinking about it.

I was at Connect two years ago, this wasn't even on their radar, and the only audience gasp I noticed was when the Fed guy mentioned that JVI was one of their vendors, and JVI had already gone out of business by then.

Did they happen to mention anything about the residential appraisers in the industry and AMCs and fees? Or was it more slated toward the commercial work lost to CPA's?

.

 

[Stephen J. Vertin MAI]

Marion: They had 5 or 6 seminars going on every two hours. There were four time slots the second day and three the following and than the closing which would have been of tremendous interest to residential appraisers. The closing was so mind boggling it was truly amazing. American Enterprise Institute (AEI) resident fellow Edward J. Pinto who is the co-director of AEI’s International Center on Housing Risk spoke. He went through this meticulous argument that the boom and bust cycles in residential real estate were directly tied to the amount of money required down on a home. It was the main gauge in predicting where prices were going. It was extremely convincing.

 

[Meandering]

Sounds like a ton of information. That's what's great about the AI. I learned a lot when I went also. I'll agree somewhat with the amount of down payment being a driving factor to booming and busting. Even the Treasury posted some insight into this, just a month or so ago.

However, as we saw in 2009, when they went to 10% down after the bust, people have a hard time saving that much money. With high unemployment and stagnant wages, more part time jobs, and now mandates to buy health insurance eating into disposable income, it just takes too long for enough people to save that money for a down payment, which results in stagnant values. Nobody wants stagnant real estate values. Not sellers, Not banks, Not the government. Only appraisers like stagnant values.

.

 

[Gobears81]

According to the panel the biggest factor was regulations. It is believed they are killing our industry. They have limited (at least in many appraisers minds) the products we can produced and allowed numerous other industries such as accounting, financial planning and others to cannibalize our market. They have no control of these people. Stats show while our market share in industries we should be providing services is shrinking others taking over are growing. It is hard to compete when your hands are tied and the other fellow can hit you any way he wants.

Regulations have set up barriers to entry and made it very hard for anyone to hire college graduates in a fee based market. Many appraisers believe they are hiring their competition and in two years after prolonged training young appraisers becomes valuable and leave for higher pay. Further most appraisers no longer want to assume the liability of a trainee. In theory, they are doing the job themselves since they are totally responsible for the work product so why pay someone else?

There are people coming out of grad school majoring in finance and immersed in valuation theory who have to sit through appraisal 101 to be licensed. These graduates look at our industry as out dated and unworthy of their attention. They go to work on Wall Street or for REITS, pension funds with some ending in the larger brokerage firms. However, even these firms are having problems attracting talent due to accounting firms snatching up the brightest and best. No one is coming into the business. There is little attraction and significant liability.

The biggest pledge I heard over and over by AI leaders is the vow to stop these continues changes in our industry and start lobbying for industry relief before we die out. It was stated by the current President, Vice President and the coming President and Vice President. You would be knocked down by the number of appraisers who were stating they are working longer and harder than ever. It will be an interesting next 5 or 10 years.

I can say from first hand experience that college students have no interest in becoming appraisers. Perhaps part of the problem is becoming a trainee to start-if you have a bachelors or masters degree, you might be able to make more money to start and might have a more prestigious title. But there is no way to get around that at this point. Right now, the "new blood" seems to be the appraiser's kids or relatives who have a little better understanding of the trajectory of their industry and maybe their kid's friends.

 

[Michigander]

Thanks for sharing. It sounds like it was a very interesting few days.

 

[Randolph Kinney]

Since the bulk of appraisers are self employed or very small firms, this model does not work for new entrants when the bulk of appraisals for residential appraisers is for bank lending. It is highly regulated by design. College students want job security and pay commensurate with their level of education from the start. Training is a burden for the one appraiser shop and then taking part of their income to pay someone as a regular employee that is loaded with liability and taxes for the employer.

There is still an excess of residential appraisers for the demand. Many can't say no to low fees or to unreasonable assignment conditions.

Eventually, when demand exceeds supply of appraisers, this model will change. Banks may have to hire full time appraisers as employees with all the salaries and benefit that go with regular employment. Banks will have to hire trainees.

Or, the requirement for an appraisal by a licensed appraiser will be relaxed. Trainees can operate without the supervising appraiser being on site and signing, "did inspect". Or BPOs and AVMs will replace appraisals to a larger degree currently.

 

[Stephen J. Vertin MAI]

However, as we saw in 2009, when they went to 10% down after the bust, people have a hard time saving that much money. With high unemployment and stagnant wages, more part time jobs, and now mandates to buy health insurance eating into disposable income, it just takes too long for enough people to save that money for a down payment, which results in stagnant values. Nobody wants stagnant real estate values. Not sellers, Not banks, Not the government. Only appraisers like stagnant values..

That was his point before 2009 you had nothing down no doc loans and housing prices were going through the roof. When we went up to 10% down the market collapsed. No one bought. When I say he went through a "meticulous" argument I am telling you this guy went back to the 1940 with big data showing every boom and bust cycle (and a stagger correlation between the two indicators). He is supposedly Fannie and Freddie's go to guy. I also believe they said HUD in the introduction. Further he believed in a land to home value ratio theory that would weed out boom and bust cycles to stabilize markets and stop these incredible swings.

He said if appraisers do not adapt these theories there is no need for appraisals. They are not protecting the lender from jack sh*t. Market value is meaningless when adapting his approach. He actually went back to the 30's and 40's where AI literature outlined this concept and said "it was our job to warn clients of coming "boom and bust cycles". But somehow the concept was lost as the Government tried to put more people in home ownership positions.

I told you this was mind blogging stuff. I believe the political implication and fall out as you point to would make this impossible to inact but the guy said he was starting with AI because of the great respect given in the industry to what is taught. I for one am thoroughly convinced he is right. So when required down payments go down it is time to buy. When they start going up it is time sell. It is that simple.

I can say from first hand experience that college students have no interest in becoming appraisers. Perhaps part of the problem is becoming a trainee to start-if you have a bachelors or masters degree, you might be able to make more money to start and might have a more prestigious title. But there is no way to get around that at this point. Right now, the "new blood" seems to be the appraiser's kids or relatives who have a little better understanding of the trajectory of their industry and maybe their kid's friends.

No argument with the trajectory of this industry in the coming years. But many young people believe in the long run we are all dead. This is of major concern and is the main reason Congress wrote a letter to ASB about changing USPAP every two years which was posted on the forum somewhere.

 

[Eli]

Supply/demand don't work very efficiently in an oligopolistic market structure due to external market forces. With fewer buyers and sellers of appraisals, the buyers have market power. Similar to the health care profession in many ways. Notice how health care costs have kept going up and they are supposedly based on surveys of some kind. Of course insurance companies are sleeping with congress.

Those finance graduates you spoke of that are immersed in valuation theory will be the new appraisers in a few years. Not sure how long it will take. C&R is being enforced slowly, but unless the residential side starts getting the fees that the borrower is being charged for the appraisal, the residential side will not draw new blood until then.

 

[Eli]

Banks may have to hire full time appraisers as employees with all the salaries and benefit that go with regular employment. Banks will have to hire trainees..

This is a strong possibility and is probably happening more than we realize and the finance graduate with an MBA or doctorate in finance, marketing, accounting, being hired by the bank to work on that side of loan administration. They will hire the MBA graduate to be a trainee for the certified appraiser they hire (which will be a temporary position for the graduate with a MBA in finance and business administration.).