The Decline of the Appraisal Industry: An Unsustainable Future

[Mike Ault]

I prefer Bobby Buck's designation, PDH. "Prairie Dog Hunter". I have passed the coursework and the test, there is some dispute about the "fees to be remitted" to the Buck's Foundation which remain unresolved, however.

 

[Digger88]

The Decline of the Appraisal Industry: An Unsustainable Future
Once a cornerstone of real estate transactions, the appraisal industry is now facing an existential crisis. A closer look reveals a troubling disparity between the compensation appraisers receive and the escalating demands placed upon them. This unsustainable imbalance is threatening the viability of the profession.

Stagnant Pay Amid Rising Costs
When I started in the appraisal business in 2002, a standard appraisal cost between $325 and $400. Fast forward to 2024, and the fees I receive from appraisal management companies (AMCs) range from $400 to $450, with $500 being a rare high. On occasion, AMCs even try to pass off $350 fees to this day. This amounts to an average pay increase of just 17% over 22 years. In stark contrast, the cumulative cost of living has risen approximately 74.27% over the same period, according to the Consumer Price Index (CPI). Using the CPI inflation calculator, $350 in 2002 equates to $613.80 today. Yet, the average fee appraisers receive from an AMC for an appraisal today is around $425, a far cry from what is needed to keep pace with inflation.

This stagnation in pay stands in sharp contrast to the steadily increasing fees charged to borrowers. The disparity between what borrowers pay and what appraisers earn highlights systemic issues in how the appraisal profession is valued.

Increased Workload and Liability
While pay has stagnated, the workload and liability for appraisers have grown exponentially. Engagement letters now come with a never-expanding list of requirements. Additional policies, such as revised Reconsideration of Value (ROV) procedures, introduce more time-consuming steps without corresponding increases in compensation.

Moreover, scrutiny on appraisers has intensified significantly with the use of lender Automated Valuation Models (AVMs), the Uniform Appraisal Dataset (UAD), and soon, lender-built AI models. Appraisers face greater potential for being labeled biased, increasing the risk of professional liability. They are expected to address every conceivable factor influencing a property’s value for fees appropriate for 20 years ago. To top it off, they must complete these tasks within 48 hours or risk being marked late and seeing their rating with the AMC decline.

A Comparison with Other Trades and Professions
The disparity in pay and expectations becomes even more apparent when compared to other skilled trades:

• My neighbor recently hired a plumber to replace two shut-off valves under a pedestal sink. The fee was $550 for less than 30 minutes of work.
• I had new flooring installed, which took one worker two days. The LABOR cost was $2,350, the most competitive of three quotes. (This was in December 2024.)
• Painting a vacant 950 sq. ft. home with two colors (white ceilings and near-white walls) cost $2,450 - excluding baseboards or trim. I supplied the paint, and two painters completed the job in two 8 hour days. (This was also in December 2024.)
• My sister-in-law wedding photographer charges $3,500–$5,000 per wedding. An 8-10 hour shift, with image editing outsourced to an editor in Latvia for cents on the dollar. This doesn’t include additional charges for wedding books, framed images, etc. A job paying upwards of $100k a year, requiring far far fewer hours than an appraiser making an equivalent wage.

In contrast, appraisers undergo hundreds of hours of classwork, pass rigorous tests, and complete thousands of hours of apprenticeship training. Once licensed, appraisers drive 30–40minutes one way, measure a home, complete a detailed interior and exterior analysis of the property, scour MLS for data collection, research each comparable, analyze market conditions, and reconcile to 1, 2, or 3 approaches to value. This labor-intensive process, coupled with significant liability, is conducted for around $400, often with a 2–4 week wait to receive payment.

The Unsustainable Model
The appraisal industry operates on a model that undervalues the expertise, time, and the liability involved in the profession. While other trades or professions command higher fees for equally and often less complex tasks, appraisers face mounting demands and stagnant compensation. This disconnect is driving seasoned professionals out of the industry and discouraging new entrants. Without systemic changes to address pay disparities and reduce administrative burdens, the appraisal industry will continue to decline, leaving a critical gap in the real estate process.

The Role of AI in the Future of Appraisal
As the appraisal industry struggles, AI is poised to take on a growing role in the valuation process. Property inspectors may soon upload data, including detailed notes and photographs, to AI-driven models. These models could analyze physical conditions, anticipate market reactions, and generate supportable adjustments based on vast data sets already being compiled. While AI may offer efficiencies, it is unlikely to replicate the nuanced judgment of a licensed appraiser -- today. In the future, however, it will. Since AI cannot form an opinion of value, its outputs may ultimately produce a most probable price or a price range, with lenders adjusting loan terms based on the provided range.

The growing reliance on AI will more than likely diminish the role of human appraisers, reducing the demand for traditional appraisals. It is probable and my opinion that Fannie Mae and Freddie Mac will embrace replacing human appraisers as soon as it is feasible. Given the current fee structure, which lags behind the cost of living and falls far short of other professions, reducing new entries into the field, this shift may occur sooner than expected and could become a necessity for the mortgage market. After all, who else is gonna do it?

Yuanyin

Nice write up. An person I know is getting divorced and is satisfied with a BPO she received which dictates how much she will get. She didn't even want me to look it over private work is a pita too

 

[Terrel L. Shields]

Last I read FNMA is securitizing apprx 70% of conventional loans

Conventional conforming loans - 15-30 year loans. The non-conforming loans are also "conventional" and account for approximately half of all residential mortgages including mixed use, farmland and rural that FHA and Fannie avoid. They are usually terms less than 15 years and/or adjustable rates like most of the rest of the world.

 

[Overimprovement]

This is Mike "
JOKE OF THE DAY: ABOUT A BLIND COWBOY AT AN ALL-BLONDES BIKER BAR.
An old, blind cowboy wanders into an all-girl biker bar by mistake. He finds his way to a bar stool and orders some coffee.
After sitting there for a while, he yells to the waiter, "Hey, you wanna hear a blonde joke?"
The bar immediately falls absolutely silent.
In a very deep, husky voice, the woman next to him says,
"Before you tell that joke, cowboy, I think it's only fair, given that you're blind, there are five things that you should know:
1. The bartender is a blonde girl with a baseball bat.
2. The bouncer is a blonde girl.
3. I'm a 6-foot-tall, 175-pound blonde woman with a black belt in karate.
4. The woman sitting next to me is blonde and a professional weightlifter.
5. The lady to your right is blonde and a professional wrestler.
"Now, think about it seriously, Mister. Do you still wanna tell that joke?"
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View attachment 95187

The punchline is missing where the blind guy goes: "Not if I have to explain it 5 times..."

 

[Overimprovement]

Who is saying that illegals are "buying homes" at any scale. That is just your spin on it. So tell me where are 15-20M let in over the past 4 years living? Tents, caves, yurts

I have firsthand knowledge from real estate agents who have been to closings where immigrants bring cash to closing on purchases. I don't have volume estimates, but yes, this is happening. The thing is when you pay cash, you don't need an appraisal either.

 

[Non Sequitur]

Back to the OP, it isn't just resi appraisers who are worried. Check out the attached paper (one page this post second page next post) titled "The Future of Commercial Real Estate Appraising: When Machines Take Flight"

 

[Non Sequitur]

Second page:

 

[J Grant]

What is missing from all these brilliant articles is the following: if AI is so amazing by 2040, then it would overtake many fields, throwing people out of work - so who, exactly, will have the income to to buy or rent the properties that AI is predicted to be so amazing at valuing ?

The few billionaires and shareholders can not rent an own every single property out there - where are the buyers and retned going to come form with masses of people thrown out of work?

(though AI will have its limitations and need oversight,

Why would commercial buildings need daily AI updates if they only sell once every ten years?

AI can predict all it wants, but as long as humans remain the dominant sentient species ,a lease or sale is negotiated per , even in commercial negotiations, not just cold numbers but the party's need, greed, individual circumstances etc.,

 

[Mark K]

I really don't think they want the "outside looking in" to this process…

Describe how securitization mixes loans with various risk profiles for sale.​

...​

During the meltdown, someone asked me what I thought was going on.

I told them that an analogy is like this..."Lets say you have a bucket of cow crap you want to sell. You take a bunch of silver dollars and cover up the crap underneath, but you tell the buyer that the entire bucket is silver dollars after you've paid one of the ratings agencies to give it a AAA silver dollar rating. The buyer pays you for silver dollars but shortly afterwards they notice the smell." That's how "tranches" work. GS and others were selling Billions of $$ of MBS with a small tranche of silver on top and the rest was crap, i.e., Liars loans, NINJA loans, No Doc loans, etc.

 

[Yuanyin]

What is missing from all these brilliant articles is the following: if AI is so amazing by 2040, then it would overtake many fields, throwing people out of work - so who, exactly, will have the income to to buy or rent the properties that AI is predicted to be so amazing at valuing ?

Throughout history, when tech moves forward, it shakes up entire sectors. New innovation doesn't just destroy jobs it builds new ones also. the need for traditional appraisers ( and radiologists and so many other fields) might dwindle, but it's going to open up a whole new world of jobs, not just in other areas but even within the appraisal game and the wider real estate market.

The few billionaires and shareholders can not rent an own every single property out there - where are the buyers and retned going to come form with masses of people thrown out of work?

It does not mean that all wealth will be concentrated at the top.

Why would commercial buildings need daily AI updates if they only sell once every ten years?

They won't need daily updates, but it will be available b/c all the data is in the software which can update itself in real time. AI can track trends, forecast rent fluctuations, and assess risk for lenders or investors. Even if a building sells infrequently, lenders and investors still benefit from real-time valuation updates.

AI can predict all it wants, but as long as humans remain the dominant sentient species ,a lease or sale is negotiated per , even in commercial negotiations, not just cold numbers but the party's need, greed, individual circumstances etc.,

A detailed analysis can help support a decision in negotiation. And I have no doubt that some of these models will have vastly more data than what is being generated today.

While these models won't completely take appraisers out of the picture it reduce the roll and I can imagine a time when an appraiser sits at their deck and reviews the generated model and looks for anomalies and simply approves the report or calls for further analysis. They will be knocking out 20 a day. This is they type of efficiency lenders would love to see now and they'll probably have it in the future. EX: MRI reports used to take upwards of an hour to read. Now they can be read in 15-20 minutes, and that's without AI. That's just basic software enhancements.