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When Rates Go Up?

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bobfarley

Freshman Member
Joined
Jun 13, 2003
What a great forum..

Anyways, I will be taking classes to gain my trainee designation, and I have an offer to work at an appraisal company once I finish those courses. This company seems to do appraisals primarily for mortgage companies - for people who are refinancing.

So, although I am very interested in the business - and more than willing to put up the time & money for training and equipment, etc. - I am a little worried about what will happen to the business climate once rates start going up, especially for a company such as the one I described.

Does anyone have any insight\advice?

Thanks in advance.

Bob Farley
 

Dee Dee

Elite Member
Joined
Jan 16, 2002
Professional Status
Certified Residential Appraiser
State
Colorado
Bob,

It all depends on how much the rates go up, when they go up, and how much growth is occuring in the particular market you are working.

The majority of appraisal shops who hire trainees do so because they have high volume clients that cater to the mortgage industry. If the interest rates go up, the volume goes down. Volume goes down, trainees are let go or they recieve less work.

There are no guarantees that any trainee has a secure position if this happens, and the chances of being able to find a different mentor gets tougher. As a matter of fact, there are no guarantees that an established and fully licensed appraiser will not see a significant drop in their work load if the majority of their clients are mortgage lenders.

Fees could start dropping because of the competition among appraisers for work, and smaller mortage companies will go out of business.

Now you have to figure out what your odds are. :blink:
It's impossible for anyone to forcast with certainty what national or local economies will do over the next two years (the approximate time it will take for you to get through your apprenticeship).

Hope you make the best decision for yourself. Having a mentor lined up is a big step in the right direction, but you may want to pose the same question to them as to what your future will be if their business slows down.

Best of luck!
 

Tom Foster

Senior Member
Joined
Apr 18, 2003
Professional Status
Certified Residential Appraiser
State
California
When the rates go up - Here's what works for me ........

1. Stop by all your accounts and throw a pizza party on a Friday. Nothing like a pizza and coke party to ensure you will still get their biz.

2. make sure your fees are at fair prices or just $25 below - so they can't say we used the other appraiser because his prices are lower.

3. Still market your services - when it's slow, many appraisers can't survive on 75% less work then they are getting today. Bob's wife will say "Bob, go get a real job, that apprsaisal stuff can't even feed the dog"
SO Bob gets an 8 to 5 job and you get his account.

4. Consider the slow times as a blessing. Take a nice long vacation, go to Hawaii or something. Help out with your Church. Many appraisers I have known have turned greedy and materialistic they want to accumulate as many "things" as they can. Remember you don't own anything, you just get to borrow it while your alive.

5. to be continued - the dinner bell is ringing......
 

Ghost Rider

Senior Member
Joined
Apr 27, 2003
Professional Status
Banking/Mortgage Industry
State
Connecticut
I'm kinda looking forward to the little break that will come when the rates pump up a little bit.......The best part about this refi boom is this (IMHO)

Because everyone has been trying to refi CRAZY amounts of money out of their homes in the past 18 months, and people have been buying at the top of the market, and how bad the economy is, I'm betting a LOT of people will have financial problems when/if rates tick up (which I don't think they will do for a while still......the only thing keeping this economy afloat right now is the low rates) and when you combing high mortgage payments, with no job, you have..........

REO APPRAISALS!!!!!!!!!

Ain't life grand.........
 

bobfarley

Freshman Member
Joined
Jun 13, 2003
First of all, thanks for the replies. I think what I'm hearing is that business will probably dry up a great deal when the refi craze is over. So, in order to have some sense of security with this company, I'd have to assume that it would last at least the two years I'll need to be trained... I guess I would probably be better of looking for an appraiser who has a more well rounded business.

Does anyone have an estimate on what percentage of the appraisal business is tied to refinancing? I'm in the Northeast but I'd be curious about other areas as well.

Thanks again.
 

Farm Gal

Elite Member
Joined
Jan 14, 2002
Professional Status
Licensed Appraiser
State
Nebraska
Bob:
there is no simple answer to your question: the percentage is largely determined by the business interests of the owners!

Some have elected to have a balanced business plan which has 'other' souces of appraisal income than refinances and little or no refi/mortgage income, some consist WHOLLY of refi business. Some of course have a smattering of both. In any case ALL will suffer somewhat as the refi boom inevitably will eventually bust... but a lot of us bet the bust would have happened long ago...

See once the refi craze DOES bust Ole' Bob (mentioned above) even if he was a full time refi-artist is going to scramble to market his skills to try NOT to get a 9-5.. even if the dog is growling and looking at his haunches as 'dinner' and the wife quits giving him pizza money. Because Bob put in several years of work to get his ticket and cannot beleive that things are not going to get better. So Bob goes marketing to Lawyer Sam and Tax-payer Sue and anyone and everyone he can think of.

Problem is so are appraisers Joe and George and Mary: and basic Econ 101A tells us that under such circumstances some of those folk are going to drop their prices makeing life pretty tough for all remaining appraisers.

Some of the drouths last a looong looong time.

Best develop a plan that has some contingency for alternate employment if things get rough.

I offer the following two pieces of advice:

IF you continue, PLAN for hard times to come in the short run: Keep in mind the greying of the present appraiser population may cause attrition to occurr in your favor but you gotta be able to survive until you have a thriving practice of your own or solid employment in some one elses...

Don't be too certain the business will continue in a manner that will provide you with the things you want from it in the future: some of us see the evolution of this business into something that is no longer any fun at all.

God luck!
 

Greg Brinkley

Freshman Member
Joined
Jun 11, 2003
I have heard several appraisers make the comment to each other that when the refi boom is over, they expect a brief slow period followed by a different boom. This new boom, they say, will come from home equity loans which most will require appraisals. They believe people will not just stop tapping into the equity in their home. They are just refinancing now because of the rates, but when the rates go up, they will just look to pull out the equity and only pay the higher interest on the smaller amount. It makes sense to me, but I think it may depend highly on where you are. You will have to be working in an area that is still growing and appreciating so that there is equity to be pulled out.
 

Dee Dee

Elite Member
Joined
Jan 16, 2002
Professional Status
Certified Residential Appraiser
State
Colorado
Greg,

I agree with you on most points, but like you said it depends on the market area.

To my knowledge most home equity lines require a nice LTV spread, typically 80% max. In my market many homeowners who have habitually tapped their equity by doing refi's, often with high LTV's, can't qualify for the home equity loans. Since the market has gone flat here, and more than a few had appraisals done a year or two ago by number hitters, now most would be lucky to break even if they tried to sell if they have to pay a real estate commission.
 

Greg Brinkley

Freshman Member
Joined
Jun 11, 2003
Dee Dee

You're exactly right. Some areas are going to get hit hard when the refi boom is over. Other areas like the DC, Northern VA. area where I'm at may not get hit nearly as hard. Home prices continue to rise, new homes are being built everywhere you turn, and there is a constant flow of people in and out of the area due to the government and government contractors. Rates will not go up until the economy recovers. When that happens, jobs will be more plentiful and wages will be higher, at least in my area, which in turn will keep home prices increasing because the consumer will be able to afford more house. Thus, allowing for home equity loans. This all depends on where you are and the specifics of the economic recovery in that area. I just can't see home owners stopping to tap into the equity and I don't think the banks and mortgage lenders will sit by without coming up with some new home equity packages that will be very attractive to home owners. That will, in turn, keep us busy with work. By the way, you think the fraud is high now, wait until this happens and the new home equity packages come on line. We could be back to those 110 to 125% loans, not to mention the pressure on appraisers to hit high #'s so that there actually is some equity to pull out!
 

Dee Dee

Elite Member
Joined
Jan 16, 2002
Professional Status
Certified Residential Appraiser
State
Colorado
Greg,

I must be getting old-fashioned or losing my mind. :(

For some odd reason I find it very disturbing when I realize that areas which are considered the most prosperous in our country right now are also the ones where people have the ability to raise their debt levels to new highs....and everyone seems to think that's a really good thing.

Maybe just one more Margarita and it'll make more sense. :beer:
 
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