Will There Be A Shortage Of Appraisers?

[Richard J. Glesser]

What a topic to pull out the old soap box and "let'r rip!!

A few thoughts on the topic...
I don't know how many of you lived through the initial licensing process, but as I see it, appraiser licensing was THE major consequence of the S & L Crisis of the mid 1980's. The most critical threat to or industry is the power of the Mortgage Bankers Lobby. While there were fraudulent appraisers, they were not the major cause of the downfall. But we were the scapegoats who needed to be regulated. However, the appraisal time and cost interferes with the lending process which can now get immediate credit reports and other information to process and close the loan. The result was that before the federal & state governments could enact the licensing procedure and requirements, the MBA lobby influenced the de minimus to be raised from $50,000 to $250,000. Along with that, the Certified Appraiser levels were also raised. Still slowing the loan process, the AVMs and BPOs were created. If the MBA could accomplish it, I'm sure they'd collect the appraisal fee, slip it in their hip pocket, and close the loan with no collateral verification at all. You see, the MBA only wanted to shift the S & L BLAME to the appraisers. When federal regulation was forced upon us, so also went the old Letter of Value for no-brainer properties.

That said, I predict another S & L type crisis looms in the future. At that point, good appraisals will defend themselves. AVMs & BPOs do not, I feel, show due diligence in securing the collateral for a loan. Poor appraisals and inflated fraudulent ones will be dragged to the forefront by the MBA in another attempt to shift the blame.

Yes there will be a shortage of good appraisers in my opinion. But we must treat this business as a profession, not a trade. I've been amazed that a young person will easily spend $30,000 - 120,000 on a 4-year university degree only to graduate and take a $30,000/year job. Yet no one wants to work as an apprentice making positive, albeit not great, income for 2 years and enter a profession where they should earn $60,000+ per year. I'm further amazed that after attaining a license, someone would risk it by having non-licensed apprentices inspect properties and sign them as if they inspected them for two years. While I know there's conflicting opinions about "hitting the value" (I philosophically and in practice don't agree.), as long as appraisals come in at a given price, what is the need for the appraisal? We only fuel the fire of those (MBA) who want to get rid of us. Another forum topic essentially asks the question of whether to turn in another appraiser when you've got hard evidence. We need to do that and police ourselves so the poor appraisers and those putting a bad face on our profession are weeded out. I'm frustrated when someone with a lower license reviews my appraisal, often from out of the area with poor market knowledge. Along that line, who gave the underwriter, a person with little or no appraisal training and as I not-so-jokingly refer to as the employment entry level before Burger King, total authority over an appraisal which they don't understand? .All these actions would create a profession to be proud of and one younger folks would want to enter. We need to be poised as a united front when the next crisis comes to point out the success of loans with good appraisals and not AVMs & BPOs. We also could eliminate some of the larger shops by setting and holding to our fees. They depend on someone in every locality to fold, which poor appraiser unable to get work by their own merit usually will do. We should be on the lookout for young talent. I've often referred to appraising as a "scientific art". Based on firm principles and basic math and real estate knowledge, we craft a reasonable value from the data by skillfully interpreting it.

Some have said that when the refi market slows, many of the present surplus appraisers will leave the field and I agree. The critical shortage of future appraisers lies in Certified General appraisers. Talk about a grey-haired or thinning club.. mine's both but at 51 I feel like a youngster in some classes.

In conclusion, we control our destiny. We can let others from outside continue to manipulate the process or we can take control, become active with your state agencies proposing reasonable changes and enforcement of poor appraisers. If we're successful, there will be a balance because it will be an attractive career. If not, then AVMs and BPOs will thrive and they'll soon be little need for appraisers.

Oops, that last ranting and waving of my arms colapsed my soap box. Sorry for the length, folks, but you hit a hot button. :usa:

 

[JOHN BARBER]

Originally posted by Pamela Crowley (Florida)@Jun 27 2003, 02:07 PM
IMO

Once this refi boom slows down or ends, the sales will also decline in numbers, and the number of appraisals needed will drastically be reduced.

Most of the past 3 years of trainees, especially this past 1 year, will no longer be needed and only the best of that bunch will have a chance to keep appraising. The mentors will have to do their own work to keep themselves afloat and the trainees will have to go.

IF the number hitting causes the mortgage loan losses I think they will, the culling of the appraisers herd will be huge. Some will go to jail, some will simply turn in their license and go on to something else. REOs and litigation appraisal orders will be given to those that actually know what they are doing.

Huge numbers of trainees are being pumped out of the schools right now and the vast majority will never make it. Hopefully, the whole training system will be overhauled. The initial classes are grossly minimal and totally inadequate.

Just a few of the good trainees will make it and will likely be enough to replace those that are old enough (or sick to death of fraud!) to retire.

I could be wrong..... I could be right. Never could find the right crystal ball.

Pamela hit the nail on the head. I have been an appraiser for 34 years and my observation is: The number of appraisers that are active in the market are in almost direct correlation to the number that are required. The old capitalistic system in this country really works. Supply and demand, thats the name of the game.

 

[Mike Simpson]

Richard-

I gotta say it again--appraisers are NOT slowing up the lending process!!!

* Our current refi doesn't require an appraisal, and yet we still haven't closed! We started the process in early May & have just been told we won't be closing until July 22--we were suppose to close the end of this month!!!!!!!!!!!!!!!!!!!!!!!! It ain't takin me 60 days + to complete appraisals!

* Moreover, I've a friend who's a former Processor, and she's told us that lenders routinely blame the appraiser (who's not present to defend themselves) for closing delays. I've actually caught lenders in this act (I will pick up the phone on these occasions to set the record straight if contacted by the borrower--guess the lender's think we're never asked for a business card).

You can file this propaganda under the heading 'disgusting lender behavior.' It belongs in the padding the bill drawer along with other disgusting lender behavior.

-Mike

 

[Farm Gal]

:twisted: I often cite the exact time of receipt of an appraisal order... make a particular point of it, when the order comes over with the word RUSH in bold hand-written on the diagonal

Use almost annoyingly sweet voice~~~
"Hi this is (me) from (business name) I am holding an appraisal order that popped out of the fax machine 3 minutes ago... We would like to get you scheduled right away as we do have something of a back, log, would two weeks from Tuesday work into your scedule?"

I proactively avoid the "Bad appraiser sat on the order for three weeks" ploy

I never scuttle the client d-e-l-i-b-e-r-a-t-e-l-y that is .

I am sure it was somesort of oversight... <_<

 

[Terrel L. Shields]

Damon said

I have never heard of a "square" appraiser being convicted for an honest appraisal.

Let me tell you this cautionary tale told to me about 3 months ago by the victim himself. In fact, he moved on account of it.

Pre-licensing, when he was a young MAI working in Denver he appraised an mountain apartment complex "going condo." Conditional in his appraisal were the repairs required and the valuation was a hypothetical future value as if it were condo and the conditions to that conversion were met.

The Denver economy took a tailspin. About a year later, the owner bellied up without ever creating the Condo. RTC ended up with the property when the holding bank folded. The RTC brought suit against the defunct borrower (who was broke) and the appraiser. His E & O coughed up $100,000 to the RTC. None of the hypothetical conditions of the appraisal were met (repairs, condo, etc). The valuation was mote in light of the rapid fall in the Denver economy. That appraiser moved back to his hometown in Arkansas shortly afterwards.

I just escaped a lawsuit, dismissed less than 1 mo. ago. Two of the plaintiffs I had not only never met, I had never even appraised their property. The fact that it still took over one year to get before a judge, and even then, he did not disallow those people to sue me, but rather tossed the suit for other reasons. The other two plaintiffs at least had owned property that I appraised.

Richard said

I predict another S & L type crisis looms in the future

I agree entirely, but I don't agree good appraisals defend themselves. Desperate people can figure out minor mistatements, etc. that skew the report details. Drive bys will be a real hurt. If the interior is not average and you aver that it is, can you spell out exactly who told you that it was average in condition? Read that AO very carefully. Also, many courts have already ruled that the three approaches to value are co-dependant, and in effect, the courts are saying you need to do all three. Single approaches to value are not going to look very good when some poor pitiful old lady who lost her house in an upsidedown loan from a mortgage broker who went out of business 10 years earlier points her bony finger and says, "that's the guy who told me my home was worth $150,000 and I had to sell it for $80,000." no matter it was 5 years earlier.

 

[Doug Smith SRA]

Originally posted by Richard J. Glesser@Jun 28 2003, 12:31 PM
.

That said, I predict another S & L type crisis looms in the future

I disagree. The conditions are far different:

1. There is no serious overbuilding of homes. Supply is meeting demand. The S&L crisis was brought about when there was a feasibility study for an office building or hotel and 5 developers built 5 when one would do.

2. There is a lot of PMI insurance out there. Office buildings and hotels were built with no mortgage insurance.

3. There are a lot of FHA VA mortgages out there. Again, the losses will be spread.

4. A rising tide raises all boats. There is no REO work in many parts of the country because borrowers can sell them selves out of their problem.

5. There are lot of preventive measures going on. Lenders are being much more pro-active agreeing to short sales, and mortgage releases before the problem gets too big.

6. Loans with defective appraisals are being kicked back by Fannie Mae and Freddie Mac to the originating lender, again spreading the responsibility.

7. The whole underpining of the S&L crisis was the loose governance of the S&L's that allowed loopholes in the $100,000. insurance. In Montana, a small S&L took in over 1.6 millon from a Union Pension fund that was broken down into $100,000 units and loaned it out to a hotel's 4 investors at $400,000 a whack. The union got an insured deposit and the borrowers got a loan that exceeded the limits of the S&L. The hotel went broke, the S&L closed and the Union got "bailed out" No parallels in residential appraising. Derivitives form the first line of defense for Fannie Mae and Freddie Mac. S&L's could not lay off their exposure.

8. Sure there is fraud in residential appraising but it is not as pervasive and deep as was that in the S&L crisis.

9. Generally, the residential market has been protected by the likelyhood most appraises have E & O insurance and are doing an effective job of appraising. Not many appraisers have been taken to court on defective appraisals, however. The reason is that most appraisers have been doing a credible job of protecting the interests of their lender clients. That was not the case in the S&L crisis. A lot of appraisal were just flat out fraudulent.

10. A little known consequence to the borrower who lets a property go into foreclosure is that the loss taken by the lender is passed on as income to the borrower. The lender must file a form to the IRS. This leaves borrowers with huge tax liabilities that don't go away. That works to dampen the number of foreclosures when persons learn they don't just walk away so they have an incentive t sell rather than let it go into foreclosure.

 

[Terrel L. Shields]

Another aside in this discussion. Since 2000, two of my mentors have died (cancer), both well under 70 yr. age. My other mentor quit the business years ago to write music. My long time friend and residential appraiser partner, Mary Lou, died of melanoma. Another appraiser from my community died this past year from heart disease. Meanwhile, I have trained the only two appraisers added to the local roster. One of those was Mary Lou's step-daughter. I took her on as a death bed request from Mary Lou who had been training her after she became so weak from cancer treatments. I have accomplished that goal. The other appraiser is older than me.

Someone spoke of all the new faces in the trainee level classes. Look close, you won't see many of them again. There are people who are taking classes because they lost their jobs and they are getting re-training money. They may be there for something besides the school. There are many unable to find mentors. I have turned down 3 in the past year who were looking for mentors and had or were taking classes.

The appraisal roster expanded dramatically in the early 90's because most of us did not need a lot of supervision. We could "get by" with a number of mistakes. We could learn by making those mistakes. I was totally on my own within 6 months. People with valuation experience in other fields could claim experience w/o real estate experience. Many CGs were annointed in those early years that had not appraised 15 houses. Take the classes, pass the courses, do a few demos and off to the races we go. The public and clients were not sophisticated enough to detect poor choices in comps.

When I started there was no computer access to MLS or public records. If you could not find it in the MLS, you had to blunder across the sale. The MLS in my area only covered the east side of the county. We polled the realtors for a few sales. I would aver that I overlooked many sales on account of poor data. I went to the courthouse on virtually every appraisal. The state boards were having start up pains and investigating appraisals was low on the priority list. Most were understaffed to do much investigation. My first URAR software cost $50.

Today's trainee must be good out of the box, pay outrageous sums for software that wants not only for you to fill it out, but wants to sing and dance for you, all tied to an annual maintenance fee that is higher than the software cost originally....i.e.- I paid $299 for my original software in 1995, my annual maintenance bill is $399. That trainee will share in the fee from less than one-half DOWN, most likely. I sure would not like to live on one-half what I am making.

As for the supervisor, co-signing is lunacy. Under USPAP, the supervisor takes full responsibility....so if each appraiser did not appraise the property independently, then reconcile their differences, one or the other is in the dark and totally dependent upon the other to not goof up. If a trainee goofs, the supervisor was supposed to be smarter one so he will suffer at the hands of the board far worse than the trainee. The supervisor will have to confirm (again) each sale, each fact of the appraisal. This madness means that a truly properly trained trainee is worse than worthless to you. You will get not one more appraisal out the door plus have to split the fee and screw with the report. So long as the trainee is truly a trainee, both of you starve OR, you trust the trainee to do right on things as you train. That leap of faith is OK, but the consequences of that trainee taking a short cut now and again could be catastrophic for you. Can you really trust a person whom you are starving to death with poor fee splits? Their only hope is to crank 'em out fast. In rural areas that is impossible. One a day is about as good as it gets.

I, for one, believe it is more difficult to review someone else's work than to just do it yourself. A report I could prepare in 3 hours could easily take 6 hours to review. Narratives are even worse, with you basically having to have a USPAP checklist and check for every item needed, including the 5 points for FRTs (old 14 points.)

Someone said they do not have a shortage of appraisers in their area. If you are certified and experienced with commercial property, can write a decent narrative or have some commercial format form software, won't charge an arm and a leg, please call me in Northwest Arkansas. I will put you to work so fast your head will swim. And if you have a background in accounting or BVA (business valuation appraisal) I can get you a ton more work. I turn a bunch of it down weekly. If I promoted it a little I could double the number of requests I bet.

ter

 

[bradellis]

Jo Anne,

Mornin',

AVMs have actually been around for nearly 15 years or so, but only recently have they become a commonplace product; note all the firms now in the business in the last few years up to 12-14 from just a few.

You are right about appraisers being afraid of them. However, they should not be afraid of them. AVMs are a simple product that can identify raw data in the market. I have still not seen one that can measure a property's condition, view, oceanfront or golf course location- or one backing to train tracks or a garbage dump. Appraisers will always be needed.

The real question is this: How many appraisers will be needed and to do what sort of work? And how will AVMs be used?

Freddie Mac's chief number cruncher told me personally that their measurements indicate that their proprietary AVM is just about as accurate as an appraisal (+/- 13%) in their studis- but ONLY when their AVM is rated as "high confidence".

So, that leaves all the non high confidence work to appraisers, plus all the high LTV work, plus all the ones with unusual factors (views, etc.) to the pros.

AVMs currently are best used in quality control and portfolio valuations. They are otherwise adequate for low LTVs and non-cashout refis. When an AVM is close to the appraisal, it serves as reasonable due diligence in lieu of field reviews- assuming the underlying data is relevant.

I have an expert review panel in the most "dangerous" MSAs- folks who know the local market. We use AVMs, desk reviews, field reviews, and full blown second appraisals to ensure that our valuations are reasonably accurate. But, this involves desk work, and sometimes dirve-bys and the scope of work is left to the local appraiser (this is called bump logic and you'll be hearing a lot about that in the years to come).

Some appraisers fight this, but they should not. When you, as an appraiser, become trusted by a lender, you will find that your work load will increase- and your income. It will just be doing things in a different manner than that to which you have become accustomed.

So, keep your eyes and ears open and be ready to adapt.

Brad Ellis, IFA, RAA

 

[Travis McGee]

Hi Brad. I actually look forward to when we can all use AVM's more as part of process- pehaps there will be a hybrid URAR form with AVM data as a regressoin anaylisis with a few high lighted comps. Sometimes relying on 3 comps is scary-especiallyif the comps can be "cherry picked". That said, AVM's also have their scary side- such as wrong data blindly fed in- like non waterfront comps mixed in with much more expensive waterfront, just because they are in same subdivision.

I have almost no expereice with mass use of AVM's...but- the only time I came close was when I interveiwd for a job with a high volume national lender at their headquarters in West Palm Beach. THAT was scary. They had certified appraisers sitting in cubicles and they looked like air traffic controllers- they each had TWO monitors of AVM's going at once, so there wouldn't be any down time. They were expected to review at least 40 a day, (with bonuses for faster preformance- sort of like supermarket check outs).

The reports were fed in from ALL 50 STATES. When I asked how I, a FLorida apprasier, was supposed to know what the heck was going on in a Colorado market, they said when I looked at the raw data that I would "get it."

Their criteria for ordering a full appraisal was only if the AVM value conclusion was off by more than either 20 or 25%. That is often equal to the down payment, which means purchasers can lose thier equity as a trade off for convenience. I declined the job, don't know if that's how others operate, hope not. I can see AVM's reviewed by regional appraisers familiar with the local market as viable.

 

[Mike Simpson]

You know, the AVM topic reminds me of an arrogant generation which has thrown the baby out with the bath water!

In the rush to offer a new/cheaper product the AVM'ers offhandedly dismiss centuries of appraisal practice & theory. I've often heard those from this school of thought refer to appraisers as 'the old guard,' or 'stuck in a rut, unwilling to embrace new methods.' This mindset is of the impression that because computers are now more powerful then there's no longer a need for appraisers. Never mind the fact we've had the abucus for millenia.

Many lenders love the AVM's...if the appraiser won't appraise the home for the needed value just give your favorite AVM a try (or visa versa). A much closer look needs to be given these modules and very stringent rules & regs need to be passed, and we absolutely--positively need to know who's supplying the data for the AVM. Sweat shops MUST be taken out of the equation for the safety of the economy.

-Mike