Where are we?
Before I get started, let me say there are thousands of independent fee appraisers who love their job and are very good at it.
In the last two weeks, I’ve had officers at two of our large clients, both of whom happen to be appraisers themselves, rhetorically ask “where have all the good appraisers gone?” It seems that in numerous markets there is a shortage of high-quality, professional real estate appraisers. For lenders, that means inconsistent fees and delivery dates, which means more work to get the reports in and more work to keep customers happy.
How did we get here?
Prior to FIRREA, the appraisal profession was stocked with professionals that had come up through the ranks via a process requiring years of apprenticeship and experience. This taught them to gather data and thoroughly vet and analyze transactions.
The impetus to regulation was to improve morale and the quality of the work product. It also had the extra benefit of further raising the bar on professionalism by requiring education. Essentially, it took practitioners who were good at what they did and keenly interested in the subject matter and made them even better.
The licensing requirements introduced in FIRREA not only made becoming an appraiser much more difficult, it made licensed appraisers much less willing to bring in new blood. Compounding the problem were lender requirements that prohibited trainees from performing any work on their reports. Rather than matching transactional risk to appraiser experience, many lenders simply implemented policies requiring a licensed appraiser to perform their work. If a trainee is barred from performing work for an appraiser’s clients, what incentive is there to bring on a trainee? The result is a steady decline in the number of new appraisers and a material percentage of those working today being licensed as a result of familial relationships.
Where do we go from here?
As a lender, you’re likely asking yourself questions like:
- What valuations could we be doing in-house?
- How do I train staff to do valuations?
- What systems can we use to generate those valuations? (Pro Tip – printing out an AVM is not a safe and sound valuation process)
The situation is not likely to be easily solved. For a profession that has long been slow to change, the pace of change is expected to accelerate. Appraisers are going to be needed to handle specialized, complex transactions and as a profession will simply not have the capacity to handle everything else.
This brings us to the potential solution for safe and sound banking practices to continue as the ranks of good (non-biased, professional, can analyze numbers while spotting the little differences that drive marketability) appraisers continues to diminish.
In short, the solution starts with asking the questions above. As an AMC, it’s up to us to facilitate that through front-end decisioning tools, a full complement of valuation report options to match every risk profile, and tech platforms that empower your team to perform your own valuations when the risk profile calls for it.