American Banker | Wednesday, December 22, 2010
By Sara Lepro
The ranks of the appraisal profession are shrinking fast. For home lenders, that spells higher costs, longer turnaround times and poorer appraisal quality in future years.
While there's less appraisal work to go around these days than there was a few years ago at the height of the housing market boom, lenders fear that when the market does rebound, there won't be enough qualified appraisers available to do the job for them.
A dwindling appraiser population would lead to an "absence of local expertise," said Kurt Noyce, the chief executive of the Providence, R.I., lender Embrace Home Loans.
"If you end up with thinning resources you're going to have appraisers extend their reach to go into markets where they maybe don't have as much exposure and expertise in, and they're not going to be producing the same results," he said. "If the absence of resources led them to stretch and pull people in from other areas because they didn't have suitable people coming in, that might create an inferior product."
New regulations, a weak mortgage market and lower fees have driven many appraisers from the business. Many more, meanwhile, have reached retirement age. And with fewer people joining the profession, there aren't enough new appraisers to replace the ones on their way out.
"We're real concerned that certified appraisers will become extinct," said Jennifer Creech, the president of InHouse Inc., an Orange, Calif., appraisal management and technology company. "As the pool of talent shrinks, how do you overcome that?"
The most recent data from the Appraisal Institute, a Chicago trade association, shows that the number of appraisers has declined 6.6% since 2007, to roughly 92,000 at Sept. 30. Nearly half of all appraisers are between the ages of 51 and 65. Less than 12% are under 35.
"It's realistic to think that in the not-too-distant future there is a likelihood of a shortage of appraisers," said Griff Straw, the president of Solidifi Inc., a Chicago appraisal management company. "That's bound to lead to higher prices and slower appraisals."
Discussions among industry participants of how to combat the potential shortage are growing more frequent and some appraisal companies and lenders are trying to figure out ways to attract people to the field.
Appraisers aren't lining up to enter the business like they used to for many reasons. For one, it's not as lucrative as it once was. Not only is there less business but many appraisers lament a decline in the fees they can earn per appraisal. "Quite honestly, I've never seen anything like this before. An appraiser in 1996 was making $300 and now they are being asked to do it for $250," said Gary Crabtree, an independent appraiser in Bakersfield, Calif., who's been in the business for nearly 50 years.
Many blame the fee compression on the rise of appraisal management companies, which have seen their market share increase since the Home Valuation Code of Conduct went into effect in 2009 and barred loan officers and brokers from selecting appraisers.
The idea behind the HVCC, which came about as a result of negotiations between then New York State Attorney General Andrew Cuomo, the Federal Housing Finance Agency, Freddie Mac and Fannie Mae, was to prevent appraisers from being coerced into inflating home values.
But the code has led many lenders to turn to outside companies to handle the management of the appraisal assignments for them. AMCs pay individual appraisers a portion of the flat fee they are paid by the banks.
New appraiser independence standards under the Dodd-Frank Act are meant to address the fee issue sparked by the HVCC, which the new guidelines are replacing.
The revised standards bar AMCs from negotiating fees with appraisers, and instead require them to pay "reasonable and customary" fees. Though there is still some question about how that will be interpreted, some in the industry are hopeful it could help struggling independent appraisers.
"My perception is it provides more of a certain environment of fee income for qualified appraisers," said Rick Roper, executive vice president of the direct lender Golden Empire Mortgage Inc. "My hope would be that in light of the adjustments for compensation for them, properly skilled, educated, certified appraisers still have a very viable function … in the residential mortgage market."
Another reason for the drop off in appraisers is that companies haven't been actively recruiting like they used to because it hasn't been economically feasible to take on new apprentices.
The bar for entry into the appraisal industry is high. Each state sets its own requirements, but at a minimum, to become a certified appraiser an individual must undergo 200 hours of education and complete a two-year apprenticeship under a certified appraiser.
Appraisers haven't been as willing to take on apprentices in the past few years. The problem is that many lenders have implemented standards that bar trainees from making inspections, a practice that was common before the bust. And while appraisers approve of the higher standards, they've made it more difficult for new entrants to earn their stripes.
"We do not have the opportunity to bring in as many trainees as we did in the past," said Alan Hummel, senior vice president and chief appraiser at Forsythe Appraisals LLC in St. Paul, Minn. "If I had to use an industry average, I would say the number of trainees that were coming in now versus two years ago has dropped off by 70%."
But in 2011, Forsythe has adopted a mandate to increase the number of trainees it brings on staff.
"There is going to be an economic rebound to [the point] where there is going to be a need for appraisers and if we don't have them, the concern is the market will find another way to get their valuation services," Hummel said. "They may go more toward automated valuation models; they may go more toward [broker price opinions]; they may go toward other ways."
Forsythe has been working to allay the concerns of its largest clients "that trainees involved in the process would somehow result in a less valuable product/service," he said.
"We will provide them with all the documentation as to how the appraiser is trained and what kind of supervision they are getting and allow them to understand that the certified appraiser is signing off on it," Hummel said. "What we need to do, if you will, is give them the comfort level that they are getting a better product."
Creech said she is looking to establish an internal training program to bring more appraisers on staff and is considering recruiting on college campuses as well.
To help mitigate the recruitment challenges, the Appraisal Foundation's Appraiser Qualifications Board, which establishes the standards for state licensing and certification of appraisers, is re-examining its criteria for trainee/supervisor roles.
At the beginning of 2011, the board plans to release its updated criteria and open it up to public comment. The foundation is a nonprofit organization that sets standards and qualifications for all valuation disciplines.
"The idea would be that there would be clear requirements and guidance on what a trainee can and can't do and what a supervisor's role and responsibilities would be," said John Brenan, director of appraisal issues at the foundation. "One of the things the board is going to look at is trying to pull in ideas about alternative ways to get experience."
Some in the industry, however, say there may not be a need for as many appraisers in the future due to technological advances.
Greg Dennis, vice president of valuation services at CoreLogic in Dallas, said technology could help cut down the time it takes to do an appraisal, thereby offsetting a decline in manpower.
"The time they spend doing the data analysis and developing the opinion of the value I think is where technology can really help," he said. "The technology can do a nice job of offering the appraiser what appropriate comparables are, where discrepancies are in the data in some markets. … Then you begin to simplify the analysis and the valuation aspects of it."