By: Mike Foil
The current appraisal portion of the real estate lending process, thanks greatly to the HVCC, is designed to function around and through appraisal management companies (AMCs). Even though the HVCC has been retired, it has been replaced with rules and regulations which continue the inevitable situation where most appraisals will be ordered through AMCs. Like it or not, this is the new way-of-life for residential appraisers.
AMCs are in business to make money and just as any for-profit business, they look for ways to maximize revenue and minimize expenses. The competition from the multitude of AMCs for incoming business from lenders is strong and the lender/clients are shopping for the best deal for their own bottom-lines. The scenario has resulted in a pressure on the employees in the AMCs to find appraisers who will return an adequate product in a short time and for a low fee.
This is all fairly easy to understand and makes sense for their business model. But, how will the quick and cheap appraisals affect the long term interests of all parties?
Last week, I attended a conference with approximately 200 appraisers, most of which were residential and probably all were from Arizona. The moderator asked those in the audience to stand who were under 30 years old – there were around five. There were approximately 20 in their 30’s and maybe 45-50 in their 40’s. The rest, well over half, were 50 and over. They asked for a show of hands as to how many are training at least one appraiser right now – I only saw one hand go up.
Is residential appraising a dying profession? Will there be a sufficient number of appraisers still in the business in ten years to handle the demand? The continuing education classes are almost full of students who are over 50. At the same time that we are failing to attract young people into the profession, we are taking steps to make it more difficult to enter. I am not against having a set of requirements that must be met in order to join this profession and I understand the need to establish appraising as a profession and not just a job. But, there is not much to this job that is attractive, any longer.
Appraisers have been constantly made the “scapegoats” for various problems in housing or finance. There is a continual stream of new regulations to govern every move we make and every report we submit. We are threatened with a law suit or state sanctions whenever someone does not like the value opinion for their home. New laws require lenders to turn us into our state boards if they suspect any USPAP violations. We have to carry expensive E&O insurance which some AMCs want dangled in front of the borrowers as an attachment to our appraisal reports. We face added liability or losing business by many AMCs and lenders with indemnification clauses, which are not covered by our insurance.
When, in the past, you could meet Fannie Mae guidelines for your appraisal and the client would be fine. That is no longer the case. Just about every lender and every AMC has added specific and unique requirements for their reports. The standard has gone form including three or four comparables to six or more. Each report must have more documentation, support, photos, and most require the 1004-MC form. Soon, we will have to know how to complete reports for various delivery formats – MISMO and Fannie Mae’s uniform data set.
We are constantly being required to “correct” reports for items that have no bearing on the report or the conclusions, to add two more comps which are better than those you used, to explain why the AVM has a different result, to explain why we did not use the attached list of other sales, etc. Now, with the Dodd-Frank law, all parties have the right to question the appraiser. This is in spite of the fact that we are not allowed to discuss value with many of them.
All of this at the same time we are pressured to work for lower fees. The same Dodd-Frank law did require that we get paid a “reasonable and customary fee” and that this is not to be based on fees paid by AMCs. Even though this language is clear in the law, the preliminary rules issued last October indicate that the Federal Reserve, who is charged with implementing this portion of the law, is going to consider AMC fees.
Most appraisers I talk to are in survival mode. I have not heard from one who is making good money at this time. Some are leaving the business, others are scaling back on expenses, and some are barely making enough to pay bills. Why would any of us encourage someone to become an appraiser under these conditions? I began appraising in 1973 and have made a living at it during many of those years, but have not made a living during other years. I encouraged none of my children to become appraisers.
Recent legislation and regulation has elevated the necessity and importance of the role of the appraiser in the whole process. It has finally been acknowledged that BPOs and AVMs are not as reliable as an independent, educated, experienced person actually seeing the property and using an established process to develop an unbiased opinion of market value. Yet, appraisers remain the easy target for everyone from Washington to the property owner.
If the appraisal profession is to survive the retirement of the “old-timers”, there needs to be some changes. If we really are viewed as a necessary part of the loan process, then the government and the lenders need to recognize that “fastest and cheapest” is not the road to the continuing supply of appraisers. Appraising is a profession that requires education, experience and an understanding of many aspects of the real estate process and home construction. If we are viewed only as what is required for a decent hourly wage, we will all be gone in a few years.
Our fees should take into account the education, training, experience, liability, frustration, expenses, and the need to make more than what it takes to pay the bills at the end of the month. If we can only survive, based on low AMC fees, we cannot provide for our future or protect ourselves if we are injured or sick of a period of time. If we are barely making it, we will not attract the next generation of professionals that will be needed 10-20 years down the road. Our services are worth more than we are being paid!