Appraisers recently contacted by McKissock tend to agree that the profession will go generally well in 2022, with no major changes to the real estate market and no events on the horizon that could seriously upset appraisers’ business. The 2022 real estate appraisal term of the year will be “standardization”—of data specifications and measurement standards. Desktop appraisals, with information provided by third-party hirelings, may increase.
Housing market trends for 2022
“While 2022 is expected to continue to be a good year for the housing market, it will not be as exceptional as 2021,” predicts Jo Traut, appraisal curriculum and content specialist at McKissock Learning. “Mortgage rates are expected to rise, but still remain attractive and reasonable. The unprecedented buyer demand of 2021 will likely be suppressed to some extent due to affordability concerns in some markets, and more housing inventory will most likely be available from both the existing homes and new construction segments.”
This market change, Traut says, is likely to lead to more manageable and constant appraisal workloads than the unparalleled extreme demand experienced over the past year.
Related reading: Check out our roundup of Housing Market Predictions for 2022.
Opportunities for appraisers in 2022
“More appraisal services will be requested for purchases than refinance transactions,” she says. “Distressed and foreclosure sale activity is likely to uptick during 2022 due to the end of the foreclosure moratorium and forbearance programs. However, various sources predict that the volume of distressed sales will be moderate in many areas, as several lenders plan to work with their borrowers. Many homes have equity available, unlike the 2008 housing collapse. Nonetheless, it would be prudent for appraisers to refresh or develop their knowledge on appraising REO properties.”
Traut notes that the Federal Housing Finance Agency (FHFA) announced in late October 2021 at the Mortgage Banker Association’s annual conference that banks and mortgage lenders will be able to use desktop appraisals in place of traditional appraisals for qualifying Fannie Mae or Freddie Mac backed mortgages.
“Appraisers should consider learning more about desktop appraisals and the hybrid/bifurcated appraisal process and using remote inspection tools such as RemoteVal™,” she advises.
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Major unknowns in the coming year
Another content and curriculum manager at McKissock, Dan Bradley, warns that three major unknowns face the appraisal profession for 2022: the PAVE (Property Appraisal and Valuation Equity) task force; inflation and interest rates; and property values/market conditions.
“The PAVE Task Force is expected to issue a report with recommendations on how to reduce racial bias in home valuations sometime in early 2022,” he says. “These are expected to be significant and far-reaching. One possibility being discussed is a standardized reconsideration of value process that a property owner can utilize if they believe their house was undervalued by an appraiser. It’s likely that the task force’s recommendations will be adopted by most of the major players in the residential mortgage lending arena.
“With inflation at near-record levels, the possibility of interest rate hikes looms large in 2022. Over the past several years, the single largest source of business for real property appraisers has been residential mortgage lending, specifically mortgage refinances. If interest rates increase in 2022 in an effort to get inflation under control, refinance activity would likely decrease, resulting in less work for appraisers. This would also put downward pressure on appraisal fees. Appraisers who are concerned about this possibility might cultivate non-lending appraisal business, such as ad valorem assessment appeals, divorce and estate work, and/or eminent domain appraisals.
“Mortgage rates also have a significant effect on housing affordability, which affects sale prices. So, many markets may cool off.”
Advice on how to thrive into the future
Jeff Hicks, MAI, president of The Dohring Group and RealWired! (Tampa, Fla.), notes that the appraisal profession seems to fare about the same in good and bad markets. He says the biggest challenge facing commercial appraisers is that some firms won’t create and implement new processes and embrace the latest technology.
“Many appraisers are obsessed with perfection, which often results in reluctance to adopt software solutions,” he says. “Perfectionitis results in being stuck in arduous manual processes.”
Hicks warns that smaller appraisal firms often lose appraisers to larger competitors. He advises senior-level appraisers to give their underlings more reason to stay with the firm—such as an appraisal playbook, with well-documented processes and a technology stack (comp database, report writing, workflow, CRM, collaboration apps, voice dictation, remote connectivity, etc.).
“Get a coach,” he adds, “when you’re building a new framework. Be patient; have zero ego. Move beyond the fatigue of just reviewing reports and fixing mistakes year after year. A good coach will tell you honestly if you’re making progress.”
Hicks adds that the current market, and future prospects, constitute huge opportunity for appraisers generally. Older appraisers, he says, often get calls to handle complex properties that might lie outside the expertise of a less experienced competitor.
“We can attract real talent if we provide technology to support leadership, marketing, sales, management, finance, technology, and client success,” he concludes.
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Top changes to look for in 2022
“Many changes will come in 2022,” predicts Alan Hummel, sole proprietor, of The Hummel Group (St. Paul, Minn.). “The top ones are reconsideration of values, and growing prevalence of desktop appraisals. Increasing numbers of people are asking the appraiser to give more information on how they reached their conclusions. Transparency from the appraiser will be key to mitigating reconsideration of value requests: a combination of more robust narrative reporting, as to why some sales are comparable and some aren’t, and a visual representation with charts, and maps.”
Hummel explains that one of the parties to the transaction will often question the sales used as comparables. If appraisers can provide more information as to why they selected those comparables, fewer questions will ensue.
“It will entail more work on the reporting side, to put that information in the report,” he admits, “but the appraiser is doing that research and analysis anyway, so it won’t cost you much more time.
“Our information leads me to believe prices will generally be stable to robust this coming year. Desktop appraisals might become more prevalent, especially in the first mortgage market. Appraisers will have to understand how to communicate assumptions and limiting conditions. If a third party is collecting the information, you have to note that that person, too, might be making assumptions.”
Article written by Joseph Dobrian. Joseph Dobrian has been writing about commercial and residential real estate, and real estate-related finance, for more than 30 years. His byline has appeared in The Wall Street Journal,The New York Times, The New Yorker, Real Estate Forum, Journal of Property Management, and many other publications. He is also a noted novelist, essayist, and translator. He can be contacted at [email protected].
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