The possibility of an impending shortage of appraisers is a hot topic in the real estate community as appraisers continue to see their fees pinched and training requirements increase. It’s generally agreed that most markets have enough appraisers to meet their needs today. But appraisers are getting older, and not enough new ones are coming into the business to replace those who retire.
The National Association of Realtors® (NAR) recently released its March 2017 Appraiser Trends Study, which concludes that lack of training, downward trends in compensation, and increasing regulation are pressing issues. According to the study, which surveyed 2,248 appraisers, fewer than 20 percent of appraisers train other appraisers, and lenders often refuse to accept appraisals in which a trainee has done any part of the work. Appraisers complain about low fees, especially from bank-owned appraisal management companies (AMCs). They also cite increased regulatory burdens as a major reason why appraisers are leaving the business.
“We see a much higher percentage of VA, FHA, and USDA loans nowadays, and these have higher standards,” remarks Ken Fears, the NAR’s director of regional economics and housing finance. “Our survey indicates that a high share of appraisers is opting out of those loans. They might not want to qualify to handle them, or they might not want to jump through the hoops. There’s much dissatisfaction about compensation regulation, especially from bank-owned AMCs.
“Finally, while only about 10 percent of the people surveyed will retire in the next 30 months, 85 percent plan to retire in 12 years. Do we have enough people coming to the front end of the pipeline?”
Are appraisers themselves to blame for the shortage?
Lack of trainers is a serious problem, Fears notes. Of the approximately 15 percent of those in the NAR sample who train new people, only 45 percent receive compensation for an average of 10 hours per week.
“We’re getting burnt in two ways,” he explains. “First, a high degree of unhappiness because of compensation. Second, the level of training required to appraise for particular types of loans. Demographics suggest there will be more FHA loans: we’re just at the tip of millennials coming into the market. The VA loans tend to be taken out by ex-military people. The percentage of government-backed loans will rise, and they require more training.”
“The reason we came up with this report is that we heard anecdotal complaints about wait time, about finding appraisers, rush fees, and getting appraisals done in a timely manner,” says Sehar Siddiqi, the NAR’s regulatory policy representative.
“The Appraiser Qualification Board has been revamping how they qualify appraisers, and we’ve commented during this process. They’ve imposed a four-year degree requirement, which adds time and cost to a young person; plus, some lenders won’t accept trainee product on an appraisal report, so you can no longer make money off a trainee by having them do part of the appraisal.
“We’ve supported some of the changes the board has imposed. They’re looking at partnering with universities to develop course work, using virtual reality to show you a house you can explore.”
John Dingeman, chief appraiser at Landmark Network (Van Nuys, California) agrees that the aging appraiser population is a concern—and he adds that if the industry is losing personnel, it might be largely the appraisers’ fault.
“The problem is our attitude,” he says. “At conferences, I ask, ‘How many of you love your profession?’ All hands go up. I ask, ‘How many would recommend it to a family member?’ Not many hands. So why do we do nothing but complain, without offering a solution?
“At one conference I attended, a young lady was there to find a supervisory appraiser. She walked out, throwing her study materials into the trash, and when I asked her what was wrong, she said, ‘I wish I had gone to this conference before I spent my time on all those classes. I just sat there listening to a roomful of people complaining. I don’t want to be 60 and stuck in a job I hate.’
“Also, who wants to come out of college and be called a ‘trainee’? An accountant might not be a CPA yet but is still an accountant. We need to accept that the industry is changing. We can’t follow the example of companies like Blockbuster and Kodak, which never saw that their model might become irrelevant and never built a future for themselves. We need to make sure we’re the ones controlling the narrative and finding solutions.”
Are clients to blame for the shortage of appraisers?
Heidi Lee, founder of Appraisal Review & Consultation Services (New Orleans) , believes that clients are largely to blame for the lack of incoming replacements.
“Eighty percent of our work is for banks,” she says. “Most of those jobs come through AMCs on the residential side, and there’s pressure to keep fees low: not because the banks are wrong, but because they’re in a highly competitive situation. Closing costs must be kept down, and more banks are chasing fewer deals. They’re trying to compete on the appraisal side.
“Some banks don’t understand the appraisal requirements, so they’re going to less qualified appraisers to get a cheap product and dragging everyone down. When fees are not high enough for appraisers to bring in trainees, you won’t get new entrants.
She continues: “Setting one appraiser against another makes the appraisers their own worst enemies. At some point, you might as well seek a job with a salary. Of course, some people say we should lower the bar for entering the business. That would bring a flood of new people. But is that okay, if they’re not mentored by experienced appraisers? How can you expect a newcomer to run through course work, with no field work, and be reliable to appraise a shopping center or a 9,000-square-foot mansion?”
Another problem with AMCs, according to Kathleen Zappola, a real estate agent at Compass Realty in Sag Harbor, N.Y., is that they often appoint appraisers who don’t know a market.
“The AMC usually has a list of appraisers in the area,” she explains. “You used to be able to hire an appraiser who specialized in a specific area—East Hampton, for example— but here on Long Island’s East End we don’t have an MLS system, so it’s harder to find market details. AMCs might assign you someone from Patchogue, who doesn’t know East Hampton. It adds another step to the process, another fee, and more time, with an appraiser who might be uninformed.”
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Article 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 by-line 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. His website is www.josephdobrian.com, and he can be contacted at firstname.lastname@example.org.