Rising interest rates, a slowdown in home purchases, and consolidation of the lending industry comprise the three predicted events most likely to affect the appraisal business in 2019. But while home sales may slow or stagnate, appraisers can still profit from the proliferation of reverse mortgages—and sales of commercial properties will probably stay fairly strong in many markets.
Most industry insiders advise appraisers to keep looking for ways to diversify their business, develop niche expertise, and make sure that they’re properly paid. Appraisers who maintain a high profile and don’t undersell themselves are likely to get through a year that will probably prove unspectacular but not disastrous.
Rising interest rates, falling mortgage loan volume
“Most experts predict that in 2019 we’ll have a slowdown in mortgage initiation, as in 2018,” says Jo Traut, a Chicago-based residential appraiser and Appraisal Curriculum and Content Specialist at McKissock. “That will be partly due to at least two increases in interest rates by the Federal Reserve, to maybe 5.5 or 6.0 percent. The National Association of REALTORS® doesn’t envision any meaningful growth in the purchase market, and this will impact mortgage initiations, well beyond the summer of 2019. The refinancing business might also be slow, because of rising interest rates.”
“Mortgage loan volume is down, interest rates are ticking up, and the use of appraisal waivers is becoming more widespread,” adds Daniel A. Bradley, McKissock’s chief appraisal officer and a long-time Pennsylvania-based appraiser. “Lenders are downsizing their lending operations, and some AMCs are having cash flow problems. These factors don’t portend a great year ahead of us, particularly for appraisers whose business models depend heavily on mortgage lending appraisals and AMC work.”
Appraisers may need to lower their fees
Bradley foresees that many of the fee gains achieved over the past several years may be rolled back, this year, and that appraisers might have to lower their fees this year to stay busy.
“It’s simple supply and demand; all appraisers understand this concept,” he says. “This year is likely to be a buyer’s market for appraisal services throughout most of the country.”
The picture isn’t all gloom and doom, though, Bradley adds. Appraisers who have expanded their client base beyond mortgage origination appraisals will still find plenty of opportunities in 2019 and beyond.
“The divorce rate is not going down anytime soon,” he notes. “As the country improves and expands its infrastructure, more and more opportunities will arise for condemnation appraisals. Other types of litigation, such as ad valorem assessment appeals, also require appraisals.”
However, Bradley warns, these non-lending-related assignments require appraisers to market themselves differently from mortgage lending work.
“It’s not as simple as getting onto numerous lender or AMC approved lists and just waiting for the appraisal orders to come in by email,” he says. “You need to let attorneys and other professionals know you are qualified and available for these assignments, through networking and self-promotion. If the idea of shaking hands and making small talk seems unappealing or old-fashioned, you can connect with these potential clients via social media sites such as LinkedIn.”
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Traut advises appraisers to make certain their reduced fees still justify their efforts. She also warns that consolidation of the industry could lead to delays in payment of those fees.
“One opportunity for appraisers is the expectation of more homeowners taking advantage of having more equity in their home, and tapping into low-interest home equity projects, so there will be more desktop and hybrid appraisals for some of those properties,” she says. “The downside is that the fees for those projects remain low: as low as 15 to 20 percent of a traditional appraisal. Do a cost-benefit analysis before you dive into that business.”
Consolidation of the lending industry
“We’re seeing an upsurge in mergers and acquisitions, in the financial services industry, and some banks are reducing their appraisal management staffs,” says Traut. “Expect heavy consolidation into 2019. I recommend appraisers evaluate the lenders and AMCs they’re working with; don’t rely on just a few clients; make sure they’re paid in a timely manner; and don’t take on new business if you’re not sure you’ll be paid.”
Traut advises appraisers to get approvals from more appraisal panels with more lenders. Loan limit amounts are being raised by the FHA, which means more approvals, so getting on the FHA-approved roster could provide a boost to business.
“Probably one of the biggest concerns is the proposed rise in the appraisal threshold,” she warns. “The threshold at which federally related transactions require an appraisal might rise from $250,000 to $400,000. The National Credit Union Administration is also proposing to raise their threshold for commercial loans to $1 million. That would drastically increase the number of non-residential loans that would not require an appraisal.”
Opportunities for appraisers in 2019
“The good news is that the Dodd-Frank requirements might be loosened, but now that we have a split Congress, that’s less likely,” she says. “As more boomers retire, we’ll see a lot more reverse mortgages, which will require appraisals. Now is the time for appraisers to upgrade their skills, and develop niche expertise such as luxury homes, high-efficiency homes, relocations, divorces and estates, or expert witnesses. And get on those FHA and VA rosters!”
Bradley acknowledges that the proliferation of hybrid or bifurcated appraisals for mortgage lending poses a threat—but it creates an opportunity for appraisers.
“Some appraisers fear that these assignments can’t be completed in compliance with USPAP,” he says. “Nothing could be further from the truth. USPAP rules allow an appraiser flexibility in developing a value opinion; there is nothing in USPAP that requires an appraiser to physically inspect the subject property. Appraisers don’t need to fear these types of assignments; they can be money-makers. You expend no travel time or vehicle expenses. On a dollars-per-hour basis, you can make as much as, or more than you can on a traditional full-inspection, full-fee assignment.”
But, Bradley notes, the increased likelihood of AMCs and lenders going out of business—and leaving appraisers stuck with unpaid fees—can’t be overlooked.
“Keep an eye on your accounts receivable,” he urges, “and don’t hesitate to take aggressive steps to collect past-due appraisal fees. Keep going until you get paid.”
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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 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.
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