PERSON OF THE WEEK: The still-evolving state of mortgage banking has significantly redefined the responsibilities of appraisers. This week, MortgageOrb speaks with Brian C. Coester, CEO of Coester Appraisal Group, based in Rockville, Md., on how this sector is responding to the new playing field.
Q: What do you see as the near-term future of the housing markets, and what will this future hold for appraisers?
Coester: The housing market has taken a huge hit, and there is still some decline that will take place before the housing market starts making strides forward. The reality is that there is a lot of shadow inventory that has not been released by lenders yet. This is almost like storm clouds over a market that has somewhat flattened out over this year.
This inventory typically is factored in when determining current and future housing trends. Depending on the way the lenders release inventory will greatly determine the rate of housing decline over the next year.
Q: What exactly does this mean to the market?
Coester: I recently heard that Bank of America is going to start releasing 45,000 foreclosures a month from their inventory. It's still not 100% clear how the market will react to this. There is still a lot of potential home buyers on the market looking to purchase, which is a great sign. Overall, the market has somewhat stabilized, and I see a bright horizon and some consistency into 2012.
Q: How does this impact appraisers?
Coester: The future for appraisers is always bright. The reality of the situation is appraisers are always needed and will always be needed. There's really never been time in the modern financial society that appraisers haven't been needed and haven't been busy.
Now, appraising for mortgage lenders today is a little more challenging because of all the requirements by lenders, dealing with multiple parties in the transaction, and a declining market. Even with all of that, it's still pretty good compared to what most companies or industries are facing in the economy. Mortgage lender work represents less than half of all the appraisals ordered, and appraisers who have a diversified business should have no problem getting work and staying busy in any market.
Q: From your professional perspective, what can appraisers do to ensure that they are providing the highest quality information to their clients?
Coester: Appraising in current market conditions is one of the hardest things to do. It's almost like you can't be right no matter what you do. If you go into a neighborhood you used to have a pretty tight range of homes to work with – typically within a 10% to 15% range. Thus, opinions of market value would usually fall within this range and generally different appraisers would agree within a reasonable differential.
Currently, you are seeing market areas where values range sometimes as much as 50%, and appraisers scratching their heads as to where the subject fits. The good appraisers will provide accurate information to their clients. Their job is to be unbiased, not conservative, not too aggressive but more act as a consultant where the client, which is the homeowner or the investor needs to be treated in their best interest.
Providing the highest quality information would be providing the most recent information relying on current market data and relying on things that truly reflect what's going on in the market. Appraisers should focus on providing as much relevant data as possible without confusing the client. Ultimately, the comps tell the story and the comps determine the accuracy of the report.
Q: On the other side of the coin, how can lenders determine that they have the best appraisers on the job?
Coester: I don't think lenders can really judge appraisers. As long as the appraiser is reliable, professional, easy to work with, and produces a consistent accurate report, they really don't know how good the appraiser really is.
An appraiser could be professional, reliable, detail-oriented and still be a horrible appraiser, which a lender wouldn't catch on their own. Typically, lenders don't really know enough to judge a good appraiser vs. someone who just knows how to fill out the form properly. Lenders telling appraisers that they're doing a bad job or a good job is really not appropriate to the fact that they're not appraisers, and they really don't have any training or understanding of the appraisal process other than outside of some basic underwriting skills and business practices.
The best thing a lender can do to determine if the appraisers are doing a good job is to have another appraiser review their work. A third-party review appraiser will by far do a much better job in determining the accuracy of an appraisal report and skill of the appraiser. Overall, you want someone you can trust will make the right call and will protect you.