The Appraiser ‘Shortage’: What Can Be Done?

Patrick Barnard
by Patrick Barnard
on February 24, 2016 No Comments
Categories : E-Features

The number of active real estate appraisers continues to shrink, raising questions for mortgage lenders and servicers about how quickly they will be able to get home appraisals in the future and, perhaps more important, how good the quality of the reports will be.

Recent research from the Appraisal Institute shows that the number of appraisers will shrink over the next five years due mainly to a mostly older workforce that will soon retire. Many appraisers got out of the business in the aftermath of the economic downturn that began in 2008. Since then, some have jumped back in, but they are finding themselves increasingly hamstrung by an onslaught of new regulations that not only have made the training, licensing and fees associated with appraisal work more expensive, but also have given rise to appraisal management companies (AMCs), which take a slice of an appraiser’s fees. Many individual appraisers report that they are now having a hard time making a decent living.

According to the Appraisal Institute, there were about 78,500 real estate appraisers working in the U.S. in the first half of 2015 – down nearly 20% from 2007. The group forecasts that the number of appraisers will decrease by about 3% during the next five years.

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Although the number of transactions today is nowhere near what it was in the pre-crisis years, there is a question as to whether there will be enough appraisers working in the industry to handle any sudden increase in volume. One statistic from the Appraisal Institute seems to strongly indicate that the industry is now set up to experience a shortage: About 62% of appraisers are age 51 or older, while 24% are between 36 and 50, and only 13% are 35 or younger.

This raises a serious question: How can the industry attract new talent? Technology also looms large in the industry’s future, changing the way appraisers will work in the field and in the office and, subsequently, changing the way it goes about recruiting and training.

The appraiser shortage is apparently the worst in certain rural areas of the U.S. So far, however, there have been few reports regarding delayed appraisals holding up the closing process directly as a result of the shortage; so, the trend is difficult to measure. In fact, many appraisal companies operating in urban areas say they aren’t experiencing any shortage at all. Others say although there might be a slight shortage, it’s a regional issue and that it should be no problem to fill the void.

MortgageOrb recently interviewed several appraisal industry experts to find out, first and foremost, if there is a shortage of qualified, licensed appraisers nationwide and, if so, what impact it might have on the mortgage industry moving forward.

Sam Heskel, president of Brooklyn, N.Y.-based AMC Nadlan Valuation, says, in his view, there is most definitely a shortage, but it is more prevalent in some areas than others.

“For example, rural areas seem to be suffering more from a lack of appraisers than the big cities,” Heskel tells MortgageOrb.

“I talk to appraisers all of the time, and a lot of them are simply getting burnt out,” Heskel says. “Increased regulations are part of the problem. While I support the government’s efforts to increase education requirements, some of the newer regulations and guidelines have had the unintended consequence of being very burdensome for appraisers.

“Another issue is qualification and licensing requirements, which stipulate that appraisers in training must apprentice another appraiser for two years,” he adds. “Yet, most lenders don’t accept an apprentice’s work, so the question becomes, ‘Where will they find the work, and who is willing to take them on as an apprentice?’ There isn’t always a feasible process for apprentices to get in the required hours of training.”

Greg Stephens, chief appraiser and senior vice president of compliance for Metro-West Appraisal Co., agrees that the answer really “depends on who you talk to.”

“Case in point: In a recent poll conducted by the Illinois Coalition of Appraisal Professionals, 80 percent of respondents indicated they did not believe there is an appraiser shortage,” Stephens tells MortgageOrb. “However, the Illinois Appraisal Board data reveals that the annual renewals from 2014 to 2015 were down 11.4 percent. In 2005, there were 1,231 trainees pursuing licensure or certification in Illinois. In 2015, that number was 55.

“The same data also indicate that historically, the Illinois Appraisal Board had an upgrade pipeline of approximately 50 applicants,” Stephens adds. “In 2015, that same pipeline had nine upgrade applicants in process. Contrast that with the State of Texas, which has been experiencing an economic boom for several years, and the number of licensed trainees has increased from 520 in January 2011 to 795 in December 2015.”

Stephens agrees that the shortage is basically a regional phenomenon.

“Lenders and appraisal management companies are reporting challenges engaging appraisers to complete residential valuation assignments in certain non-urban/non-metropolitan areas and certain metropolitan areas such as Denver, where turn times and appraisal fees have increased significantly due to an imbalance between the demand and the existing supply of appraisers,” he says.

Over at valuation technology firm Veros, Adrienne Ainbinder, vice president of sales and marketing, says, “We hear consistently there are not enough appraisers to fill the demand and, further, that the demands on the appraisers continue to mount.”

“We recently spoke with an appraisal team in Oregon who shared with us that the requirements are continually contradictory,” Ainbinder tells MortgageOrb. “For example, they cited pre-delivery requirements, which almost violate USPAP – they have a four- to six-week backlog of assignments, yet the required turn times are tighter than ever before, and in order to consider an assignment, he needs to charge a commensurate fee, yet the AMCs they work through continue to maintain a ceiling on their fees. While this story is just one anecdote, there are many more like it, and it is no wonder that stories such as these do little to encourage a growing workforce.”

So, what are the primary factors that are keeping new people from entering the industry?

“The cause of the shortage – either current or long-range – is three-fold,” Stephens explains. “First, there are economic challenges facing appraisers who would otherwise consider taking on a trainee. Second, regulatory barriers are creating a disincentive for someone considering entering the profession, as well as those in the profession attempting to upgrade to certified status.

“On Jan. 1, 2015, the Appraiser Qualifications Board added a college degree requirement to the certified appraiser credential,” Stephens says. “There are thousands of licensed appraisers who were not able to upgrade from licensure to certified status by the deadline. The economic hardship for those appraisers is, in many instances, insurmountable, as demonstrated by one Texas appraiser with only an associate degree who took a sabbatical from appraising to obtain his four-year college degree. He estimates it will have cost him approximately $85,000, between the lost income and the college costs. With no alternative provided by the regulators, those state-licensed appraisers are facing insurmountable financial barriers, as lenders engage certified appraisers due to the prohibitions by the U.S. Department of Housing and Urban Development to include licensed appraisers on its panel.

“Third are the misperceptions within the lending industry relating to trainee involvement in valuations for mortgage-lending activities,” Stephens continues. “For example, the Dodd-Frank Act contains language specifically requiring a lender to select an appraiser from the Appraisal Subcommittee National Registry. Trainees are not listed on the national registry, so as an unintended consequence of the legislators failing to mention trainees, many lenders have expressed a belief they are prohibited from allowing trainees to be involved in the development of an appraisal. In an effort to counter that misperception, the federal agencies included language in the AMC Rules published in 2015 that specifically states the agencies continue to support the use of trainee appraisers as long as they work under the supervision of a state-licensed or state-certified appraiser.”

Then there is the not-so-little problem of compensation.

“Regulations and guidelines implemented since the mortgage meltdown have added a good deal of additional work for appraisers, yet their fees have not gone up accordingly,” Heskel says. “Today, when someone asks me if they should become an appraiser, I advise them to become a lawyer because it will be easier and more profitable.

“If nothing changes, I believe the number of appraisers will continue to shrink over the next 10 to 15 years,” Heskel adds. “A lot of appraisers are older and they’re retiring, yet younger appraisers are not coming in to take their place.”

So, what impact could this appraiser shortage have on the mortgage industry?

“Left unattended, I believe the shortage of appraisers will have a disastrous impact on the housing market,” says William Fall, founder and CEO of valuation and analysis firm William Fall Group. “There’s no substitute for a professional appraiser. Without enough appraisers, we may see the industry become overly reliant on non-appraiser valuation models, which will have a negative impact on quality. Keep in mind that poorly valued real estate was a significant factor behind the last housing crisis. Fewer trained appraisers only increases the chances of this happening again.”

“A serious lack of appraisers could be devastating for the mortgage industry,” Heskel adds. “It is basic supply and demand: Appraiser fees will start to skyrocket. Already, I see appraisers in some rural areas where there are very few appraisers charging $800 for an appraisal, yet the banks are only willing to pay $400.

“A shortage of appraisers will also delay closings, as all parties to a mortgage transaction may need to wait several weeks for the appraisal to be completed,” he adds.

So, what can be done to reverse the trend? What can be done to make the job of appraiser attractive again?

“Again, I believe appraisers’ compensation needs to go up when the amount of work required of them increases,” Heskel says. “Also, the industry needs to re-think the way it treats apprentices, who are required to put in two years of training with a certified appraiser. They often find it difficult to find the hours. Most banks require that the supervisor appraiser should physically inspect the property. Banks typically won’t accept an appraisal signed by an apprentice.”

“I think we need more options to becoming an appraiser,” Fall says. “Other professions, such as doctors and attorneys, use career development structures that are based on competency, and I think the appraisal industry should, too. For example, attorneys must meet certain requirements before they are able to practice in specific courts of law.

“I think one possible solution is requiring appraisal candidates to complete basic coursework and then complete a minimum of 25 property inspections within two months, under the oversight from a certified appraiser,” Fall adds. “This is significantly less intensive than current requirements, yet it would still provide prospective appraisers the skills and experience necessary to appraise properties under $1 million in value.”

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And what about the role of technology in the field and in the office? How might this result in a “new breed” of appraiser and a “changing of the old guard”?

“I believe technology helps appraisers and makes their jobs easier,” Heskel says. “From being able to use lasers for measuring to uploading data in a smartphone, technology can help appraisers work more efficiently. It has really changed the way we write and deliver reports over the past 10 to 15 years.”

In this respect, many agree that technology could be the catalyst that brings younger workers into the field.

“I don’t know if technology is creating a new breed of appraisers, but [it] is an important tool in the appraiser’s toolbox and has been for years,” Fall says. “Quality is always the chief ingredient in every appraisal report. While nothing can replace the skills and judgment of an experienced appraiser, technology can provide an added layer of quality assurance by verifying the data in reports and uncovering additional factors that affect value. Technology is also creating a smoother appraisal ordering and delivery process, which can remove friction for both appraisers and lenders.”

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