Photo credit:Paul Sullivan
Amid regulations and licensing requirements, profession not seeing significant new recruits
With demand for housing rapidly increasing, a key part of the home purchase process is disappearing. Appraisers, the men and women who provide home valuation opinions and whom mortgage lenders are dependent upon, are declining in numbers and this is causing more closing delays, costing seller and buyers money, even ending deals.
According to Campbell/Inside Mortgage Finance, the percentage of on-time closings has dropped from 77% in April 2016 to 64% today on Fannie Mae and Freddie Mac-backed loans.
“It is evident that there’s a shortage of real estate appraisers and although this has been recognized as a problem over the course of the past couple of years, however no clear cut solution has been decided on. An aging base of professionals and stringent guidelines have had a massive effect on potential talent coming into the industry,” said Paul Prentice, Senior Managing Appraiser at PEMCO Limited. “The incentive for a supervising appraiser to take on a trainee is almost non-existent with current volume levels. This is somewhat of a double edged sword as volume levels have never been higher, yet appraisers are not able to capitalize on all of it because the current rules do not allow for a functional solution.”
Since 2007, the number of appraisers have fallen 22%, according to the Appraisal Institute and with few fresh faces, current appraisers are aging, with more than 60% being over 50 years old.
Much of what’s causing the decline in new appraisers is due to the new regulations that are designed to safeguard borrowers and lenders. With one of the regulation provisions requiring that a licensed appraiser be on-site when an appraiser apprentice conducted an inspection, this resulted in appraisers no longer seeing a need to pay apprentices. At the same time, licensing requirements include 2,500 hours of appraisal experience that must be completed in two years as an apprentice.
“The incoming trainee appraiser will have more success in locating a supervisor if they can prove that they’ll add to their current client base and will increase their revenue stream in both the short and long term,” said Prentice. “Not all supervisors will be receptive to this, but, again, the odds to obtain training will be higher with this train of thought. A savvy supervisor will look at this opportunity and, if it fits their particular business model, might be willing to take on a trainee, furthering the next generation of appraisers.”
In some of the hottest housing markets, the shortage means it could take a while to find an appraiser that’s not loaded with several commitments, which negatively affects turn times.
Paul posits that rush fees are not always the way to decrease turn times, “Questions arise ‘If I pay a rush fee, can the appraiser complete this one more quickly?’ Sometimes the answer is ‘Yes’ other times though the appraiser has already made two weeks’ worth of commitments so the answer may very well be ‘No’. Even a higher fee may not help as it would mean bumping another file which likely already has a commitment.”
Prentice says the profession can deal with the shortage in several ways, “One way is to make the industry more attractive to come into. This may mean lightening up on requirements, an industry wide fee adjustment, or a fast track option for qualified individuals to become licensed.”
Home prices are gaining and with increasingly lower inventory, competition is rising. Appraisals are delayed by two months in some markets and home prices can change during this time.
Home prices can change in a matter of two months and this corresponds to how long appraisals are being delayed in some markets. Mortgage rates are also moving in a wider range, making rate-locks ever more important. Extending a rate-lock can cost a significant amount of cash.
“Another adjustment that may need to take place is for rate-locks, loan closings, and appraisal contingencies to see longer terms. Instead of a typical 30-day close, it might be in everyone’s best interest to promote a 45 day close. This may lead to other potential issues, but could be discussed as a solution. The solution may not just be with the appraiser but potentially within different aspects of the loan process,” said Prentice.
The Appraisal Qualifications Board (AQB), an independent board of the Appraisal Foundation, and the nation’s foremost authority on the valuation profession, is proposing changes to its Property Appraiser Qualification Criteria such as: eliminating the four-year college graduation requirement and reducing the apprenticeship time by half, among other changes.
“This is a good time to be an appraiser and while volume levels are this substantial, this is the perfect time to take advantage by asking for higher fees and using the demand to diversify a client base. It is however, clear that a long term solution needs to be put in place to attract a dynamic talent base to further the appraisal profession and protect the consumer and lender for the foreseeable future.”
The Appraisal Foundation/The Appraiser Qualifications Board. First Exposure Draft of Proposed Changes to the Real Property Appraiser Qualification Criteria