Recently, the Massachusetts Board of Real Estate Appraisers (MBREA) conducted a survey of its members. 67% of the responders were born between 1939 and 1962 (currently aged from 55 to 78). 52% will retire within 10 years, and many will continue to work until they drop. Residential appraisers list low fees as their #1 concern. Commercial appraisers listed increased liability and “scope creep” among their greatest concerns. And finally, the respondents listed that the #1 benefit of the MBREA is its advocacy in safeguarding appraisers’ livelihoods.
Two banks in Tennessee have requested an exemption from the requirement of obtaining appraisals in order to complete the loan process. Their reason? Not enough appraisers available to handle the workload! It turns out, of course, that the “shortage” of appraisers turns out to be a shortage of appraisers willing to do more and more work at fees that were prevalent 20 years ago.
And then there are the AMCs – Appraisal Management Companies. AMCs have been hired by the lenders to make sure that the appraisers are “qualified” to do the appraisal work. The AMCs also have the responsibility of managing the paperwork associated with the appraisal process. Many of these AMCs are owned and operated by properly licensed and designated appraisers, but many on the payroll are not. The AMCs constantly ask for more comparables, more data about the comparables, more proof of adjustments, and more written explanation about all of the above. And yet, nowhere in the final report is there a signature of any AMC employee who actually “reviewed” the appraisal report. The requests and demands made of the appraiser by the AMC become additional risks that the appraiser assumes. The AMC is not on the hook on any particular transaction.
The economy has been good and getting better for a number of years. Real estate values have rebounded steadily for the last eight years. Banks and mortgage companies have returned to profitability. Mortgage rates are still low. Stories abound of properties selling over asking price. And the stock market has never been higher – and quite possibly has never risen so fast. So what could possibly go wrong? Aren’t these conditions similar to those prior to the mortgage meltdown of 2008?
With an economy this good and such a shortage of listings and a new income tax system, is there any risk that we should be concerned about? Because real estate prices have risen so fast for so long, isn’t it reasonable to assume that they will continue to do so? If the few transactions that are occurring are transacting at ever-higher prices, is there any reason to pay an appraiser to document market support for the transactions? Is the market willing to pay an appraiser to accomplish that task? Will any appraisers be willing to work for continued low fees in this environment? The appraiser is typically the only person who signs any document in most loan files. The only signature! The general public relies on appraisers to protect the borrower from borrowing too much, and protects the lender from lending too much. The licensing of appraisers starting in 1992 was a consequence of the savings & loan meltdown in the early 1980s. Congress was, at that time, so concerned about the impact of over-aggressive lending that it created The Appraisal Foundation (TAF) and charged the organization with creation of standards for appraisers and appraisals. The Appraisal Foundation remains the only federally chartered organization specifically created to develop and maintain standards for a specific profession.
The Appraisal Foundation created the Uniform Standards for Professional Appraisal Practice (USPAP) through the Appraisal Standards Board (ASB); USPAP is updated every two years. Appraisers are required to complete education on these updates every two years in order to maintain their license. TAF also created a set of qualifications for an appraiser’s initial licensure; this is done through the Appraiser Qualifications Board (AQB). It has always been the mission of the TAF to increase the public trust in the appraisal profession.
Under that objective, the qualifications of an appraiser have been made more difficult over the past twenty years.
USPAP standards are not likely to be relaxed. An appraiser who does not follow USPAP is only exaggerating their personal and professional risk; a lender who accepts an appraisal that does not conform to USPAP also increases their risk.
Appraiser qualification standards are likely to be relaxed. While there is not yet an appraiser shortage, it is true that one is likely coming in the future. The AQB has published its 4th draft of the proposed changes to the qualifications required for one to become a “Certified Residential Appraiser”. There will be a relaxation of the requirement for a college education and there will be a reduction in the number of hours of experience required to become certified. The AQB and the users of appraisal services believe that these changes can be made without a reduction in the quality of the appraiser or the appraisals.
However, the greatest motivator for a person considering the appraisal profession is the opportunity to make a decent living doing so. Lenders may want to consider viewing the appraisal function as an investment in risk reduction instead of merely a cost of completing the loan paperwork.
Shaun Fitzgerald is the owner of Fitzgerald Appraisals, Easton Mass