Residential Appraisers Defy the Naysayers, Fight for their Profession.
By Kerri Panchuk
An economic tragedy is unfolding silently across American neighborhoods.
With fewer young careerists joining the residential valuations industry, real estate appraisers foresee a future where lenders and consumers alike face added costs and lengthened real estate delivery timelines due to a shortage of trained appraisers in the residential valuations space.
Statistics pointing to an apparent drop-off in young professional appraisers continue to alarm real estate experts across the country, with the number of appraisers falling approximately 3 percent per year, according to data from The Appraisal Institute, a professional group for the valuations industry.
Statistics from the same organization show a long-term trend, in which more than half of the country’s appraisers are between the ages of 51 to 65—not exactly a promising statistic if the U.S. real estate market hopes to have a supply of well-trained appraisers in the decades to come.
“The rate of decline in the appraiser population within the U.S. has been averaging between 4 percent and 5 percent,” explained Greg Stephens, Chief Appraiser and SVP of Compliance for Metro-West Appraisal Co. “That number is expected to increase due to the high percentage of practicing appraisers who are in their 60s and 70s and who will either be retiring, dying, or leaving the industry within the next decade.”
On the surface, the decline of rookie appraisers in America appears insignificant. After all, how much is there to lose when the parties responsible for valuing everything from a home’s roof to its green features and custom cabinets are no longer a stone’s throw away?
“If this trend continues I believe we will see dramatic increases in the cost and time needed for field appraisals."
But the stark reality is every person and business tangentially tied to real estate stands to lose if this new paradigm survives in the residential valuations space, especially consumers and lenders who rely on the independent analysis of appraisers.
“Today we have fewer appraisers, increasing average age and a decrease of people coming into the profession—not a model that can sustain without change,” said Jeff Dickstein, Chief Compliance Officer for Pro Teck Valuation Services, and a member of the Five Star National Appraisal Congress.
“If this trend continues I believe we will see dramatic increases in the cost and time needed for field appraisals. At the same time, I believe we will see increased adoption of other valuation products, including desktop appraisals and other non-appraiser valuation alternatives.”
Dickstein’s assessment mirrors analysis from sources that have been following this issue since the dawn of the housing crisis in 2007, when many experienced appraisers ran to the exit gates as soon as business activity plummeted. The shift caused negative reverberations still felt throughout the industry today.
The Federal Reserve Bank of Minneapolis sounded the alarm two years ago, noting that bankers in the Fed’s Ninth District “expressed frustration” over their inability to find qualified appraisers.
At the time, data from the Federal Financial Institutions Examination Council Appraisal Subcommittee showed a dramatic sea change, with the number of U.S. appraisers falling by 15 percent between 2007 and 2012.
But repairing the ranks is no easy task. Valuation professionals in training remain systemically dependent on licensing institutions, regulations, and mentors to ensure they have the chops to enter the profession.
The lifestyle, which comes with the potential to earn six figures, begins with a level of uncertainty that appraisal trainers and their pupils increasingly view as not worth the time or expense. New job candidates often find themselves turned off by certification requirements alone.
“We have a difficult time recruiting residential trainers for the apprentices wanting to enter the business,” noted William Fall, CEO of The William Fall Group, a real estate valuations firm. “The two-plus year obligation of joint field inspections is felt to be a real burden by most people. There is just not enough positives to offset the time.”
Michael Floyd, Chief Appraiser and SVP of Compliance for Streetlinks Lender Solutions, blames a complete “lack of incentive” for the dwindling ranks of new appraisers. “With the amount of additional required oversight involved with accompanying an appraiser trainee to every inspection and the liability of being completely responsible for their conclusions, there is simply no discernable ROI to such a relationship,” Floyd added.
Essentially, the mentors, who have to take on the price of training appraisers, find themselves facing a long mentorship period, where the process is more demanding than in years past and the overhead expense is too high to easily justify.
The National Appraisal Congress (NAC), a Five Star Institute membership group comprised of appraisers and appraisal management companies, began advocating last year for changes in how mentors and appraisal trainees work together to resolve barriers to entry.
“In certain states, regulations make it impossible for an appraiser trainee to serve as a force multiplier on behalf of their trainer or mentor,” said Jordan Petkovski, chairman of NAC and chief appraiser for Title Source. “The end-result is a timely and costly training process that discourages the mentoring of the next generation of valuations professionals. In a decade, the falling ranks of new appraisers will catch up to consumers and financial firms—all of whom will eventually be hit with longer origination timelines and higher appraisal costs due to the dwindling number of appraisers operating in this space.”
Petkovski is not alone in his assessment. An attitude of concern has already spread throughout the industry, causing NAC to step forward to assert a solution for the industry.
“Trainees are at a standstill right now,” explained Ernie Durbin, a Member of NAC and chief valuation officer for Valuation Vision. “It is purely an economic issue. Traditionally, training new appraisers has been a part of growing an appraisal practice. Unfortunately training new recruits is not economically viable in today’s valuation environment.”
In the past, a supervisory appraiser would benefit from having a two-year apprentice under his or her umbrella since the trainee could simultaneously function as a force multiplier on behalf of their mentor, allowing the trainee to inspect a home after obtaining a certain level of competency without the supervisor having to be onsite.
"In my view, the greatest challenges lie with the lack of incentive for supervisory appraisers to participate in the process under the current regulatory environment."
This prevented appraisers from losing money on trainees since a trainee with a certain threshold of experience could get into the field and handle most of the process without taxing the time and financial resources of the trainer.
“Apprentice appraiser training appears to be at a low point since appraiser licensing was enacted,” explained Michael Floyd with Streetlinks Lender Solutions. “In my view, the greatest challenges lie with the lack of incentive for supervisory appraisers to participate in the process under the current regulatory environment. Due to their regulatory oversight, lenders either do not allow trainee appraisers to be involved with their assignments or they require the supervisory appraiser to accompany the trainees during every appraisal inspection, which decreases productivity due to duplication of duties.”
State regulations in several key states—Arizona, Florida, Illinois, Maryland, Mississippi, Missouri, New Mexico, Oregon—also make it difficult for mentors to financially justify the expense of taking on new trainees. To resolve this issue, the NAC recently released a white paper, titled “Proposed Residential Appraisal Solutions Overview,” which advocates for the inclusion of streamlined language in state appraiser trainee regulations in jurisdictions where there are too many barriers to entry. But it’s not just state regulations that remain a burden. Financial firms also have taxing expectations.
“Lenders will simply not accept trainees as the primary inspecting appraiser,” added Durbin with Valuation Vision. “As such, supervisory appraisers must accompany trainees on every inspection. This makes it impossible to scale an appraisal practice. There are only so many hours in the day that a supervisory appraiser can spend inspecting properties. Add to that reviewing the written report and [the] supervisory appraiser[s] might as well do the work themselves. It is a shame lenders do not recognize that the certified appraisers they used today were trained to do inspections by themselves in the past.”
The NAC also launched a new subcommittee to advocate on behalf of new appraisers to grow their influence in the business and to break down barriers to training. Known as the “Society of Young Appraisal Professionals,” the group is one of the first of its kind since it focuses solely on issues impacting new appraisers and trainees.
“If we do nothing as an industry to tackle this issue, the appraisal profession as we know it will simply cease to exist,” explained Erik Richard, CEO of Landmark Network and a member of the NAC Society of Young Appraisal Professionals. “Mortgage bankers and Realtors have very powerful lobbies in D.C. and as our industry becomes more of a burden with three-week turn times and skyrocketing fees they will seek other remedies. Unless we lead the effort to fix this problem, I am confident we won’t be part of the solution.”
Unfortunately, new talent looking for a career may bypass the many perks of the appraisal business in exchange for an easier starting point on another career path. Still, the profession has a mystic, almost alluring quality, and fringe benefits not offered on other career paths.
“We continue to find interested applicants that are drawn to job flexibility as well as opportunity to utilize advancing technologies,” noted Fall. “Most understand that full earnings potential will not be obtained for a couple of years.”
If the trend continues, the future of residential valuations could be a bleak one, or at least one in which consumers and lenders end up holding the bag when it comes to rising costs.
When asked what the industry will look like without a resurgence in new trainees and streamlined regulations, appraisers threw out the most likely scenarios.
“It will probably be non-existent, as a lack of providers and the resulting significant service delays will likely lead the lending industry to push regulators to allow adoption of alternative solutions for valuing residential real estate in segments where appraisals are currently required,” noted Floyd.
Valuation Vision’s Durbin worries about a supply-demand imbalance.
“Initially the impact on the consumer will be higher valuation costs and extended closing times,” Durbin said. “It is simple supply and demand. With less certified appraisers available, costs will increase and assignments will be backlogged.”
“Further down the line the lending industry will inevitably find other valuation solutions that may be riskier for the consumer,” he further explained. “If appraisers are not readily available, other solutions such as AVMs and BPOs may be considered as alternatives. While these products have their place in valuation, they are certainly less preferable and riskier than an appraisal performed by a competent certified appraiser for origination purposes.”
With that in mind, residential appraisers committed to the profession are not waiting for tech products to take hold. They are fighting to ensure the appraiser on the street continues to be valued for offering flexibility, knowledge and independence throughout the process.
Editor’s note: The Five Star Institute is the parent company of the National Appraisal Congress, MReport, and theMReport.com.
Editor's note: This select print feature appears in the September 2015 edition of MReport magazine, available soon.