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Valuations: An Industry on the Precipice?

appraisalSignificant pressure is weighing on the valuations industry. The landscape ahead is unlike anything the industry has ever faced. Without change, the coming year could be the beginning of the end of the appraisal profession as we know it today.

Heading into 2017, a trio of forces is converging on the industry. While the three forces impinging on the industry overlap, they can be trisected individually. Number one is a nationwide shortage of appraisers.

The appraiser shortage not only effects appraisal management companies, it impacts lenders as well. In 2017, the residential real estate sector at large will also begin to feel the effects of this underreported crisis.

The industry could see upheavals in regional real estate markets caused by logjams in lending due to increased transaction times caused by the appraiser shortage. Unless something is done in 2017 to begin easing the pressure, a feat that can only be accomplished by planting a new crop of professional appraisers, the valuations industry may face a familiar line of questioning from the media, from Congress, and from the nation at large, all of whom will be asking why it short-circuited the economy—(in their minds) again.

For those who say, “let the old valuations business go the way of the dinosaur; let technology replace human appraisers,” the rumblings about software replacing human valuations professionals have been heard since the 1990s. But there are myriad examples of why human appraisers continue to outperform automated valuation models. A classic example is inspecting the quality of a roof.

Perhaps an AVM can take into account a roof's age, materials, as well as local weather patterns and perhaps even the Better Business Bureau's or Angie's List ratings of the last contractor who installed it. What it can't do that a human appraiser can is notice a smell coming from the eaves under the roof. The AVM can't discover that the source of an odor is an infestation of vermin that has compromised a section of the roof, causing devaluation of the property.

The superiority of valuations performed by human appraisers notwithstanding, the fact that lenders and agents feel pressure to move transactions forward can’t be ignored. When there just aren't enough appraisers to go around in 2017, and with improved AVM products being sold as “fully viable alternatives,” it will be hard for the valuations industry to blame decision-makers in government and business who want to help the valuations industry “evolve” through greater competition from AVMs.

Appraisal professionals skew heavily toward the older end of the age demographic. According to the Appraisal Institute, fully 57 percent of valuations professionals have been in the business for 20 years or longer. Only 2 percent have been around for a year or less. Throw in those who have been doing appraisals for two years or less, and young appraisers still make up only 2 percent of our numbers.

The valuations industry desperately needs new blood. Yet overzealous education requirements are keeping capable people out. Many fine appraises, women and men who own their own firms, have been doing great work for decades with a high school diploma and an associate’s degree, plus industry certificates and lots of on-the-job experience.

The simple solution is to undo the overcorrection that was executed following the crash of the housing bubble. Yes, we overcorrected. Nowadays appraisers are asked to get more education at entry level than some nurses. It is not necessary to go back to pre-crash education requirements.

The appraisal profession is the safety net for the American Dream. In the coming year, the valuations industry will either demonstrate once and for all that human appraisers are essential to securing that safety net, or it will cede its portion of responsibility for the American Dream to an algorithm.

(Editor's note: For more perspective on the property valuations industry, see the feature "Breaking Down Valuation" in the January issue of MReport magazine)

About Author: Dave Vancellette

Dave Vancellette is co-founder/national sales with Transcontinental Valuations, Inc. For 18 years, Vancellete has used his creative and professional skills in industry roles such as major account manager, operations manager, product developer and ultimately co-founder of TCV in 2007. Today he focuses on business development and consulting.

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