Real Estate Analysis and Commentary in Indianapolis

2020 is going to be challenging with many changes in the industry. As we reflect on the past, the changes we have seen and the growth we have endured, our hearts are warmed with the accomplishments we have obtained. Appraisers are no longer sitting back and letting others dictate our future. Have we won every battle, no; but our voices are being heard and our regulators are taking notice. Legislators, consumer groups and even Realtors are speaking up in favor of the licensed professional appraiser.

This begs the question, are appraisers really professional? According to Webster’s Third International Dictionary a profession is

“A calling requiring specialized knowledge and often long and intensive academic preparation.

And a professional is 

“engaged in one of the learned professions characterized by or conforming to the technical or ethical standards of a profession; exhibiting a courteous, conscientious, and generally businesslike manner in the workplace.

Yes, Appraisers are professionals. We receive specialized knowledge and endure long and intensive academic preparation to become licensed. We go further and continue our education each year to continue to grow our knowledge and skills. We follow the Uniform Standards or Professional Appraisal Practice, which consists of both technical and ethical standards and we (most anyway) are conscientious and business like each and every day.

Looking forward into 2020 and beyond, Appraisers ask that you consider the definition of a profession and professional. What goals have you set to become a more rounded appraiser this year? What classes have you signed up for and what books are you going to read? Review your business plan. Who are your customers? How do you obtain those customers? Take a look back at your 2019 business goals. Did you meet them? If not, what were the reasons? What changes do you need to make personally and professionally to meet your goals?

Let’s grow as a profession in 2020!  Be informed. Stay informed.

Appraisers across the country must  ascend to the next level of professionalism and wishes you a prosperous 2020.

Is It Time to Dump Real Estate Appraisals?
If you’re looking for a villain-of-the-month club in real estate, you might want to speak with your nearby friendly appraiser. They’re getting a lot of grief these days, in large measure because by doing what they’re supposed to do, they’re annoying a lot of people. Sellers don’t like appraisers who value properties below contract prices, brokers often see them as “deal killers” who delay and deny commission checks, buyers don’t like the fees appraisers charge, and lenders can hardly talk with them for fear of violating rules that prohibit efforts to influence valuations.

To make matters worse, we’re selling a lot of houses but we’re not expanding appraiser ranks.  In many areas there’s an appraiser shortage, so to resolve the problem, several of the nation’s leading financial regulators ruled in May that temporary practice permits and waivers could be used to bulk up appraiser ranks, especially in rural areas where the lack of appraisers is seen as most acute.

In July, several federal regulators proposed simply doing away with appraisals for a large number of commercial transactions by raising the commercial real estate appraisal threshold from $250,000 to $400,000. This proposal, said Martin J. Gruenberg, Chairman of the Federal Deposit Insurance Corporation (FDIC), “will be a meaningful reduction in regulatory burden, particularly for rural banks who would be expected to originate many of these smaller transactions.”

“In addition,” said Gruenberg, “the proposal seeks comment on the threshold for residential real estate, and I look forward to the comments on that issue.”

Get it? The head of the FDIC is asking how we can solve the appraisal shortage by cutting back the need for residential valuations.

Appraisers, for their part, argue that they’re just doing their job, a job where pay increasingly lags skills, training, or experience.

Much of the problem comes down to money. Simply put, Miller (no relation), says appraisal management companies (AMCs)—firms that act as intermediaries between lenders and appraisers to assure that valuations are not influenced by lender pressures—are getting far more than their services are worth.

 “AMCs take half of the market rate appraisal fee to manage us. This administrative fee is earned by confirming we had a license, forcing us to interact daily with 19-year-olds—chewing gum checking on the status of their appraisal—subjecting us to expanding scope creep to validate their existence and run analytics on our appraisal opinions to keep us accurate. This relationship is done all in the name of compliance even though there is no regulation requiring banks to use AMCs.”
 “If appraisers were able to seek business directly from lenders, and appraisal fees were market based, there would be no ‘shortage’ of appraisers.”

3 Ways to Resolve the “Shortage” of Appraisers
Looking ahead, one can see three ways the appraiser “shortage” can be resolved.

First, we change the rules to require fewer residential appraisals, just as we see with the proposal to eliminate commercial appraisals for transactions of $400,000 or less. This approach assumes that lenders—and borrowers—will accept more price risk.

Second, we can dump AMCs, a move that will instantly increase the actual payments going to appraisers by 50%. With higher fees, we can expect more appraisers to return to residential evaluations and with more appraisers, we will then see fees fall.

Third, we can substitute electronic valuations for in-person appraisals. Lenders now use appraisal reviews to check the work of human appraisers, but such reviews are so complete they can often eliminate the need for appraisals. For example, electronic appraisals might work well in situations where fairly identical properties are being sold—the Model B in a subdivision with 1,000 like units. Where electronic valuations don’t work is with older neighborhoods where properties differ as well as in situations where homes have been poorly maintained and no appraiser goes inside. Appraising, at least to date, has more variables than electronic models can capture.

“Automated valuation technology has come a long way, but it’s still not a replacement for the appraisal process,” “Appraisals are still equal parts art and science, and they have value because they help lenders avoid funding more than they should, and prevent consumers from overpaying for a property.”

Like many professions in a changing economy, appraisers now face new challenges. Call if you want to know how much a home is worth? As long as each and every parcel of real estate remains unique, appraisers will have a lot of work ahead.