FEWER APPRAISERS Between 2009 and 2017, existing home sales rose from 4.34 million units to 5.51 million units, a gain of 1,170,000 transactions, and yet the number of appraisers has declined. In 2009 there were 92,750 active real estate appraisers, according to the Appraisal Institute. By the end of 2017, the Institute estimates that the number of practitioners had
Elkin adds, "Blaming appraisers for losses on reverse mortgages is just another exercise in scapegoat- ing. The appraisal industry’s collec- tive role in any losses connected to these transactions is minimal compared to all the other risks involved. The FHA’s proclivity to blame the appraisers is an exercise in self-deception, or misdirection, or both.”
fallen to 82,208, a loss of more than 10,000 professionals. “The average annual rate of decrease for the past five years has been approximately negative two percent,” said the Appraisal Insti- tute. “Broader analysis suggests that declines may continue for the next five-to-ten years due to retirements, fewer new people entering the ap- praisal profession, economic factors, government regulation, and greater use of data analysis technologies.” With less to sell, finance, and close, there’s no doubt that the housing crash caused people in many shelter-related fields to leave. But, in turn, with less activity are so many appraisers actually needed? Joan Trice explains, “We had a housing finance crisis that re- sulted in a dramatic decrease in transactions. It flushed out a lot of part-timers in all aspects of the housing economy. If you look at the number of appraisers who sub- mit to UCDP (Uniform Collateral
Data Portal) the number is around 45,000. If you look at the number of transactions, it comes to an aver- age of two appraisals per week. That is an oversupply of appraisers. “What makes the headlines,” she continued, “is the shortage in ‘bubblicious’ markets. Can we ever fulfill supply in bubbles? No, the supply isn’t that elastic. And the bigger question is should we?” FEES & AMCS Appraisals cost money at a time when the Internet is driving the price of information toward zero. The cost of a big bank residential appraisal is $500 or so according to ValuePenguin. That’s a big number for a lot of borrowers and a glaring contrast with electronic valuations, but in looking at appraisal costs, several points are often lost. First – and of huge importance – appraisers actually spend time at the property, go inside, and are local valuation experts. Borrowers are getting something for their money. Second, the appraiser’s job is to establish a property value, a value which may prevent buyers from paying too much and lenders from accepting too much risk. “In the typical real property trans- action, the appraiser is the only party with nothing to gain by closing the transaction,” says Francois (Frank) K. Gregoire, an appraiser based in St. Petersburg, FL and a four-time chairman of the Florida Real Estate Appraisal Board. “Their role is to be competent, independent, impartial, and objective. Also, in a typical real property transaction, the appraiser provides the report of his opinions and conclusions to the lender to as- sist in the loan underwriting decision. “If the lender opts to make that decision without an appraisal,” Gregoire continued, “the borrow- er is still on the hook to repay the
If the lender opts to make that decision without an appraisal...the borrower is still on the hook to repay the loan, regardless of the market value of the property. In some circumstances, wouldn’t a prudent buyer seek the unbiased opinion of a well-credentialed, experienced professional before committing to 30 years of payments? It might be money well spent.”
FRANCOIS GREGOIRE
Blaming appraisers for losses on reverse mortgages is just another exercise in scapegoating. The appraisal industry’s collective role in any losses connected to these transactions is minimal compared to all the other risks involved. The FHA’s proclivity to blame the appraisers is an exercise in self- deception, or misdirection, or both.”
loan, regardless of the market value of the property. In some circumstances, wouldn’t a prudent buyer seek the unbiased opinion of a well-credentialed, experienced professional before committing to 30 years of payments? It might be money well spent.” Third, there can be a major dif- ference between what borrowers pay for appraisal services and what appraisers actually collect, a point that doesn’t get much attention. After the mortgage meltdown, federal and state governments wanted to make sure that apprais- ers could not be pressured by lend- ers to hit a certain number or curry favor with favorable valuations. One result was the Mortgage Disclosure Improvement Act (MDIA). The MDIA led to the establish- ment of appraisal management companies (AMCs). Instead of hiring appraisers directly, lenders can hire AMCs and have the AMCs hire appraisers, thus separating appraisers from loan officers and other mortgage officials. And, of course, for this service there’s a fee to the AMCs. Borrowers, for their part, often see an appraisal fee but not how the fee is divided. Without disclo- sure, consumers may believe the
entire fee is going to the appraiser. “AMCs often get more than 50 percent of the borrower’s applica- tion fee designated for the apprais- al,” says Jonathan J. Miller, Pres- ident and CEO of Miller Samuel, Inc., New York-based real estate appraisers and consultants. “I’ve seen as much as 70 percent go to the AMC,” said Miller (no relation to the author). “I’ve had appraisers tell me their AMC clients don’t allow the appraiser to place the breakdown of the fee on the report. Their lobby has pushed hard to keep that issue unclear to the consumer. Imagine if the consumer was aware that a large portion of the ‘appraisal fee’ was designated for clerical work. This one issue has decimated appraisers and caused many to leave the profession. “Think about that 50 percent to 70 percent share of the appraiser’s fee for a second,” Miller continued. “AMC’s must be the most inefficient financial institution ever invented since all they actually do is order re- ports via software, verify our certifi- cations, and claim they are a barrier between the appraiser and the bank. Trained appraisers are forced to work with 19-year-olds chewing gum who don’t really understand what we do. In my experience the AMC
LARRY M. ELKIN
HISTORICAL FHA SALES PRICE COMPARISON
MEDIAN SALES PRICE
MEDIAN AVM
$250,000
$200,000
$150,000
$100,000
$50,000
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20 | think realty housing news report :: april / may 2019
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