If you Google "appraiser shortage" today, you will see that many industry experts are coming to the realization there is, indeed, an issue with appraiser shortage in the mortgage lending sector. If we don't change our relationship with appraisers, and how we value and support them, things are going to get worse.
Steep educational requirements and prohibitive expenses have reduced the number of appraisers entering the industry (the average age of an appraiser today is 60). Very few appraisers are willing to take on apprentices due to the perceived risk to their licensure and also fearing the competition once the new appraisers are out on their own.
Even more alarming is the number of existing appraisers who are turning away from the industry due to increasing regulatory pressures, unrealistic turn times, and the professional risk associated with a 25- to 30-page report filled with data points, rules, and formatting requirements imposed by lenders and government-sponsored enterprises. The high demand allows appraisers to be selective of the assignments they accept. More and more, they are declining assignments with too short turn times or too low of a fee. The time spent reassigning eats into the appraiser's inspection and reporting time, utilizes valuable appraiser management staff's time, and can cause significant delays in the turn-time of the appraisal.
The Truth About Fees
Today, in about 75% of the country, appraisers' fees are typically $350 to $500. Add another $100 for appraisals in the remaining 25% of the country (rural, low population and non-metro areas). If the current trend continues, in the next 12 to 24 months, we may see appraisal fees increase by more than 40%. Your members could be looking at fees as high as $500 to $700 for GSE and FHA appraisal reports (plus the fee to an appraisal management company—AMC—or the internal compliance cost). If the member is being charged the entire fee, their "total appraisal fee" could be $600 to $800, especially if the lender expects a turn time of less than three weeks during the four "busy" months of the year. It's a simple matter of supply and demand, and many indicators suggest we are going to be faced with the same issue in 2017.
Appraisers are concerned that these management, quality-control and compliance fees are eating into their compensation. They are not. Reputable AMCs are paying "fair and reasonable fees" and clearly separating the appraisal fee from the AMC's. Credit unions have a chance to demonstrate the credit union difference by adopting a cost-plus model for appraisals. Simplicity and transparency is critical in this age of increased regulation and heightened focus on consumer protection. The appraiser's fee and the AMC's fee (or the internal appraisal management costs of the credit union) should be disclosed separately on the closing statement (not combined and called the "Appraisal Fee")
Richard Cordray, Director of the Consumer Financial Protection Bureau (CFPB), recently stated that an examination of appraiser regulations is next for them as they continue to address mortgage lending regulations.
Under Pressure
It is the AMC's duty to protect the appraisers from undue influence, and that includes pressure to meet unrealistic deadlines. The industry saw turn times in some areas approaching one month for a standard residential real estate appraisal report.
In an attempt to be responsive and provide better turn times, some AMCs have hired staff appraisers dedicated to mortgage valuation. As an incentive, some AMCs are offering signing bonuses for these staff positions. My concern is that this is further reducing the available supply of independent appraisers to conduct mortgage valuations.
I was recently asked by a large Texas credit union, "What do you think about Wells Fargo paying appraisers an extra $150 to $200 to get their appraisals done in less than 10 days?" I said, "Bad idea, it doesn't deal with the real issue and the extra fee will be nested in some hidden consumer cost." Paying rush fees is not a sustainable solution for a growing industry problem, and actually has the potential to compound the problem. It slows turn times for transactions that are not utilizing the rush fee.
Great Expectations?
This spring and summer many credit unions were holding on to unrealistic expectations for the current appraiser supply and the hot housing market. AMCs who are working for them are passing that urgency along to appraisers, who are getting increasingly more resentful. This is straining relationships between appraisers and AMCs, AMCs and lenders, and appraisers and lenders.
In this low-interest-rate environment, we have seen the biggest growth in mortgage volume since 2006. The Mortgage Bankers Association's forecast is predicting continued residential mortgage loan growth through the third quarter of 2017.
Credit unions are competing with other lenders to meet or beat their turn times, but the truth is: we are all dipping into the same appraiser pool. The only way to produce faster results is to pay higher fees and this does nothing to ensure a strong appraiser pool into the future. As more appraisers leave the industry, and more of those remaining refuse assignments related to mortgage transactions, turn times and fees can only increase
Next Steps
Just as credit unions steered clear of the practices that brought the housing market to its knees in 2008, forward-thinking credit unions can further their credibility today by examining their role in the appraisal industry. We must take strategic steps to address this looming crisis and proactively build solutions today. AMCs who are competing on turn-times alone are doing a disservice to the industry and are further eroding the appraiser base.
The Appraisal Foundation is revisiting the steep educational standards that are proving obstructive to industry growth. All indications are that they will be lowering the requirements for appraisers in the next 18 months. This will help with the overall supply. Let's work together to help support a new generation of high-quality appraisers who are capable of solid analysis and accurate reporting.
I believe we should be working to provide greater transparency, vocally supporting reform, and listening to what the appraisers are telling us. I encourage you to join me at the table as we try to identify long-term solutions and strategies that will continue to support the CU business model and benefit your members into the future.
Ron Stickelman is the CEO and founder of CU Appraisal Services, a credit union service organization providing appraisal management services.
