Real Estate Appraiser Numbers Keep Falling
By Burt Carey
When the housing bubble burst in 2008, lawmakers, bankers and mortgage company executives collectively pointed fingers at each other and at real estate appraisers.
In response, Congress passed the Dodd-Frank Wall Street Reform and Protection Act of 2010, which limited direct contact between mortgage companies and appraisers, and put in place sweeping procedural changes that have led to serious concerns that the cost of home appraisals could skyrocket as the number of professional, credentialed appraisers in the United States continues to decline.
The country had a robust population of more than 92,000 appraisers in 2007. Today that figure has dropped to 78,500, and only about a third of them work in residential real estate.
There are several reasons appraisers are leaving the industry. Retirement is claiming a large majority of appraisers, but heavy workloads, lower pay, an aversion to technology and a failing marketplace (not enough sales) are also taking their toll.
What concerns industry executives most is that few young professionals are entering the appraisal field. The Dodd-Frank legislation unwittingly cut out the profession’s future by dictating a list of requirements for appraiser trainees that has become more and more stringent with each passing year.
Trainees must take at least 75 hours of classroom instruction and more than 2,000 hours working for low pay under a qualified mentor. To become licensed as a residential appraiser, allowing the appraiser to value homes up to $1 million, requires another 150 hours of classroom time. Those who stick around several years can become a certified real estate appraiser, which requires another 210 hours of classroom time studying advanced finance, valuation and market analysis.
Beginning this year, new appraisers must have a four-year college degree. Recent college grads, however, aren’t willing to work for $150 for an appraisal that takes an average of eight hours to complete.
No longer is it possible for a mortgage company using a Fanny Mae or other government-sponsored loan to work directly with an appraiser. Dodd-Frank led to the creation of appraisal management companies. The lender contacts an AMC with a potential home sale, and the AMC contacts and works with the appraiser through the process.
Mortgage lenders maintain lists of appraisers (called panels) it has approved. (Trainees are rarely approved for such panels.) The AMCs also require appraisers to register, including updated copies of annually renewed licenses, continuing education, and proof of general business and errors/omissions indemnity. The AMCs also eat into the dollars that traditionally went to appraisers, generally cutting payments to appraisers in half.
Every mortgage company and AMC has its own requirements of appraisers, which oftentimes means producing as many as 30 pages for a single appraisal on a home. Many now require more comparable sales than in years past, and some even demand to see other active sales listings that are comparable to the subject home. For their part, appraisers must physically inspect and measure the subject home, and physically see and photograph comparable sales.
One significant challenge with AMCs is geographic in nature. An AMC headquartered in Southern California, for example, may be assigning appraisers to jobs anywhere in the country. The assigned appraiser may be licensed in that particular state but may not be familiar with the county, city or neighborhood of their subject property, and could be assigning values based on incorrect data.
All of the changes since the housing bubble have led to a disgruntled population of aging appraisers. The Chicago-based Appraisal Institute projects that 3% of appraisers will retire every year over the next decade. By 2025, the country’s appraiser population could be as low as 58,000. The profession’s demographics tell the story: In 2007, about half of appraisers were age 51 or older. Today that figure is 62%. Only 24% are between 36 and 50, and 13% are younger than 35.
How all of this affects home buyers – the ones who usually pay for appraisals – is yet to be seen. A supply-and-demand cycle may lead to increased prices for home appraisals, as fewer residential appraisers are available, or AMCs and mortgage lenders may turn to data sampling products to determine values.
Source: Sportsmans Lifestyle