Sounding Bored is my semi-regular column on the state of the appraisal profession. This week I create my longest (and most inflated) rant list ever on the state of the profession.
An appraiser from North Carolina wrote me looking for historical data on appraisal fees going back to the 1970’s (I graduated from high school in 1978 so I didn’t have a clue of what an appraiser actually was back then).
From what I’ve been told by some older appraisers…many appraisers are charging about the same fee today that they were charging 15 years ago. I think all appraisers could benefit from a historical overview of the evolution of appraisal fees to where they are today.
This comment triggered some thoughts on how bad our profession is as a business. Here’s why.
- We have little lobbying influence in Washington, DC to suggest legislation favorable to our profession (unlike NAR) so its easy to be blamed when things go sour. No one really understands what the problem is except those within our profession.
- Appraiser licensing laws have little teeth to them and as a result, its tough for good appraisers to compete with “good” [wink] appraisers.
- Our national appraisal organizations have lost membership by the thousands since licensing laws were enacted because a license is all that is needed to be qualified for many lenders (we take the state license test among dog groomers and pool cleaners applying for their industry licenses…whom are often more professional than we are).
- There is no teeth to the enforcement of bad appraisers, because resources allocated to the problem aren’t adequate and lenders are reluctant to turn them in because of (the real) fear of litigation liability.
- Good appraisers are being forced out of the business by high volume shops who employ trainees acting essentially as form-fillers rather than valuation experts.
- We have let the mortgage industry remove the barriers between the quality and sales function subjecting us to obvious as well as subtle pressures to be results orientated. Most of us serve those who are on commission and thats a fundamental flaw in the integrity of the lending system.
- Some of us work for Appraisal Management companies at half the going rate as our other clients with turn time expectations of 24 hours but provide slower more expensive service to loyal and sophisticated clients.
- We act defensively when our values are questioned, even if the client concerns are legitimate.
- Forget who our client is and speak to anyone about an appraisal who calls and asks. For example, a borrower who calls about a refi appraisal done for a bank client.
- We often backstab our own colleagues when reviewing their work, not because the work was substandard, but because we see it as a way to get more business from the client or we assume thats what the client wants us to do.
- The measure of our services (speed and “makin’ the number) was based on the desire for short term profits during the housing boom rather than long term gains. As a result, clients are moving to AVM’s and other alternatives because more and more we can’t be trusted as a profession. “What do you need the number to be?” With the credit crunch, do we really think the lender’s who need a real valuation are going to think we, as a profession, have changed our reliability overnight?
- Government regulators and legislators do not understand what we do and how important it is for us to be free to independently assess collateral without pressure, which is now the exception not the rule.
- Our industry guidelines such as USPAP and various associations are unwieldy, complicated and change frequently. Most importantly, theses guidelines and rules, although created with the best intentions, are disconnected from the real world making us appear less professional than the assumption of greater integrity. Less is more.
- The consumer and the lending industry have lost the understanding as to why appraisers are here: to estimate the collateral, not make the deal.
- We are afraid to charge the market rate for our services and instead let the client, rather than the market, dictate what the fee will be (not always the same) because we are not good at communicating the value of our services. We cave in to a lower fee at the first sign of rejection of work. There is always someone willing to charge less.
So back to the original topic of fees. These points are all negative but I don’t think I am too far off on most. If all of the above are true, what client in their right mind would want to pay us more than they did 15 years ago? What “value” does our profession of us bring to the table?
I suffer from fear and loathing of the appraisal industry’s future. For those of you (I suspect most who bother to read this blog) are doing a professional, credible job in your work. You believe there is some honor in the profession and its ok to do the right thing no matter what the personal or financial consequences.
For the rest of you, I hear there are openings as a dog groomer.
Tags: Appraisal Management Companies, Soapbox Blog, Appraisal Pressure, Jonathan Miller, Appraisal Fees
Thank you for the words. As an appraiser, business is so slow that i’m starting to look for new work. Our profession is a joke. I hate to say it but we aren’t needed, until we are truly independent. The current system allowed this bubble to happen and will again until its fixed. I’ve had zero orders in 2 1/2 months, even during the boom I had few repeat clients because I am truly independent. I never once considered what my clients wanted value-wise, many times coming in over 50K off the value my client wanted. A really don’t see this turning around for at least a few years at best, at worst, maybe twelve years.
The basic problem is that hiring and payment are divorced from the beneficiaries of our services. Who do we work for? For a loan from a regulated institution, we are working for the taxpayers of the United States via the FDIC and the other bank deposit insurance and regulatory bodies. For CMBS, we are working for the ultimate holders of the mortgages. Yet except for a few bulletins every 10 years or so, the regulators haven’t really made the connection. When has an institution ever been seriously criticized for appraisal management?
We can fantasize about different economic arrangements – what if appraisers were hired by a neutral third party? What if appraisals were assigned randomly? etc. But appraisal will likely continue to be more like a vocation, relying on the honesty of its practitioners despite the possible effect on their pocketbooks.
New pressures on appraisers are turn a round times. Major banks are using management companies having reasonable due dates and then sending them to local appraisal companies. The local appraisal companies put pressure on the appraiser for 8 to 24 turn a round times. Which makes it difficult to find the best comparables and making sure you do an accurate report. There still appears to be a lot of work out there for appraisers, but if you are not on board with the major management companies as an appraisal company then you are not seeing the volume of work that is available today. Good appraisers are considering getting out of the business because of lack of work and lower fees due to fee splits between management companies, appraisal companies then the independent appraisers are at the bottom of the fee chain. The appraisal management companies are collecting $300 to 350 for a 1004 and the appraiser gets $100 for their hard work and are responsible for their report. I feel that pressure on appraiser for quick turn a round times 8-24 hours is a violation of USPAP ethic competency rule to produce a credible report. If you delay the report because you feel it is not completed to go out, you receive threats that you will not receive anymore work. These management companies should have a relationship with qualified independent appraisers and rotate the work instead of using these small appraisal companies that put the pressure on their appraisers and pay them low fees.
The problem as I see it is the management companies want to be profitable and are willing to pay appraisers doing the work nothing. The only ones making money is the AMC and they have no accountability! When something goes wrong it is the appraiser’s fault. Could it be that the job was rushed, was there some pressure though never mentioned that the faster you send back a report the faster you get a new order? What makes everyone look bad is that it is never the AMC fault, but always the appraiser who took the assignment? The AMC have found a way to legally make money off appraiser. Imagine if the AMC were able to find a way to collect a commission off or every home sold? Or if the AMC told the listing/selling realtors that I know the area has a commission rate of xx percent, but you are only going to get 1 percent of the total amount. The centralization and the constant streamlining of the appraisal process caused so many qualified appraisers’ to leave the profession. The AMC are acting like a monopolistic company and if you do not work for their fees or terms no work is given to the appraiser. Large lenders have allowed this to happen by relinquishing all appraisal control to the so called AMC. The main concern is not quality of work but how CHEAP can you work for. Do many know that you cannot get any work from a bank unless you are willing to go through the AMC? Look at Wells Fargo, the own RELS Valuation, RELS has a separate division that does work for Chase Manhattan Bank. Are fee lowered so that the larger corporation can show that they are profitable to their share holders? How can a small appraisal company regulated by USPAP and other concerns compete on a large scale? The AMC talk about quality, but what percentage of the appraisals completed came from AMC and are AMC ever to blame? Apparently not, the ones that always get the bad publicity is the Appraiser. AMC are never to blame, they are always the solution, so one is lead to believe. Maybe on the larger scale there is a strategy by the LENDERS and AMC which is to get rid of most appraisals so they can go to automated valuation models? Who knows, once the appraiser is gone they can go to the regulators and say they have no choice but to use this option. When all else fails, they will go to the good old tax payer and ask for a government bailout.