The Mystery of the Missing Appraisers
Miller, Jennifer, Mortgage Banking
You've seen it in the press: There's a supposed shortage of appraisers, and this "shortage" explains why lenders are facing longer turn times, lower quality and higher costs. But a closer look separates the facts from the fiction.
There's no evidence
The Appraisal Subcommittee (ASC) of the Federal Financial Institutions Examination Council (FFIEC) is an interagency body empowered to set uniform principles for the examination of federally regulated financial institutions. It oversees appraisal licenses and keeps a national registry of all state certified and licensed real estate appraisers. According to the ASC, the number of licenses has indeed decreased from 121,407 in 2007 to 110,026 in 2010, or by 9 percent. But according to the Mortgage Bankers Association's (MBA's) Mortgage Finance Forecast, purchase originations in 2007 were $1.14 trillion and only $473 billion in 2010. So the drop in appraisers doesn't correlate as it should to the 58 percent reduction in their primary source of appraisal orders.
Taken in context, this 9 percent reduction in the appraisal work force, when compared to the work available, could be seen as an overpopulation problem--and, in any case, a far cry from a shortage.
To dig even deeper, look at a la mode Inc.'s appraisal transaction data for appraisals started in 2007 compared with appraisals started in 2010, and there's only a 16 percent reduction. More than half of the nation's appraisers use a la mode's form-filling software, so the data are a good indicator of national appraisal volume. Given the severe drop in purchase origination volume over the same period, appraisers seem to have found supplemental sources of income and identified ways to out-survive other impacted sectors of professionals in the industry.
Forward-thinking appraisers have always sought alternative sources of appraisal orders to grow their businesses independently of the fluctuating fortunes of the origination market. When appraisers anticipated the real estate cycle we're currently in, they set about seeking relationships with estate planners, real estate agents, attorneys and with homeowners interested in confirming the current value of their largest investment.
Appraisers' efforts to control their own livelihoods have paid off. We find proof of this from usage levels of our own appraisal software. In 2007, a la mode provided a series of general-purpose appraisal forms for appraisers to use in its form-filling software. The general-purpose forms were designed specifically for non-lender appraisal work and were most appropriate for clients such as those listed earlier.
Usage of this general-purpose form series is up 84 percent in 2010 compared with 2008. In short, appraisers are out there and they're working. No, they haven't recouped the income they lost as a result of the 58 percent drop in purchase originations, but many have done enough to stay in business.
So why all the 'shortage' hype?
If the numbers don't add up, why are you hearing "there aren't enough appraisers" as the reason for long turn times, low appraisal quality and higher costs? It's the fees.
Realize that the fees your appraisal management company (AMC) charges you won't vary much from the quotes you'll hear from other AMCs, because it's a fairly competitive market. But some AMCs line their own pockets by driving down the portion of the fee they actually pay to the appraiser. It's common to see these AMCs offer an appraiser $200 to complete an assignment for which another appraisal management company will pay the appraiser $350, when both AMCs charge you--the client--the same amount.
When other AMCs will pay more, it doesn't take a rocket scientist to see why the low-paying AMC has trouble finding appraisers. The vast majority of the appraisers who remain in the business simply won't accept the assignment, or they'll place it at the bottom of the pile. …