Is It The End Of the Appraiser?

The latest announcements from Fannie Mae and Freddie Mac regarding loans with no need for an appraisal are causing quite the stir in the appraisal community. I have personally received numerous emails, tags in Facebook posts, and private messages sharing the information and asking me if I think this is the beginning of the end for the real estate appraiser. In a word; no! Here’s why:

We Have Seen This Before
A similar wave of fear and uncertainty came from my peers about a decade ago with the implementation of the HVCC. Some appraisers feared that was the beginning of the end for their profession, and for some of them, it was. Those who were unwilling or unable to innovate did not survive. Yet, many did. Many appraisers were creative enough to see what was happening and adjust their business models accordingly. Personally, my net income increased after HVCC. It did not come without a whole lot of business redevelopment, however. It did come nonetheless.

Fannie and Freddie Are Not My Only Clients
A big key to survival is to not have all of your eggs in one basket. “But, Fannie Mae is an awful big basket,” you might say. I agree, but if lender finance Appraiser Futureis your only source of appraisal income, you run the risk that things can change and you are left holding an empty basket. Diversify! I do a fair amount of work on the 1004 form, but not everything. With the latest announcement, you can bet your bottom dollar that I will be diversifying even more.

Most Loans Still Need Appraisers
Though the announcements from the big GSEs do change things, they do not change everything. The loans that do not need appraisals reflect a very small percentage of the overall business that is resold to the big two. I know the fear is not centered on what is, but what this might lead to, but for now – it is not the end of the world. Does this open the door to possible change in the future? Perhaps, but isn’t that even more reason to be smart and begin to diversify?

Data Is Still Coming From Appraisers
Though some loans can get the green light without an appraisal, a valuation still must be done. It is true that some of these valuations are coming from zeros and ones in a computer program, but that data, some of it anyway, is coming from appraisers – at least for now. In other words, the computer models still work best with a human being getting first-hand knowledge of the property. UAD is powerful precisely because the data came from trusted and honest professionals in the field. Fannie and Freddie understand that risk increases dramatically if that spigot were to be cut off.

Fannie And Freddie Are In The Risk Management Game
Speaking of risk, step back and remember why our clients turn to appraisers in the first place. If you think the GSEs see us as valuation professionals, you do not understand their business. They do not look to appraisers for accurate valuations as much as they are looking to someone to help them mitigate risk. That comes in two forms, one is about loan amount (which accurate valuations are a big part of), but the other is blame. Though it is not the best reason to be an appraiser, Fannie and Freddie (as well as our other clients) are looking for someone (notice I said, “someone” not “some computer program”) to point a finger at should it go bad for them. There is a reason many of your clients require you to carry high E&O coverage. For loans with risk, the need for a human being will not disappear soon.

Technology And The Human Touch
“Big data” is a phrase that many appraisers despise. Their loathing comes, at least in part, from a fear that big data will replace them as a valuation professional. Well, big data is here to stay. It does not have to be a replacement for appraisers, however. Many appraisers are seeing big data not as a hinderance, but a help to their work. Clients are increasingly seeing big data and appraisers in the same light. The future of appraising may depend on we, as professionals, embracing big data and offering our clients the best of both worlds.

No One Has Ever Accused Me Of Being Static
“If it worked in the past, it will work in the future.” This kind of thinking can be the death knell for many a professional. We live in a fast-paced world. Technology and knowledge is advancing at breakneck speeds. With that change comes also the need for appraisers to adjust and change as well. The valuation profession is not what it was ten years ago, and the next decade will continue to bring changes. Perhaps, in a few years, the 1004 form will not longer be a thing. Are you prepared to make the adjustments to your appraisal business model to remain relevant into the future? A key to being successful has always been to see where your profession is trending and be able to make adjustments accordingly. Those who are willing and able to make these changes will continue to see success long into the future.

There Is Reason To Hope
I have been accused in the past of being an eternal optimist. I can think of worse things to be called. I do not see myself as an optimist as much as I hope to be a realist with a hankering for a positive outlook on the future. I do not see what is happening to the appraisal profession as reason to panic. Rather, these types of changes are catalysts which cause me to step back, reevaluate, and possible change they way I choose to do business in the future.

Do these announcements from FNMA/FRMC change the game? Sure, I believe they do in at least one important way. It is change like this that remind me I am not invincible. Business is continually evolving. There are appraisers who are just unaware or unwilling to adjust they way they do business. It is those appraisers who may need to be worried. If you want to remain relevant today, tomorrow, and into the future, you need to be aware of what is happening in your profession and be willing to adjust and innovate with the changing times.

As for me, I am not hanging up the buggy whip making tools quite yet.

20 Comments on “Is It The End Of the Appraiser?”

  1. Pingback: Is It The End Of the Appraiser? - Appraisal Buzz

  2. Always remember the FACT that clients are forced by law to get appraisals … they could care less about the appraisers opinion

    That FACT really keeps appraisers in a “good” position … lol

  3. The purpose of the appraisal is to secure out national financial system which is based on the sale of RMBS and CMBS loans. The value of the appraisal is the disinterested third party opinion that the collateral is worth what it is so they lender can sell the loans in pools, hence the ability to loan. The current trends jeopardize the value of the US dollar and our global position as a global financial investment center. FNMA has already lost credibility with the last financial crisis. This is another step in the wrong direction influenced by AMC trying to sell illegal products while the FDIC and OCC let too big to fail lenders return to the stone ages before FIRREA where we implemented appraisal licensing and the value of third party options. Why, the lenders turned out to be criminals and are in fact the reason appraisers have difficulty in delivering appraisals with no lender influences. Why is this important, Wall Street has been hampered by Dodd Frank to the degree that community banks went to AMCs and larger banks hired appraisers to do Evals and now appraisals. Wall Street needs a swing in value for insider transactions they can manipulate. So what is at rick, the US Financial system and the trust by the global community. Want to see an economic crisis, wait till the global investment community looses confidence in the US Banking system based on insider valuations !! Remember, large banking entities want to take over FNMA and make it private, as it is a cash machine. Loans default at around 4% to 7% and the only risk to the US is when a major employer moves off shore. So the stress testing that has been going on is not based on covering FNMA losses, its about covering Wall Street losses which are leveraged based on FNMA guaranteed loans.

  4. So no appraisal…..I have already talked to two large Realtor sales meetings in the last 10 days. The consensus is that they have been told by their Brokers In Charge that they should be advising all purchasers to obtain an appraisal even if it is not required by the lender. They tell me it is all about assigning risk. They don’t want to take the risk that the house is 300 sf smaller than they advertised and/or $30,000 lower in value than the contract price. This is especially true in the current market with low inventory of existing homes where it is not uncommon for there to be a bidding contest to obtain the best contract. I expect my volume to increase as Conv and FHA mortgage work is less than 30% of my business right now and the Conv/FHA appraisers are chosen from the AMC lists. I am on very few lists due to the low fees. When they really want to know the value, my phone rings.

  5. I see the possibility that the valuation will come from computer models which will be reviewed by a “valuation specialist” either employed by a lender or separated from the lender via regulation. (“valuation specialist” may not be a licensed appraiser). I can foresee where the “inspections” are conducted by low paid “runners” whose job is to take a complete set of photos of the subject and complete a checklist sheet of features and condition. The “runner” will not be licensed or well paid and will make absolutely no decisions regarding value. The information gathered by the runner will be evaluated by the “valuation specialist” in conjunction with the computer models and the “valuation specialist” will then assign an opinion of value. I see the “valuation specialist” job as likely being a salaried position as they will be expected to crank out numerous valuations per day. Possibly a well paying job but there will not be a need for a huge number of them and I think I would go crazy doing this all day. If I’m a greedy lender wanting to get rid of the cost and hassle of having to rely on appraiser’s, this is how I would set things up. I hope I’m wrong!

    1. I think you’re right George. The insurance companies have a pretty good hold on the data gathering business now. Automated appraisals are just like driver less cars. Once they can prove that the computer can be more accurate than a person (they’re already proving this), the people will be out. The computer does not need to be perfect, just better than a human. Right now, appraisers are not as good as they think they are.

  6. Great examples, data collection site used says a property is worth $149,000.00. It sold 3 years ago for $135,000.00, Wrong bedroom count and bath above grade as added as a whole with lower level rooms and baths, as well as Square footage added as a whole completely incorrect. Was just there, damage on roof, all floor needs removed and subfloors need checked, toilets leaking onto mechanical units below, the exterior window frames and framing around doors need chalked, bathrooms plumbing, septic need repairs, after several inches of rain it is within lower level in some areas, as well as outside has piles of debris that need removed. #2 house stated from data collection site Worth $750,000, go in as “don’t do exterior only”, walk in: Every door, Every Light Fixture, Toilet, Sink, Faucet, Mechanics, Trims, Built in and Appliances wiped out (removed) to the tune of $375,00 to $450,000 cost to cure. #3 MEASURE INSIDE AND OUTSIDE EVERY INCH, go check with MLS who uses Realtor info who uses from old County data, *surprise additional above grade finish over garage or heated a sub room now additional SF, or finished the 3rd floor attic into a Master Bedroom Suite (Surprise) !!! **So far see Questionable data collected, don’t think this is a good trend, Collection of data (incorrect data) used over 30 years and for lenders to hang their loans on.

  7. This is not new, the big boys are always going to find ways to speed the loan process for the lower cost. And there are AMC’s who do so. So what!
    I have heard and read the complaints over the years from appraisers.
    What I don’t hear is how I can become a value to these lenders, yes a value.
    I continue to work on improving my appraisal skills. I show more of my work in my reports, like my match pairs for an adjustment, a graph, spread sheet. I increase the details in my report, yes it takes more time.
    My reward, I get a more assignments that pay me more. They ask for less than $. I say $$, and may times I get $$.
    Make your self a value to your client, which is the lender. If the lenders values you for a complex assignment, your a value.
    Become the appraiser that they turn to with that real challenging assignment. These are always out there.
    Now I am getting the AMC’s I work with, asking me to bid on a challenging assignment.

  8. Fannie is not relevant; I told them I could not afford to work for their fee schedule 17 years ago, my lowest fee client. I work for Realtors and other people who needed an opinion that closely mirror the market. They are happy to pay me more because they do not just want a signature. Fannie and big banks only buy signatures.

  9. I taught a class a week or ago, for mostly Real Estate Agents, and this exact same question came up, and the sponsor’s of the class was a lender. They brought up this valid point. They said that even though Fannie Mae might not require an appraisal, the lender themselves have a company policy to require an appraisal to be completed for the subject property. So I feel that the loss of work from Fannie Mae policy changes will have minimum impact. And like was already stated, the lender wants someone to blame in case something goes belly up. If they abide by the Fannie Mae policy they have no one to blame, and no E & O insurance to put a claim in for, since they cant blame Fannie Mae for not getting an appraisal, they just have to blame themselves or a mortgage department manager for not ordering an appraisal for the subject property.

    I also feel that with the ratio of “Decline of Appraisers Vs’s Amount of housing increasing” It would take many years before it and any notable impact on a decrease of available appraisal assignments to rear its ugly head.

  10. Pingback: The Appraiser Voice | L-CAM

  11. Last year I received a call from a recruitment company looking for appraisers to work with their law firm client. I discovered that the law firm was in the business of suing appraisers on a “mass” basis with the allegation being the appraisals performed at the beginning of the real estate recession were fraudulent. I agreed to peruse one report that they sent me just to see how valid their appraisal complaint may be. I quickly discovered that they didn’t want an honest and ethical review–what they wanted was a licensed and designated appraiser that would follow their instructions and issue a review report that supported their complaint. They apparently were in the business of “shaking down” appraisal liability insurance companies to settle with them on the threat of pursuing litigation through the courts. I wonder how these type of unscrupulous lawyers will be able to sue a computer?
    Be warned–They’re out there!

  12. If you think that residential appraisers are not being squeezed out of the national lending process I would say you are wrong. I was talking to a computer modeler for Wal Mart and he told me “we can model anything”. I hate to say it but its just a matter of time until residential appraisers are replaced in the lending process. We have already seen a shift from appraisal reports to in house valuations completed by the lender at a much lower cost. In most cases all a residential appraisal does is a comp check and sometimes they don’t even do that well. Is the current data system up to par to handle that effectively? – possibly not but it will eventually be modified until it conforms just like appraisers were over the past 10 years.

    Having said all that there will still be a need for appraisers to value properties that are challenging or involved in divorces, deaths, trusts and other transactions that don’t involve lending but the demand for those appraisals will be much lower than the current total demand for appraisal reports. Bottom line is that new appraisers are not coming to the industry in large numbers which is causing turn times to increase and costs to increase. Lender clients are being pushed for faster and cheaper. Since they hold all the cards, eventually they will change the system so it works for them. Who will they blame when it all goes south? Who really cares but the thing to remember is that your E&O insurance only covers you not your client. They can blame you all they want but if you have no assets, there is nothing to go after and they already know that. The only thing about this article that is right is the fact that you should either diversify or plan an early retirement from the appraisal business. This might all sough apocalyptic but all signs point to the eventual end of residential appraisals for mortgage lending.

  13. OMG chicken little is alive and well, in the last 25 years Ive seen this multiple times m appraisals have not been required for loans under 250000 for 15+ years
    I still do appraisals for properties below that amount.

  14. Well, I have been doing appraisal for a national lender for over 3 years on desk top that used to be done by an appraiser physically going out inspecting the subject and comps. Now, I do not leave my desk and the appraisal is done. I replaced six of my friends. Tomorrow, they will make the requirements even easier for me to replace six more of my appraiser friends. I am fully participating the machine of getting rid of the appraiser, so I have diversified for myself.

    You all have so much knowledge and skills to do anything in real estate and related fields. Don’t waste yourself. Here is the list of my related operations that anyone of you can do: brokerage, mortgage, property management, HOA management, appraisal, natural gas and electricity sales. Just copy any of the national real estate company such as CB Richards, Collier International, Marcus and Millchap, Integra Realty… they are appraisers.

    1. Gary you replace “field” appraisers, tomorrow you will be answering to a complaint, law suite, or State Board, good luck with your desk top work!

  15. Folks, love to pretend with all of you that ” everything ” will be alright, but in time it wont. Avg Appraiser age is 57 ( the Appraisal Institute ), No new trainees are coming in and they should not. The barriers to entry are too high and the reward too low. We might stave this off a while, but the source of new blood is cut off, the liability too high and this is an eventuality. I am a 32 year veteran appraiser in a busy urban market. 1/2 full or 1/2 empty, FNMA stole our data and they will expand the use of PIW and blame it on the lack of appraisers. Any other fiction about ” private work ” and more is a stalling of the inevitable.

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