The following is written by a VaCAP guest author. The author, writing under the pen name “Steadfast Appraiser” is an appraiser who values the profession and believes in promoting public trust.
The Shifting Narrative of Appraisal Modernization
Is there a Crisis?
Rahm Emanuel eloquently stated “You never let a serious crisis go to waste. And what I mean by that it’s an opportunity to do things you think you could not do before.” There has been a narrative that there is a shortage of appraisers. Interestingly, this is not coming from lenders that engage appraisers directly. This is coming from Appraisal Management Companies otherwise known as “Middlemen” and the lenders that employ the Middlemen. These Middlemen will shop an appraisal assignment by blast emails to as many appraisers as they have on their Appraiser Roster asking: “please provide your best fee and turn time”. This practice has negative consequences –
1) Sometimes it will take several days for the Middleman to obtain the fee threshold they desire (lowest fee) – thus creating a delay in the turn time of the appraisal in the eyes of the lender.
2) This practice often and most always leads to obtaining the least experienced appraiser for the assignment. Most appraisers will never hear back regarding the quote as the lowest fee/quickest turn time wins the assignment. The fee paid to the appraiser in this scenario can range from 40 to 50 percent of the fee the consumer believes is being paid for the professional appraisal.
Yes, there is a crisis for both appraisers and the Middleman. Many appraisers have stopped working under these conditions. Many Middleman/Appraisal Management Companies have been disciplined by State Regulatory Agencies for failing to comply with the Dodd-Frank Customary and Reasonable Fee provision.
Now that mortgage volume has decreased, the reasoning for changing the appraisal process has shifted from “A Shortage” to “The Millennials”. There is a recent article in Working RE found at http://www.workingre.com/digital-transformation/ that discusses the new narrative. It is generally said that Millennials do everything with their phone and demand results at the push of a digital button. They have grown up in a digital age. They know fast and expect fast. However, they are not above or beyond understanding the nuances of a profession. Their demand for technology is not above being reasonable. Millennials are smart and want/expect quality. They are capable of recognizing that it is worth the minor inconvenience of employing the virtue of patience when valuing one of their most expensive acquisitions. They know that speed is not more important than accuracy when it comes to this transaction. They would agree that this expensive purchase should be one that allowed proper contemplation and input provided by experienced professionals. Saying that Millennials are unwilling to exercise patience is an excuse to pave a way for an agenda.
What is the Modernization Solution to the Narrative?
Hybrid Appraisals or a Bifurcated Process. The Modernization of Appraisal is to split the process in to multiple parts. This way the appraiser is freed up right….? They say the appraiser should not have to drive around, call homeowners, and go to houses. The appraiser should just sit at the desk and be more productive! Is this freeing the appraiser or putting the appraiser in a box? This process limits the appraiser involvement in the appraisal process. Appraisers have been told for many years that they cannot use Appraiser Trainees, the appraiser has to be the person that inspects the subject property, and the appraiser cannot have another appraiser in the office perform the work. These requirements are and have been specifically stated on the engagement letters provided by the Middlemen for years. Why have they come around full circle and jumped the tracks with this bifurcated process?
The proposed Bifurcation of the Appraisal Process – Who Benefits and Why?
The new Modern Appraisal Product would split the appraisal process into segments. The appraiser is the final segment in the scenario. This allows the Middleman to contract “Other Real Estate Workers” who are not covered by the Reasonable and Customary Fee provisions in the Dodd-Frank legislation. This is an amazing opportunity for the Middleman – they will be able to pay the appraiser an even smaller percentage of the consumer fee and be in compliance with Dodd-Frank. Then they have a larger threshold of the consumer fee to find the cheapest workers to complete the other components of the process without fear of repercussions of Customary and Reasonable fees from the State Regulatory Agency. The Middleman has a lot to gain from the Bifurcated Appraisal Process. Would your family, friend or neighbor be willing to pay for an appraisal on their most expensive acquisition knowing that it was being completed in a way to benefit the Middleman the most?
An appraisal does not meet the definition of commodity, it is not a widget. It is a professional service that is completed by trained, educated and experienced individuals. Each parcel of real estate is different, they have different influences. Parcels of property on the same street with the same acreage can have vastly different values for an array of reasons, many of these require the eye of a trained professional to recognize and define appropriately. Researching property attributes and providing market based solutions for property issues takes time. Consumers paying for the valuation of one of their most expensive acquisitions expect a thorough analysis, not a process that would financially benefit a third party. Appraisers stand up, prove your worth to your clients, analyze the market, explain and support your conclusions.
Promoting Public Trust