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.
What is the Narrative?
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?
Closing Remarks:
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.
Sincerely,
Appraiser Steadfast
Promoting Public Trust
I’ve been saying the same thing. Free up the appraiser where they can have a staff of people who can go out and inspect properties, work on reports etc themselves. The AMC is not interested in this because once they have a realtor or inspector complete the site visit, then they will start completing the appraisal themselves.
That’s a very good and concise analysis. The hybrid appraisal and bifurcated appraisal processes are a complete smokescreen for profiteering at the expense of unsuspected consumers. These processes produce a totally inferior product with little or no benefit to the consumer or the real estate industry. They will in fact prove to be a detriment by taking the smartest, most experienced valuation experts out of the equation. Appraising real estate, at least appraising it properly, is not an easy job.
The data science of asset assessment places 80% effort on gathering and improving the data, and 20% on the analysis. This is the paradigm of the near future for valuation.
Evidence Based Valuation (c) practices emphasize this, leading to new products and services that can be marketed by appraisers. Our clients want to know risk of loss, or potential for gain– not an opinion of exchange price two weeks ago!
The foundations for these needed data science, value-added results are introduced in the “Stats, Graphs, and Data Science” class to be offered at the VaCAP meeting on February 7-8.
The industry is looking for a solution to meet demand. Unfortunately the solutions they are coming up with have little merit to produce creditable resorts and in fact are self indulgent solutions. We as appraisers should come up with some solutions on our own to submit to Fannie Mae for approval. In order to save our industry and meet demand we as appraisers are the only ones who realize the real problem and can assist in solving the problem. One would hope USPAP would allow appraisers the ability to meet demand without tying our hands but unfortunately that doesn’t seem to be happening. So how can we get involved in the discussion? Only through the ability to provide a solution. We should get with the AGA, ASB, ASC and whoever else would listen and let them know that if we are allowed to have assistance with our process that takes the handcuffs off of appraisers then we could meet demand. Any other solution is a mere attempt of a takeover of our profession. Greed
There is a shortage of Appraisers… TIME and RESOURCES!! Take away the elephant in the room AOMC’s (Appraisal Over Management Companies) and get the resources back to the Appraiser to be able to hire and train staff again. I worked for 20+ years and always had a staff person – now I can’t dare risk the expense or time to train.
Excellent observations.
For what its worth. Millenials are considered to be those born after 1990 with some cross over from “Gen X”. I find it difgicult to accept that a handful of 18 to 29 year olds are “driving market demand” across America. If the claim were 3o year olds I’d say maybe. Doubtful, but maybe. You see, 39 year olds werent born to high tech. They were around for both the S&L crisis and the Great Recession. They remember parents talking about market collapses and worrying about jobs. Demand for “Amazon like” instant gratification is as much a myth as the shortage was.
P.S. There is no such thing as a USPAP compliant bifurcated hybrid anywhere in America, having been proven by ANY lender or appraisal provider. That is another myth. I’m being polite. It’s really a Whopper!
39*