This little ditty of a few hundred words is via Jonathan Miller’s Housing Notes blog on June 24, which I hope he, and Mr. Chrisman, won’t mind if I re-post. I added a bit more below:
Appraisers Remain Under Siege
Miller: The banks have won and the appraisal industry has lost. At least for now.
Here is a series of feedback from Rob Chrisman (Mortgage News Daily blog) in his must read newsletter on the mortgage industry. It is a heavily read source of in-the-trenches mortgage insights that I subscribe to. He gave me permission to share his recent content on the appraisal industry and will share more of it in the coming weeks. I inserted my thoughts following each quote:
Chrisman: And appraisals are always a hot topic. I received this note from an originator. “Our appraisal environment is out of control. Appraisals we used to get in 1-2 weeks have quickly gone to 3-4 weeks. Appraisals that were just $400 are now $550 and sometimes up to $1,100 for FHA and conventional appraisals. With the rules regulating appraisers on how to become an appraiser and how appraisers have to monitor everything an apprentice appraiser does, it is causing our homebuyers hardship. With the appraiser’s current workloads and the amount of appraisers we have lost in recent years, there is no motivation to bring apprentices on (due to those regulations), leaving the current appraisers working night and day to keep up with their workloads. That is also causing them to keep moving up the appraisal fees (basically rush fees to keep pushing who can pay the most up the line).
It’s called “market forces” and because the AMC movement has gutted the industry, there are much fewer competent appraisers left. And please lay off the “hardship” angle. It’s tired and worn out. Mortgage rates are at historic lows and with the Brexit they will likely stay that way for a while. As I have said before, there is not a shortage of appraisers, there is a shortage of appraisers willing to work for half the market rate.
I don’t say this to be negative against the appraisers; they are doing what they can to keep up but we are left with $700 appraisal fees for our 1st time homebuyers on top of the other closing fees that are steadily climbing. Something has to be done. Either make becoming an appraiser a stringent faster process or make it where current appraisers can bring people on to help without having to monitor every process. Any thoughts?
If you keep thinking of appraisals as a commodity rather than a profession, this will continue as the industry is gutted.
And this one. “The appraisers in my area are so buried, with turn times of 1+ months, they rarely consider training a new appraiser and eventual competitor. Are there ways we can start any program in our area to begin to train new appraisers without their help? Most real estate agents don’t care that LOs are struggling with this issue – they just want their transactions closed in a timely manner and rightly so. Borrowers, especially 1st time homebuyers, are struggling with the increasing appraisal costs. There should be discussion with Fannie Mae and Freddie Mac regarding going back to more appraisal waiver options from DU & LP approvals. We used to have more of those (800 credit score borrowers, 40% equity loan to values, rate/term non cash out refinances where we could get an exterior appraisal or even an appraisal waiver to get the loan completed) but now most automated approvals are requiring full interior/exterior appraisals. That is also burdening the system and the appraisers.”
With AMCs taking half the fee for appraisals, we can no longer mentor and train new appraisers. Established and reputable firms are going under and loan officers wonder why turnaround times in some markets are so slow. Look at the cause, not the effect.
The appraisal situation isn’t simple since a) nearly every home loan requires one, and b) the supply and demand of appraisals and appraisers is off-kilter in many areas of the U.S. I asked Michael Simmons, SVP of Axis AMC, a nationwide company. “Your reader raises several timely questions. Has the cost of appraisals risen? Yes, they have. Have the number of appraisers declined in the last 5-10 years? Again, yes they have. Have the rules governing the qualifications for becoming an appraiser changed? Not really – unless you count needing a 4-year college degree now to even be eligible to work toward certification – but then that’s part of the problem; we haven’t adapted qualifying criteria to the times.
As Warren Buffet famously said “Never ask a barber if you need a haircut.” The decline in appraisers is due to the influx of AMCs taking half of their fees. It’s an economics principle commonly known as “supply and demand” and since AMCs do not bring any “value add” to the appraisal process, the extra fees being charged are not bringing in more expertise.
This isn’t communism or socialism. The banking industry has promoted the AMC system to cut costs. They forgot about the part where appraisers have to make a living and are not widgets on an assembly line. Appraisal fees cannot be pigeon-holded into a flat fee across the U.S. Does it cost me, an appraiser in Manhattan, New York, the same as someone operating in Manhattan, Kansas?
Let me add this: I’m constantly reading the wailing of bankers/lenders (above, and elsewhere) who tend to believe appraisal fees should never be raised. Their attitude tends to be “how dare you charge my customer more now than you used to a few years ago?” The simple answer to that is does milk cost the same now as 10 years ago? How about the auto service center hourly charge? Cost of insurance? Or the pre-made boxed pizza you get from your local grocer and bake for 18 minutes at home?
EVERYTHING costs more these days, for a whole bunch of reasons. So why is it, Mr. & Mrs. Lender, that appraisers can’t adjust their fees appropriately, especially since the regulatory and reporting burden – which you had a hand in causing – has massively increased over the prior decade? You need to inform your borrower customers that the cost of appraisals these days is appropriate for the amount of work an appraiser does.