The conversation in real estate circles may swing around to talk of the appraiser shortage. These practitioners will be quick to point out the longer time frames needed for property appraisals in rural areas or for more exotic types of properties. Others will insist that although there may be rural pockets where there is a difficult time finding a suitable appraiser, the perceived shortage is due more to groups of appraisers refusing to work for appraisal management companies that offer the appraiser less than what they would receive if they had been engaged directly by the lender. Some will say that there may not be a nationwide shortage just yet, but that the increasingly higher hurdles to entry will create a dramatic shortage of appraisers down the road.
As it turns out, all of these viewpoints seem to be at least partially valid as a host of forces and federal policies influence the number of qualified appraisers. It seems that most agree that there are regional shortages, particularly in rural areas, but that conclusion is not endorsed in other parts of the country.
Numbers decline
According to the Appraisal Institute, there were 78,500 real estate appraisers working in the U.S. in 2016, down over 20 percent from 2007. The decline in numbers has been mostly in the residential arena.
Aging out
More than 60 percent of appraisers are over the age of 50, while few new recruits are joining the profession. The Appraisal Institute additionally reports that while 24 percent of appraisers are between 36 and 50 years old, only 13 percent are 35 or younger.
Effect on real estate transactions
The scarcity of appraisers in a given market area often results in delays because there are not enough appraisers to promptly complete all the appraisal orders. A shortage also means appraisals will likely cost more, which some say is already happening in rural areas. This can impact buyers in real estate transactions who rely on accurate valuations to ensure that they aren’t overpaying, and who typically foot the bill for the appraisal, as well as sellers who fear their deals may fall through if the appraisal is below the purchase price. If there are delays, the buyer may have to pay to lock in an interest rate, and a seller counting on the proceeds from the transaction to purchase a new property may trigger a domino chain reaction, pushing a string of closings back or causing the transaction to not close.
The other thing that may happen when there are not enough appraisers to serve rural areas is that appraisers from outside of the area or from another state may be sent to fill in where there is a shortage. This may create a quality issue — if not in reality, then certainly in perception: there are USPAP guidelines for these appraisers to become geographically competent, but that may not make up for any subtleties in the market.
Blame HVCC for low fees
Some in the industry lay the blame for the decline in working appraisers on regulations enacted in 2008 by Fannie Mae, Freddie Mac and the FHA, as the agencies sought to safeguard banks and borrowers. The Home Valuation Code of Conduct (HVCC) in 2009 led to the proliferation of appraisal management companies (AMC). The AMCs became the middlemen to guard against biased appraisal values, but these middlemen take a fee for their trouble. The AMCs charge roughly the same as appraisers did before, which means the appraisers are paid less.
Low fees are frequently cited as the biggest reason why appraisers are leaving the profession and why new recruits are not lining up to replace them.
Higher bar
The requirements to become a licensed or certified appraiser have also increased over the past couple of decades. Before the early 1990s, a real estate license was often all that was needed for appraisal practice. Today, classes and years of experience are needed, as required by the federal Appraiser Qualifications Board (AQB), which sets appraiser credentialing requirements nationally. The following Wisconsin appraiser credentialing requirements are based on AQB mandates:
Licensed appraiser: Can appraise noncomplex one-to-four units valued under $1,000,000 and complex one-to-four residential units valued under $250,000, but not subdivisions.
- Complete 150 hours of approved pre-license education, including 15 hours of USPAP.
- Pass a state-administered exam.
- Accumulate 2,000 hours of experience in no less than 12 months.
- 30 semester credit hours of college-level education.
Certified residential appraiser: Can appraise one-to-four residential units of any value or complexity, but not subdivisions.
- Complete 200 hours of approved pre-license education, including:
- Pass a state-administered exam.
- Accumulate 2,500 hours of experience in no less than 24 months.
- Hold a bachelor's degree or higher in any field.
Certified general appraiser: Can appraise all types of property at any value.
- Complete 300 hours of approved pre-license education, including:
- Pass a state-administered exam.
- Accumulate 3,000 hours of experience in no less than 30 months.
- Hold a bachelor's degree or higher in any field.
Few apprentices
Getting the required number of hours of experience can be extremely difficult. Some lender clients also require that appraiser supervisors accompany apprentices on inspections of both the subject and comparable properties and will not allow the appraiser to rely on inspections by the trainee. Instead of benefiting from an able assistant, an appraiser with a trainee/apprentice then needs to shadow the trainee in addition to the appraiser’s other responsibilities. It is no wonder then that these trainees are paid a very low fee and most appraisers no longer accept trainees.
These would-be appraisers are left scrambling to find creative ways to achieve acceptable experience hours.
AMC abuse
Sure to weigh in the debate over the appraiser shortage will be those appraisers who claim there is not a shortage of appraisers but rather a shortage of appraisers willing to work for the AMCs that have unreasonable demands and pay unreasonably low fees. The laundry list of grievances from this group includes:
- Low appraiser compensation due to the cut the AMC takes.
- The expectation that the appraiser will be at the inspection appointment in a very short time, for instance, within 24 hours of receiving the assignment.
- Demands for short turnarounds, for instance, within two to three days.
- Having to travel many miles to the property.
- AMC computer systems that charge a fee for each upload and that review appraisal reports.
- Being micromanaged by undertrained or unqualified AMC employees.
The AQB
The AQB, which establishes appraiser credentialing requirements, is proposing changes to its property appraiser qualification criteria. These changes may include eliminating the requirement for graduation from a four-year college and cutting the required experience hours in half.
Another possibility is creating competency-based exams that could shorten the time people spend as trainees. The AQB is also looking to develop courses that would allow students to gain practical experience, for instance, a broad classroom experience that includes simulated lessons and perhaps even virtual reality could simulate field experience.
Proposed modifications
Other proposals go back to the trainees and suggest that instead of having to be directly supervised and accompanied by their supervisor on all inspections, trainees be allowed to perform appraisal inspections on their own after first working together with the supervising appraiser for a certain number of appraisals.
If “the shortage” isn’t addressed, federal regulators may be asked to relax the rules determining when traditional appraisals are needed and allow more computer-generated analyses instead. Automated valuation models are less expensive and faster than traditional appraisals but are not presently used for mortgage originations.
Another suggestion that also looks to reduce the number of instances where a human appraiser is needed is to raise the federal de minimis from $250,000 to $500,000. The de minimis is the threshold below which an appraisal is not required for a federally related transaction.
Clearly the answer to the real or perceived appraiser shortage may come from many voices and directions, with the only clear answer being that changes will certainly be forthcoming.
Resources
Debbi Conrad is Senior Attorney and Director of Legal Affairs for the WRA.