The Decline of Appraisers
- Fee Transparency, Pivotal Point for Appraisers - October 23, 2019
- AQB Proposes Alternative to College Degree Requirement - May 19, 2016
- The Decline of Appraisers - February 22, 2016
The Decline of Appraisers
by Isaac Peck, Editor
Every year, for the past eight years, the number of active real estate appraisers has declined. The Appraisal Institute (AI) estimates that the number of appraisal professionals is currently shrinking at three percent a year Over 95% declineand warns that sharper declines may be on the horizon as appraisers begin retiring en masse.
A decline in the number of appraisers threatens the integrity of lending and undermines the stability of the real estate marketAnd the problem is not simply that too many appraisers are retiring. Very few appraisers are entering the profession. In Illinois, the drop in real estate appraiser trainee applications went from 1,231 in 2005 to only 55 in 2015. That’s an over 95 percent decline. This drastic reduction in new entrants is being seen in states across the country.
Many appraisers welcome the shortage, which has already driven up fees in many areas. But many believe the celebration is shortsighted. A decline in the number of appraisers threatens the integrity of lending and undermines the stability of the real estate market according to many, not to mention putting the economy at risk of future bubbles. It does not bode well for the appraisal profession either. Many fear that lending interests are itching to find a reason to replace appraisers where and when possible with big data and automated systems, should turn times for appraisals become untenable.
number of active real estate appraisers has declined Some appraisers believe this is a fight for their very existence. At national conferences, company meetings, even around the family dinner table the debate rages: what to do about the declining number of real estate appraisers in the United States.
The Appraisal Foundation (TAF), a non-profit agency empowered by the federal government to regulate appraisers, implemented a Bachelor’s degree requirement for Certified appraisers, which took effect in January 2015. This means that an appraiser can not become Certified without a college degree. Because most AMC work and all FHA appraisals require Certification today, this move chokes off opportunities for both long-time appraisers without a degree, as well as those contemplating joining the ranks. Many just starting out have young families and obligations and find going back to school impossible- especially without a good chance for financial reward. With the onerous 2,000 hour experience requirement for trainees- a one or two year period when newbies earn next to nothing, and the 150 hours of additional appraisal education required for licensing, the odds seem stacked against replacing the supply of retiring and fleeing appraisers with new recruits. This is a huge challenge for the profession.
Limitations on Trainees
Also running counter to growing the profession, a number of states have adopted strict limitations on how trainees can work under a mentor appraiser. Many states have provisions that require “direct supervision” and that the licensed appraiser be “physically present for the inspection of each appraised property.” This all but removes the financial incentive for taking on a trainee, according to many. Lenders are requiring that supervisors inspect both the subject and the comparable properties personally, and can not rely on the work of the trainee. These state laws and lender requirements are a serious obstacle for appraisers to take on trainees, as it prevents them from fully benefiting from the economies of scale that trainees once provided the profession. There is some talk of AMCs being the new training ground for young appraisers. Their considerable financial resources and eye for quality control make them a logical choice.
Fees and Supply/Demand
The decline in fees was precipitated by the passage of the Home Valuation Code of Conduct (HVCC) in 2009 Low fees are the biggest and most obvious reason why appraisers are leaving the profession and why new recruits are not lining up to replace them. The decline in fees was precipitated by the passage of the Home Valuation Code of Conduct (HVCC) in 2009, which ushered in the era of AMC prominence. With its passage, appraisers lost direct contact with their clients and the ability to compete. As a result, most appraisers doing lending work saw their fees cut by up to half by AMC middleman.
decline in the number of appraisers could one day become a shortage Appraisers argue that if AMCs and lenders paid more, more college grads would consider the profession and fewer current appraisers would exit. But AMCs and lenders argue supply and demand. They don’t have to pay more if appraisers are still accepting the low fees they offer. The bigger picture is that the decline in the number of appraisers could one day become a shortage and that in the midst of the next real estate boom there will not be time to train the next generation adequately. Such a scenario might create long delays in loan closings, gum up the wheels of commerce and expedite the demise of the profession. At that point, lenders will push to replace appraisers with a combination of big data and lesser trained inspectors to get the job done quickly and cheaply.
De Minimus Threatened
In response to the low number of appraisers entering the profession, some stakeholders in the mortgage industry are declaring that there is an appraiser “shortage” and are calling to have the federal de minimus raised from $250,000 to $500,000- the threshold below which an appraisal is not required for a federally-related transaction. Just last year, the Federal Financial Institutions Examination Council, which includes the Office of the Comptroller of the Currency, Federal Deposit Insurance Corporation, Federal Reserve System and the Consumer Financial Protection Bureau, indicated that the $250,000 threshold is under review as part of a larger effort to identify “outdated, unnecessary, or unduly burdensome regulations.”
The effort to raise the de minimus is led by the American Banker’s Association (ABA) and a coalition of smaller regional banks which are more likely to experience a shortage of appraisers in rural markets. The ABA argues that appraisals are unnecessary costs that make it hard for small banks to compete. The AI, the American Society of Appraisers, the National Association of Independent Fee Appraisers, and many other organizations have opposed the proposition, arguing that “increasing the appraisal threshold levels could have a negative impact on safe and sound real estate lending practices.” While it’s unlikely the de minimus will be raised in the immediate future, the fact that it is on the table is an indication of the challenges facing the appraisal profession.
The National Appraisal Congress (NAC), an organization made up of some of the largest national AMCs and appraisal firms, has recently begun advocating for reform to the experience and education requirements for trainees. The NAC sees changing the “direct supervision” requirements in state laws and in lender guidelines as critical in helping the appraisal industry meet the coming demand for appraisal work.
An NAC White Paper, Removing Barriers to Entry in Valuation, argues that given that the average age of an appraiser is 55, there is a “very real potential that over the next 10 years there is likely to be a large segment of the currently practicing residential appraiser population that will retire or become semi-retired, thus further decreasing the supply of appraisers.”
The Mortgage Banker’s Association projects an increase in 12.7 million owner households from 2014 to 2024, averaging 1.3 million households per year. The inference is that the formation of these new owner households will require appraisals. The NAC believes that “even without further attrition, the current population of residential appraisers will be inadequate to fulfill that growing mortgage demand.” This is both good and bad news for the industry.
The NAC’s solution is a revision of state and lender client requirements. Instead of having to be directly supervised and accompanied on all inspections by their supervisor, trainees can be allowed to perform appraisal inspections on their own after being adequately trained by performing at least 30 inspections in no less than 90 days with their supervisor.
This, the NAC argues, is a critical component of making the training process more economical for both the supervisor and the trainee. The trainee may be able to negotiate a higher fee split or greater compensation because of the increased contribution. The supervisor would be able to delegate more to their assistants and profitably employ trainees.
The NAC draws similarities between appraisers and Certified Public Accountants (CPA), arguing that CPAs are currently able to utilize their trainees to a much greater extent than appraisers. The NAC believes that much like accountancy, the appraisal industry must “maintain a gold standard for qualifying and testing new appraisers, while also creating a structure that prevents the process from becoming cost prohibitive, redundant and a barrier to entry that prevents the admission of newly qualified appraisers.”
In an interview with Working RE, John Brenan, Director at The Appraisal Foundation (TAF), says that TAF’s Appraiser Qualification’s Board is not looking to roll back the College degree requirement. “At the AARO Conference in 2015, we didn’t hear any testimony saying we’ve gone too far. Members of the panel were actually saying that we should not remove the requirement. It has raised the level of the candidates to where it should be. I don’t think the AQB will get rid of that requirement, but it is looking at alternatives. If you’re a licensed appraiser with a track record of professional experience, but you don’t have a college degree, is there a way to be a Certified Residential? The AQB is considering that,” says Brenan. “FHA/ HUD not accepting appraisals by licensed appraisers is also an issue. The AQB is very proactive about this and looking at what it can do to ensure people who want to be in the business can be in the business.”
Brenan says the AQB is looking into the experience requirement. “TAF and the AQB are considering if the 2,000 and 2,500 hour experience requirements are the right numbers. What is 2,500 hours of experience today compared to when these numbers were first done? Technology means appraisals are being performed in less time. We are also exploring what are other ways people can get that experience to get into the profession and become certified because we recognize the supervisor/trainee mentoring model is experiencing difficulties,” says Brenan.
According to Brenan, the AQB is looking toward the further development of practicum courses, which would be additional courses that would satisfy up to 50 percent of a trainee’s required experience. The problem, Brenan says, is that no practicum courses exist today as it hasn’t been economical to develop and offer such courses until now. In response, the AQB plans to develop a course that could be offered by other education providers.
Brenan is quick to note that it is not the AQB that requires direct supervision. “There is nothing in the AQB criteria that prohibits trainees from inspecting properties, or even from signing appraisals. A lot of the impediments to hiring trainees are not created by TAF or the AQB. But we aren’t an advocacy group. Banks not wanting to use appraisals performed by trainees and states restricting what they can do is an issue the industry will need to resolve on a state and client level,” Brenan says.
Nevertheless, the AQB is evaluating the trainee model. “I don’t think the AQB will throw out the model completely, but there is an effort to incentivize supervisors. And of course there is a concern as we don’t want to over incentivize. We want people to be a supervisor because they believe that they have a valuable role bringing someone into the business and training them properly,” says Brenan.
sharper decline on the horizon… As the overall number of active appraisers has decreased, according to the Appraisal Subcommittee’s national registry, the number of appraisers is expected to continue to decline with no end in sightthere are actually more Certified General and Certified Residential appraisers now than there were 10 years ago in 2006. The result has been relatively positive for active appraisers, as they’ve seen fees rise modestly. No acute shortage of appraisers seems imminent either. Baby boomers are retiring later and real estate appraising is a profession that lends itself well to working part-time in one’s retirement, as many appraisers report doing. However, the number of appraisers is expected to continue to decline with no end in sight.
The decisions of the AQB and the success of the NAC and other interested parties in reforming state and lender requirements for trainees will play a role in how many new appraisers enter the field in the coming years. Given the time required to bring new professionals into the industry, the recent actions by the NAC and others seem timely. Because of the appraiser’s central role in real estate lending transactions, the health of the real estate appraisal industry will remain something that appraisers, AMCs, and lenders will continue to watch closely in the years ahead.
Be Heard: AQB Call for Comment
The AQB recently issued a call for comment on a Discussion Draft regarding changes to the Real Property Appraiser Qualification Criteria (Criteria). The AQB acknowledges that “certain rural and other isolated markets may have already been impacted by appraiser shortages” and that the ability “to gain experience for Trainees and Licensed Residential appraisers is diminishing.”
In response, the AQB has indicated that it is examining changes to the Criteria in the following areas:
- Alternative Track for Licensed Residential to Certified Residential
- Enhanced Practicum Curriculum • Documenting Alternative Experience
- “Trainee” Nomenclature
- Three-Year Supervisory Residency Requirement
As stated, TAF believes with certainty that there is general agreement among appraisers on both the expanded college degree and experience requirements. Now is your chance to send your thoughts directly to the AQB with their assurances that “each member of the AQB will thoroughly read and consider all comments.”
Appraisers are encouraged to submit their (concise and considered) comments to the AQB before the March 31, 2016 deadline: Email: firstname.lastname@example.org or mail to: Appraiser Qualifications Board, The Appraisal Foundation, 1155 15th Street, NW, Suite 1111, Washington, DC 20005.
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