Shifting Narrative of Appraisal Modernization
…the reasoning for changing the appraisal process has shifted…
Is there are 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 here 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
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.
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This article is dead on! I’ve been saying this since 2009! The weeks spent shopping an order is what has lead AMC’s to scream the false narrative there is an appraiser shortage! Last Thursday at 3:30 pm an AMC called me asking for my best fee and turn time for a rush purchase 50 miles away they needed by yesterday in order to close Jan 31st I explained to the AMC Rep that there is no way I can meet that, the northeast is expecting a bad snowstorm, Monday is the MLK holiday earliest I can get out there is later in the week. His response “oh we are in Kansas, and don’t know the weather there”. Really!!!! This was the system the guinnesses came up with that has led us to this point!!! We are lions led by Donkeys!
All too many disregard ethical principles in favor of advocacy. The ‘value’ of hiring persons not restrained by licensing requirements.
The appraisal business is just another shell game
Ross, Unfortunately there are some bad people in every industry. However, if you ever tried conducting an appraisal and valuation assignment on your own day in and day out, I guarantee you would change your mind. Please explain how the appraisal is just another shell game. Thank you
My appraisals aren’t a shell game, I think you know what I am talking about when I say the business is a shell game.
Outstanding article. I will share in all my social media feeds to inform the public!
And Corelogic will run everything in a few years…..hmmmm. I wonder why non appraiser inspections are being pushed again….They still NEED our signatures and THEY are doing everything they can to get just that !!! “They” will “train” to get certified appraisers, lock them up in little cubicle holes for 8-12 hour days, don’t forget, broke, money hungry appraisers, will work nights, weekend and Holidays to pay their bills !!! Bank of America (Landsafe) made their review appraisers work weekends FOR NO ADDITIONAL MONEY !!! That was HALF of the class action law suite that couldn’t even be defend in a court of law. $30-40 million settlement. Total class action was $80 million +/- !!! And now Corelogic is under the exact same class action….all by the same people of LANDSAFE !!! Save your money, pay off your houses !!! Develop NON LENDER relationships !!!
When They wait 6 weeks to get an appraisal back, they will get rid of the AMC’s and pay higher wages !!! Supply and demand…..and they are obviously getting very scared !!!
Corelogic can kiss my a**. They are the least reliable data providers I have come across in 25 years.
Agree with this assessment. Wrote a little piece about two experiences with this, one from the fee appraiser side and one from the reviewer side. https://annarborappraisal.blog/2019/01/06/respect/ if interested
Rachel, thanks for sharing that story, so true and happens so often. Stories like these show how obviously false the shortage narrative is – the middlemen engaging in these practices are looking for the largest margin possible, putting the interest of the lender and consumer behind their own.
I was curious, so…(urban dictionary)
“Millennial
Millennial is an identity given to a broadly and vaguely defined group of people. There are two wings of “Millennial” that are often at odds with each other: Generation Y (people born between 1981-1991) and Generation Z (born between 1991-2001). People of Generation Y often have characteristics similar to Generation X, which is why Generation Z will confuse Generation Y with Generation X and then claim to be the generation that represents “MIllennial,” when in fact, birth years for Millennial range from about 1981-2001, just as the birth-years for Baby Boomers ranged from 1946-1964.
Both Generation Y and Generation Z can be called “Millennials,” with the primary difference between the two being technology. Generation Y grew-up on personal computers, cell phones, and video game systems, while Generation Z has grown up on tablets, smartphones, and apps. Yet, the common ground between both generations is that both have been transforming and altering communication and identity–not just in the United States but globally.
I’m not listening to what anyone born from 1991 to now thinks. AT 27 years old, they have only been allowed to vote for 9 years; or two national election cycles. Some may be brilliant, BUT they are still green with respect to world experience. Many haven’t found their own set of values yet. A lot are still deciding whether booze and drugs have a place in their lives.
I’ll give more credence to the 30+-year-olds though not sure how large their population is that makes anyone think they are ‘demanding’ anything with respect to mortgages. These are the folks that are either perpetrating today’s version of pyramid schemes (bitcoin), and general socialism OR they are the suckers falling for them. Perhaps a more definitive name would be “P.T. Barnum’s Kids”.
What IS the average age of say…a typical Wells Fargo Special Accounts sales rep? I know a lot of very smart ‘kids’ (18 to 25-ish) and those in the military have already shown our future is in good hands…but that doesn’t mean I’m giving them the car with the keys quite yet. I’m willing to let them have it once in a while so they can learn to drive this great nation of ours, but they aren’t quite to the point where their 6-10 years of recent experience equals my 30 to 40+ years beyond them.
Winston Churchill separated pre-25 from older as liberal by ideal, and the older, conservative by experience. Coincidentally nearly the same numbers by 5 years, as Statistically, home buyers are 30 and older.
When appraisers do all three approaches to value; cost, Income & market, isn’t that a bifurcated appraisal, or is it bifurcated after comparing all three approaches for the final opinion.
Lenders blind reliance on form (1004, etc.) appraisals for their convenience is an unstated problem for appraisers. We are blamed for adopting an impossible situation, an easy solution for our client, by a fixed fee. Appraisal clients, even lenders don’t always KNOW the problem! All assignments won’t fit on a fixed format form. That’s not the appraisers’ problem. The bifurcation of management has politically relegated uniformity for responsibility. The Appraisal community has some of this guilt by insisting that everything needs a form appraisal. The appraisal community should be insisting that standards be met and fees paid.
Is prosecution by law the better solution for standards. Respectable organizations talking about principles, insurance guaranteeing loss against errors & omissions, has not improved bad appraisals! Maybe the threat of Civil Law or Criminal Law would increase the appraisers fees.
Respectfully Don, 25 is not 30. IF we are going to compare statistics as if they have some relevance to a point or issue, then the analogy should remain constant.
Three approaches are not bifurcation in any form. They are three independently developed approaches to a defined value, which when performed properly are supposed to yield similar or supportive results (hopefully).
It’s not the 1004 reporting form that is the problem. It is the flat rate fee that is neither customary and frequently unreasonably low for the circumstances of an appraisal. It is the unrealistic fee and unreasonable turn time that are the primary problems for appraisers. Other important problems are misuse of CU (as we all knew it would be misused); and micro management through misinterpreted policies of FNMA by AMCs …not to mention the misuse and intrusion into the development and reporting process of FNMA itself.
I use both narrative and form reports. It has been my experience that narrative reports are used more often to hide what was NOT done, than they are used to provide greater depth of analysis. Most today are boilerplated products using one of the off the shelf software packages such as Narrative1 and similar.
I know of no one that submits self-contained appraisal reports anymore. Haven’t seen one in years. What has replaced them is a formulaic boilerplated narrative with 40% to 50% useless stuffing to pad the report size.
You raised interesting ideas Don. There’s a lot of food for thought there – though I disagree with the mechanics surrounding the fundamental problem.
Integrity cannot be legislated. Either appraisers have it or they don’t. It is clear that the regulators from TAF down to many states & the unofficial but influential AARO simply do not have it. If they did, they wouldn’t be seeking prosecutorial solutions to educational shortcomings & errors of human limitations. Nor would they consider for two seconds suggesting that USPAP compliance investigators don’t have to comply with USPAP themselves.
1) Churchill thought they had relevance, was that before statistics?
2) three approaches are three from disassociated sources, or three related sources, does it make a difference Or?
3) Using a generalized form for a narrowly defined subject; SFR for a broadly defined subject, requires more than a form can relate & would be misinformative. This is a problem the appraiser can cure because he is the expert hired.
4) To Hide or not is the explainable prerogative of the appraiser. The reviewer can object for reasons or not.
5) boilerplate is tedious in any form, or format.
6) Not only not be legislated but hard to identify. And also Professionals or technicians have it or don”t.
7) The rest of it we agree on, but prosecution as a source for enforcement is a threat which should be discussed especially for independent contractors.
Whether the legal professional would accept fee potential or not might be disastrous. An appraiser looking forward to a career, and retirement might look at reasonable fees differently.
A new report by the Urban Institute, a policy research group says that the homeownership rate among millennials ages 25 to 34 is around 8 percentage points lower than Gen Xers and baby boomers was in the same age group.
Student loans are one of the factors at play, although the research found that homeownership rates for millennials who don’t have a college degree are falling behind those who do, possibly due to their unstable incomes along with rising rents.
Nearly half of households headed by people 18 to 34 are rent-burdened with 30 percent or more of their paycheck goes to their landlord. The study found that home ownership increases — by more than 10 percentage points, if their parents were homeowners.
Delayed marriage has one of the biggest impacts on their low home ownership rate. The share of married households with children, aged 18 to 34, dropped to 25 percent in 2015, from 37 percent in 1990. Having a child increases a person’s chance of owning a house by 6 percentage points, the researchers calculated.
Here’s why millions of millennials are not homeowner.
And let’s not forget this generation were children during the last market crash, and many were in families that lost homes to foreclosure.
Yeah, but what’s the value of numbers when you got a really good story to tell?