Appraisal Alternatives
Computers eliminating “boots on the ground” residential appraisers.
An historian once quipped, “I cannot predict the future, but give me six months and I’ll tell you why it was inevitable.”
Residential appraisers who work in the mortgage arena began to experience the sea change when UAD arrived amongst much fanfare in September of 2011. Years of portals, hard-stops, and overrides have settled into an uneasy routine.
We’ve already seen changes to closing docs as a result of TRID (TILA RESPA Integrated Disclosures). That adventure began in November 2013. Washington DC, never content to maintain any level of consistency has already changed TRID to KBYO (Know Before You Owe). Whatever.
Under its new policy announced October 24, 2016, Freddie Mac will waive appraisals in lieu of an appraisal alternative in a host of situations, including first-purchase loans. There’s serious talk in Congress of raising the de minimis from $250,000 to $500,000.
The writing is not only on the wall but in big, spray-painted balloon letters for everyone to see. The future for appraisers specializing in residential mortgage work is coming to an end. No bang. Not even a whimper.
In 1991 I attended an NAIFA seminar that offered a grim view of the residential appraiser’s future. At that time there was talk of neural nets eventually phasing out residential appraisers by… 1996. That never happened in the same way that my generation was never provided jet-packs like we were promised when I was ten. Twenty years later, however, we’re edging closer to that promised reality of computers eliminating “boots on the ground” residential appraisers.
The Other Front
I flew down to St. Louis for the November AQB meeting at the Embassy Suites. As you know, since January 2015, all certified appraiser applicants are required to have nothing short of a Bachelor’s Degree before upgrading. Currently, the AQB is pondering alternatives to the Bachelor’s degree requirement. Significantly, they are only seriously considering walking back the Bachelor’s degree requirement for certified residential appraisers while maintaining the degree requirement for certified general appraisers.
My personal request was that they eliminate the Bachelor’s degree requirement from both categories. Why would I suggest such a thing? For years the AQB has operated under the premise that any degree is better than no degree. My point to them was that, here we are, twenty-five years after licensing began and we are still no closer to a Bachelor’s Degree program dedicated to real estate valuation than we were in 1991. Other countries have such a program of study. Why don’t we? How can someone holding a Bachelor’s Degree in Middle Eastern Studies or Philosophy be considered to be better qualified to become an appraiser than someone, without a degree, who has been actively working as a real estate professional for ten years or more? In 1979, when I attended real estate classes at junior college, I was told that soon there would be a course of study just for appraisers. Here it is, 2016, and I’m still waiting.
Since 2007, Illinois has watched 838 or (27%) of its certified residential appraisers exit the profession. Where did they go? They retired, mostly. After all, the average age of an appraiser in Illinois is approximately 58. During that same period, 902 or (70%) of our trainees have disappeared. Where did they go? Most were unable to find a supervisor or were unable or unwilling to complete a Bachelor’s Degree program. The average age of the 2016 class of Illinois trainees is 34. These are second-career people. They finished college, if they went at all, a decade ago. They’re not going back. There are those who hold that there is a perceived loss in the number of licensees in appraising. If Illinois represents a microcosm of the profession, then the loss is real.
Even when you look at California, our most populous state for licensed appraisers, the most casual observer can see the dramatic shift. In November of 2005 there were 18,854 appraisers in the golden state. Compare that to 2016 when that number is down to 10,852. That’s 8,000 California appraisers (42%) in eleven years…gone. The rest of us cannot ignore the demographics of this profession. The existing appraisal population is hovering around 60 years of age, nationally. Trainees, overall, if Illinois is any indication, average between 30 and 45 years of age. We’re not getting any younger in either category and fewer are entering the profession. Without a dedicated valuation program we can’t even begin to guess from where the next generation might come…if they come at all.
In any event, neither the market participants nor the federal government have any interest in preserving the residential real estate appraisers as we recognize them today. In 2013 and 2014, Illinois saw 56 applicants successfully upgrade to a certified credential. This year, that number has fallen to 33. Applications for the trainee credential have fallen by 94.56% since 2005. Since June, only two individuals have taken the Certified Residential exam. Two in a state this large. This is the new normal for appraisal in Illinois.
In time, most, if not all residential valuations will be performed by algorithms. They won’t be any good…but they’ll be good enough. My question remains, “when was the last time an algorithm walked through someone’s house?”
In St. Louis, the AQB repeatedly asserted that whatever their decision is on the degree issue and other things, it will have nothing to do with the appraiser population in the US.
Fine. Then keep doing what you’re doing. In ten years or less… it probably won’t matter anyway.
By Brian Weaver, Coordinator Editor of IllinoisAppraiser, Appraisal Management Company Coordinator for the Illinois Department of Financial and Professional Regulation (IDFPR)
Source Illinois Appraiser Newsletters – Volume 10, Issue 1 – January 2017
- Hybrid Assignments, the Consequences - February 7, 2019
- Bankers Concerned About Appraisals - October 18, 2017
- Third Party Blues - July 19, 2017
Nice write up. All true
maybe, but on a scale of 1-10, i give the article a 3 at best, and here is why.
the article touches on a couple things, but it does not go far enough discussing why the mortgage appraiser profession is crashing. computers are a VERY SMALL piece of the puzzle.
once again, this author cites age and education as the problem for the profession. this may be true and i agree 100% with that assessment, but there are by far, many more problems than just those things, and any appraiser who has actually worn those boots everyday in the street will agree with that.
i am sure i will not be able to cover every problem, and i dont have the time to explain every problem in detail, but i will give it a small shot.
1. over-regulation, at the state and the federal level. name me ONE profession besides this one that has to deal with a piece of garbage like USCRAP? appraisers walking on eggshells every minute of the day does NOT create an attractive or friendly working environment for anyone. that absurdly-written document is so vaguely written, that it can get anyone in trouble somewhere, if someone really wanted to push it. what kind of trouble? PROSECUTION. again, who does this? if a plumber screws something up at a house, is he turned into the state and is he then PROSECUTED for it? plumbers make around $100/hour these days, and their only liability is getting their clients shoes wet. much better pay than appraisers, far less liability, less BS, less education requirements, and no USCRAP. sounds like a far better gig to a job seeker than appraising all day long. A PERSONS HONESTY AND INTEGRITY CAN NEVER BE REGULATED. laws are on the books everywhere about murder, but people still commit murder, dont they? and now there are rumors circulating about now that most of the fraud is gone, state regulators are now issuing larger fines and prosecuting appraisers for petty things, just so they can justify their departments. not good, and a big problem.
2. realtors and assessors not doing their jobs. inconsistent and incomplete MLS data creates more liability for the appraiser. its no wonder appraisers are being asked by some computer why their data doesnt match the other guys data. same goes for the assessors offices and THEM not doing THEIR jobs. i used to see property record cards in error all the time. its easy to verify some data with access to the property, but when no access is available, and appraisers are relying on people to do their job, unreliable data becomes a problem, AND another LIABILITY for appraisers. unfortunately, nobody will EVER hold a big lobbying group like realtors and government assessors to the same high standards as appraisers. until someone does, that is another big problem.
3. AMC’s/Banks. nobody should ever have as much control over appraisers and their businesses as they do, especially when it comes to appraisal fees. an appraiser/business owner should be the ONLY ONE determining their fees, based on all their costs and expenses, and nobody else. if the cost of hamburger, or labor, or insurance, or whatever, goes up for a McDonalds business owner, the business owner is free to raise his prices accordingly. appraisers never should have lost that control, and need to be given that control back completely. many AMC’s/Banks are paying appraisers fees today that were being paid 10-15 years ago. i know of NO BUSINESSES whose expenses have not gone up in the last 10-15 years. salaried federal and state regulators who dont run an appraisal business every day will never get it, and i understand that, but allowing the slow bankrupting of appraisers is HUGE problem.
also on that note. no appraiser will EVER be willing to train anyone unless it is financially worth doing, in pay, and in liability. current fees paid and controlled by AMC’s/Banks will never cut it. again, those fees need to be determined by the appraiser/business owner, and nobody else. until that happens, the profession will continue to die as veteran appraisers (and excellent teachers) leave the profession for good, and nobody is left to train new people.
i wont even get into those ridiculous, time consuming, time wasting revision requests to explain the most ridiculous and absurd details that accomplish nothing and drive appraisers insane.
i wont even get into revision requests by people at AMC’s/Banks who have no clue about appraising, and have no idea what **** they are talking about, yet continue to drive and steer appraisers and their appraisal reports in “their” directions with all their nonsense.
i wont get into the completely absurd current FHA requirements like running the dishwasher, stove, and washer/dryer, that common sense says should be done by a home inspector and NOT an appraiser. more time-consuming garbage, that also throws even more liability on the appraisers backs is a big problem.
i wont even get into not getting paid by AMC’s/Banks. its easy to take your neighbor to small claims court over a thousand or two, but things get much more difficult when an appraiser is trying to collect from a national bank or an out-of-state AMC’s.
i wont even get into doing an appraisal and being liable for it for FIVE YEARS.
i wont even get into all the numerous layers of regulatory boards and agencies that are hovering over the appraisers heads with all their nonsense.
i ask again, what other profession has to deal with all this insanity?
the appraisal profession will never look attractive to anyone, old or new, until all these problems are fixed. “path of least resistance”, remember?
i could go on, and on, and on.
any appraiser who has actually worn out a few pairs of those boots, knows EXACTLY where all the appraisers went (and are going) AND WHY.
everyone knows the profession is imploding, and the voice of mortgage appraisers telling everyone that, has always fallen on deaf ears. I SAY GOOD RIDDANCE AND LET IT IMPLODE. the entire profession has become such a screwed-up mess at this point, that i just dont see how it CAN be repaired. its time to start all over, with all new people, and fresh ideas. you know – sometime after the next big crash happens, and after everyone realizes that getting rid of all the real estate appraisers was a REALLY BAD IDEA.
You’ve all heard the expression: “A face that only a mother could love”. This has been transformed into “a profession that only a computer could love”. Why? Because they aren’t forced to put up with the B.S. that current appraiser slaves are forced to eat on a daily basis. They also aren’t forced to work for 1990 wages.
Summary:
“The future of appraising looks bright IF you own a *Sunway TaihuLight.”
*The fastest supercomputer on the planet
Bubba, great article and points.
There are some proposing that required minimum education to be an appraiser should be diminished. At the same time, the future competition (AVM’s) considers a BS or BA to be a low level participant in their process, with many of the AVM team developers possessing Masters degrees, PhD’s and other advanced education, training and often many years of experience in computer science, programing languages (SQL, Java, C#, C++, etc.) , economics, calculus, data mining, graphic information system (GIS), predictive modeling, probability theory, statistics, data analytics, neural networks, combinatorics, etc., working with experienced & educated appraisers in developing, refining and testing algorithms and models. These will get better over time. The AVM appraisal is being developed from a scientific and neutral perspective, whereas, the appraiser is assumed to have personal biases and opinions. From both ends of the spectrum, high and low, the appraisal is being treated simply as a commodity via the appraisal report. Also, while the appraiser may believe each property has a single pinpoint value, the AVM developers and end users will be reporting and relying on value ranges, probabilities, confidence levels, and various statistical reporting including forecasting, relative to a property “value”. In the end, this is all about risk analysis, not precision. For properties that don’t quality, known as Outliers, the appraisers will be needed. These will be the most difficult properties to appraise, including those below the 25th percentile and above the 75th percentile price ranking where the AVM’s don’t perform well. So, diminishing the education requirements for the boots on the ground appraiser is like shooting yourself in the foot. There is no positive outcome.
On the contrary, there is a positive outcome if you are in the business of manufacturing automotive starters (banks who own AVMs & AMCs). On the flip side there is an extremely negative outcome if you own a buggy whip manufacturing plant (residential appraisal company).
Carriages & buggies didn’t become obsolete overnight and without warning. Buggy whip manufacturers had a full decade to figure out they were strapped to the front of a train heading for a stone wall. Appraisers have had nearly a full decade of warning as well. It amazes me that nearly 75,000 appraisers have volunteered to be strapped to front of this train.
The AI should honor the “Last Appraiser Standing” with this award.
Good Craig so when the next crash comes they know where to go and find the culprits, the AVM teams. Because one thing I know with systems are people figure out how to get around them or massage them to get what they want from it. And don’t think the banks won’t throw them under the bus.
Investors in technology rarely have a neutral perspective. Which major corporation is promoting this for profit? Will the supposed tech geniuses have to carry state licensing, since each and every mistake they may make in programming will have much further reaching consequences than an individual appraiser. Are math degrees and endless hours in front of computer screens a viable substitute for real property inspection? Should I believe the avm phd could also swing a hammer and create a digi program which can identify health and safety issues?
These articles fail to recognize the vital importance of checks and balances systems while simultaneously presuming that major lending interests will certainly win the day. If lenders could have successfully policed themselves, they would have done so a very long time ago. If lenders were lending their own money, they would not choose risky valuation tools. Remove the FDIC backing, wind down FNMA. We have not yet sorted out mers and foreclosure fraud, but are already boldly moving towards automated valuation protocol? Additional financial relief padding room for lenders and investors will need to be implemented in government guarantee programs to compensate for the variability and increased risk inherent in AVM methodology. If government agencies would have done their job properly and jailed corrupt lenders and agents, they would not behave so lawlessly today. Who cares how a private lender manages risk, so long as their lending their own money. Being that lenders are backed by taxpayers means there is no foregone conclusion in favor of lenders. WAKE UP! We The People demand accountability. We will settle for nothing less. …
Craig I think your optimism is misplaced along with your willingness to trust Big Data reliability.
Why IS it that economists can only predict the future when its in the past? Doesn’t Wall Street hire these same geniuses? They can’t afford Big Data?
I no longer care deep in my heart. If the profession collapses, I’ve been around long enough to be able to change my client model. I will hire out as an expert demonstrating “bank” [likely FNMA] culpability to buyers for failing to protect them from buying an overpriced property (runs against the grain, but…..).
Think about it, “Respondent is accused of long term collusion to systematically destroy the critical inherent checks and balances in the real estate industry.” thereby depriving, etc., etc. “Greatly damaging plaintiffs reputation, financial stability, causing wife to take kids and abandon him….”
Evidence? Certainly collateral underwriter for a start. Created by 7 NON APPRAISERS – not one valid license in the group…though 3 were limited experience “ex appraisers” for some reason.
I will be proven right in the end. It’s not about optimism. It’s about knowledge of facts and being a SME. A goal of all corporations [and appraisers too] is increased efficiencies through automation. Access to mass data quickly, such as MLS, at first seems a benefit. Then, it actually can work against your own best interests. I was warning appraisers starting in 1999 that mortgage appraisals [actually collateral valuation] would done by a computer one day. The day has finally arrived. I believed my own warnings and like many others I know moved away from transactional assignments years ago. I am thankful for having had the opportunity to have co-developed the AVM used by the GSE’s today, starting from day one at ground zero [Veros] in 1999. This opened my eyes to the future.
Craig,
In 1993, LSI came out to an office where I was Appraisal Manager for an appraisal mill (to my shame) proposing AVMs. The EXACT same reasons I told them they were unreliable garbage back then still apply today.
Snake oil in a modern, child proof bottle is still snake oil.
The prospect of increased efficiencies WAS my goal in 1991 when I was first tricked into using a computer. I LOVED my old PCPlus appraisal software where 35mm photos still had to be taped and there was NO EXTRA garbage piled on by lender, or AMC or uploading. Computer speed was measured in baud rate. Heck, in ONE day I typed 29 704’s from field notes of my appraiser trainees (yes, that was allowed back then; AND we complied with USPAP including disclosures about what was and wasn’t done in SCOPE of work (before it was its own rule). Now, if you remember the OLD 704 before the 704D, was a pretty brief document. When boiler-plated its was a snap to finish from GOOD field notes. Still slightly better than an AVM today.
But ultimately ALL computerization did was result in increased competition for lower fees with MORE work and far less production. It still takes a full 8 to 12 man hours (sorry ladies!).
Before computers if I made a 7:30 to 8 AM appointment, I was done shooting comps, dropping off film and back in front of donut shop by 10 AM. Draft report was written up in 0.5mm fine point, by noon. THEN into office where mentor drove me crazy with question about previous days report but by 3:30 or 4:30 at latest I was finished with deliverable copy of prior days report and ready to turn current days report in for tomorrows review.
I applaud eliminating transaction loan production work. I’ve done it for res, and am mostly out of it for C&I as well. I try to work no more than half a day now on non institutional lender work; IRS 706 & 709 reports and or litigation / private appraisals and really oddball properties for an AMC that knows I’m not uploading xml or any other garbage formats. Ever appraised a water tower converted to a house?
I’m glad you didn’t design that POS used by First American for their PACE PRO “product” known colloquially as the Bandini Package.
As for the AVM “having arrived” don’t count on it. Ever hear of a company called ZILLOW?
Best of luck in your endeavors.
Mike: In response to your 2/23 post and AVM future: BIG PICTURE –
1. For some reason, uninformed Appraisers always point to Zillow as the reason that AVM’s won’t work, as though Zillow is the Gold Standard; and, point the the outliers too as to the limitations.
2. It doesn’t really matter what Lenders, AMC’s, Appraisers, Appraisal Organizations, NAR, etc. believe or want, with regards to Collateral Valuation, since none are at the top of the Apex. Unfortunately for residential mortgage appraisers the GSE’s will be the deciders;
3. A Lender will take the path of least resistance if they can be offered an alternative that is fast, cheap and with no risk [of buyback].
4. An automated appraisal process will not necessarily be ‘better’ than a boots on the ground appraiser, but this is irrelevant statistically with regards to potential losses due to overvaluation. This means there will be exceptions. A built-in risk.
5. Automated systems will not prevent fraud – but – EVERY fraudulent cases that I have ever been involved in as either Chief Appraiser at Financial Institutions, or as a consultant and expert witness, including major Federal cases of $100 million+ claims, had appraisals done by boots on the ground appraisers who submitted fraudulent reports with excessive values which also “passed” boots on the ground review appraisals. The appraisers were enablers in these cases. The automated systems also have a built-in ‘fraud detector’ or ‘fraud alert’.
I am no longer involved with AVM’s but see the writing on the wall and trends. Just like travel agents were replaced with Orbitz-Expedia, Taxis with Uber-Lyft, Encyclopedia Britannica with Yahoo-Google, Sears-Walmart with Amazon and so on, faster and cheaper alternatives will Trump labor intensive tasks.
FNMA and FHLMC don’t care about my opinion or your opinion on these matters. There will be nobody coming to our defense. This is called progress by some. Offshoring of labor will continue.
Craig
1. We always point to Zillow because it was the newest state of the art, magical super duper flapdoodle shiny new state of the art con job when it was being hustled. There was absolutely NOTHING wrong with the concept…except for inherent non compliance with recognized standards and misleading representations about what it could or couldn’t do.
2. You are flat wrong about who will decide. Ultimately investors who stand to get screwed on bulk MBS purchases will decide. That and Congress when (yet a THIRD time in less than 30 years) they have to tell taxpayers “we goofed…again”. Craig we KNOW what it takes to provide good appraisals. It’s not a secret. It also can’t be done by a computer. IF congress will only drop the pretense of having any standards, then what you propose could work.
3. Lenders are whores that only aspire to be respectable prostitutes.
4. Statistical relevance. Now THAT is my FAVORITE argument. A partner in a mortgage brokerage firm I used to work for once explained why I should stop killing deals or telling the loan officers the deals they were chasing or trying to structure wouldn’t work because they were so far out of range that even a blind man could tell the appraisals would not be supported. (pre 2007).
“Identify the objection and reduce to the ridiculous” (Dale Carnegie sales courses circa 1972)
[him] What’s the mortgage delinquency rate [me] probably less than 2% max 4% start 0f month;
[him] Of that 2% how many are over 90 days delinquent? [me] I dunno
[him] You see our monthly NOD lead lists right? [me] Yes
[him] Less than 10% of those actually go to auction right? [me] I guess so…
[him] so we have 2/1000ths of the BAD loans that ever go all the way into default, right? [me] I guess so.
[him] so if you were 10% over on ALL appraisals how many of those loans would actually go bad? ALL of our loans have PMI insurance that covers the top 25%. How much would lenders lose?
Why golly gee Mr. Mortgage Co. Owner NOTHING!
“But its fraud if I knowingly did that. I’d lose my license” [me] brush off resume and go back to independent work.
Early November, 2008 Hank Paulson said the sky is falling. Mainly due to AIG and re insurers of bundled / securitized mortgages.
Statistically that COULD NOT HAVE HAPPENED!
5. Sadly you may be right BUT THEY WON’T be doing it with any pretense of knowing what the market value is.
An ingenius article timed perfectly for appraisers who have been living in a cave for the past eight years. If you are still active in this business as a full time endeavor, you qualify as a cave dweller.
Sure your tiny business is still thriving (because you happen to live in a pocket with a shortage of appraisers). Meanwhile the cancer spreads throughout the industry and appraisers continue to hit their snooze buttons each morning.
Thank you for the wake up call Mr. Weaver.
Amen to that Retired Appraiser, Clint Eastwood said it best when he stated: “Dying ain’t much of a living boy”.
A vote for the demise of the human appraiser is a vote in favor of increased lending fraud of many forms. Jet packs are here. In the form of easy cash and prosecution free lending environments. A much greater advancement than the jet pack, to destroy the tenets of law and order and get state agencies to play along. The people who rely on avm will get what they asked for, dramatically increased financial risk and uncertainty. Math question; Too big to fail + removal of checks and balances systems = INCREASED PROFIT. I’d tell you guys to wake up, but you’re apparently comfortable in the illusion zone.
Just because you may have folded and proven incapable of keeping headway in this adverse climate does not mean this is the status quo position for all practicing professionals. If crying wolf paid, you guys would be rich.
Peace sells….but who’s buying baggins ?
So new news on privatization of FNMA. Picked that up from an appraisal email today. There will be a profit boost out of receivership, but then what happens after that? The truth about mortgage lending is that at it’s heart, taking on debt is never a good idea. The only reason we should accept debt is out of necessity with careful risk vs reward consideration. Most Americans are their own worst enemy, in that they consider complete home ownership as optional rather than necessary.
Trump Treasury pick: Fannie Mae and Freddie Mac will be privatized
One of the most uninformed posts I have ever read on this blog.
Hi Brian, I was off for awhile. Didn’t read post til today.
Wanted to compliment you on a great article but am having difficulty doing so knowing that in past week (?) Pamela Althoff (R) has introduced a Bill before Legislature in Springfield to deregulate AMCs!
Anyway – article is great! Now if you can just do something about asinine legislation proposed for your state.
I’d LOVE to read HER list of campaign donors!
By the way TRID was changed for obvious reasons. Bad choice originally. Too many of us refused to pronounce it as anything other than what it sounds like, looks like and smells like.
Keep up the great posts.