Dear ASC: Details… Why They Matter
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Over the past several days, the Real Estate Appraisal Industry has been the subject of scrutiny with the release of the PAVE Report that the Interagency Task Force developed on Property Appraisal And Valuation Equity set forth by the Biden Administration.
On March 23, 2022, there was a public meeting to unveil the Pave Task Force report on Racial Bias in the Real Estate Appraisal Profession. You can watch the press conference below as well as read the entire report here. This blog is not going to cover this event; however, it is going to cover another event that took place on March 24, 2022.
On March 24, 2022, there was a hearing on “Bias in the Home Appraisal Process” in Washington DC by The Senate Banking, Housing, and Urban Affairs Committee. The purpose of this hearing was to hear from witnesses, Jim Park, the Executive Director of the Appraisal Subcommittee (ASC), and Melody Taylor, the Regional Director for the Mid-Atlantic office of Fair Housing and Equal Opportunity for HUD and the Director appointed for the Pave Task Force, about discrimination in the home appraisal process as well as discuss the newly released Pave Task Force Action Plan. Both witnesses testified about studies that outline bias amongst appraisers that can impact the value of homes by tens of thousands of dollars. They also spoke about the need for more appraisers from diverse backgrounds. Represented on the in-person panel were various senators consisting of Sherrod Brown (D Ohio), Bob Menendez (D NJ), Tina Smith (D Minn), Jon Tester (D Montana), Patrick Toomey (R Pennsylvania), Chris Van Hollen (D Maryland) and Elizabeth Warren (D Mass).
While I am not going to cover the event in this blog post since you can watch and listen yourselves, I am going to discuss the missed opportunity the ASC had to let everyone in on the details and issues that not only the Pave task force missed but the ASC missed on as well. This hearing made it very clear that the ASC has zero idea of whats happening.
So before I get into it, I want to point out the issues the ASC whiffed on presented in three parts: 1) the shortage of appraisers that were brought up multiple times, 2) the barriers to entry, and 3) the educational requirements and diversity
1) Shortage of appraisers:
In this hearing, it was stated many times that there is an appraiser shortage. That appraisers are aging and that the barrier to getting in resides in appraisers not willing to train their competition. While some of that may be true, this was the perfect opportunity for the ASC to state other facts (they once again failed) that haven’t been mentioned before, and I will discuss them here.
HVCC, now Dodd-Frank, and its implementation in 2009: it was the day Appraisal Management Companies came into the mainstream. In 2009 overnight, Appraisers from across the country were stripped of every client they worked hard to obtain, maintain and have a relationship with. Implementing the now-defunct HVCC (Home Valuation Code of Conduct Law) created by then-Attorney General of NY and now disgraced Governor Andrew Cuomo. AMCs have been around before HVCC; however, this law made it so that there would be a third party in-between the Appraiser and lender. Appraisers could no longer solicit work from lenders or mortgage brokers. The role of the AMC was to manage the appraisal process, locate and assign appraisal orders. Now, this is where it gets messed up. The law never stated how an AMC would be compensated. So AMCs decided they would take a portion of the Appraiser’s fee to pay themselves. Overnight appraisers charging $500 for an appraisal were now subjected to offers from the AMCs to perform jobs at half that fee and sometimes even less.
As time went on, fees started to rise; however, to this day, the AMCs still broadcast orders out to many appraisers to find the cheapest and fastest Appraiser instead of the one that has the most experience. This drove many appraisers out of the profession and still, today keeps appraisers from taking on trainees. How can an appraiser take on a trainee and make it financially feasible for their business to succeed at such low fees and at the mercy of the AMCs? Why is this detail being left out? It’s an important one, I think.
2) Lender requirements:
Many lenders and their AMCs do NOT allow Trainees to inspect properties independently. See, most lenders want the Mentor/Supervisor to accompany the trainee to every job and guide them along the way. Fannie Mae does not prohibit trainees from inspecting alone as long as the Supervising Appraiser follows the rules. To go even further, each State has its requirements for trainees and inspections. This complicates things even more. So we have individual States that also set their requirements combined with lenders that set their own. Why does this have to be so hard? This wasn’t mentioned at all during the hearing. So we are going to state there is a shortage of appraisers and a barrier to entry due to competition, but not mention that the lenders and others make their own rules over this. Ant it’s the Appraisal profession’s fault?
While I am on this topic, I’ll add a solution. You can agree or disagree. Any loan being sold to Fannie or Freddie must follow Fannie and Freddie guidelines. If you are a mortgage company or a lender that says a trainee cannot inspect but you are selling it to the GSEs, you need to step aside and go by the GSEs’ guidelines and laws. Yes, again, Fannie allows trainee inspections so you do not need to make up your own. If you are lending your own money, then you can make your own rules otherwise follow the FNMA rules. Pretty simple.
The Past has no merit.
Let’s take a wild ride into the past. Remember AppraiserLoft? Coester VMS? There were a few others. These AMCs closed up owing appraisers a lot of money that many never saw. So many appraisers started to pick and choose which AMCS they would work with. I am in GA. I work with two AMCs out of 150+ registered AMCs. Is it my fault that I don’t work with all of them? No. Is it my fault they abuse the system? I think not. Am I required to work with everyone? No. The government created a system that hasn’t been looked into deeply enough as far as I know. Funny enough, during the hearing Senator Toomey stated “Government has no place in housing.” Interesting comment. You speak of change and more… Then start by looking at what’s in place and start paying attention!!! Stop creating more issues until you solve the ones already existing.
4) Education and diversity:
I am all about diversity and getting more appraisers into the profession. I am a one-person shop. I want to take on a trainee and do more, but I don’t owe anything to anyone as a business owner. AMCs pay fees that are below normal fees. They have become the rulers, and I risk losing business if I don’t comply. Lenders make their own rules, and my liability has gone sky-high. So why would I want to train anyone? I worked my tail off to be where I am, expecting others to do the same. I am okay with potential appraisers getting their education online as most of us do our continuing education that way. I’m not okay with having the in-person experience requirements taken away, as I see that as a crucial part of the appraisal process. But as you can see, the ASC’s excuses are not the total truth. The truth resides in everything NOT being said and what I have stated above. The ASC can paint a pretty picture all they want or a bad one. NOONE is talking to boots on the ground appraisers. The ones that are now being accused of these biased actions and more. The ones that are currently taking the responsibility and doing their job correctly that may land them in a lawsuit or have their character questioned.
The ASC decided they would take the easy route today. They failed all appraisers in my opinion. They are too scared to face the actual truths due to stakeholders, AMCs and backlashes. If Congress, Senators, and others want to know the realities, they need to go to the people who do the work, spend time with them, learn about the profession, etc. The ASC and others are only thinking about saving their face to remain relevant in the eyes of government, yet they forget the details that matter in all of this.
I am a proud Certified Real Estate Appraiser in the State of Georgia. I am also the President of the American Guild of Appraisers. Facts and details matter. It’s clear that the ASC, TAF, and everyone else don’t care about the details. They care about themselves. DETAILS… NO MATTER HOW SMALL OR BIG NEED TO BE PRESENTED. If not, you failed. ASC, you failed us… again.
As the title says, DETAILS MATTER. You leave them out and you paint one picture. You make them known, another is painted. So why are our supposed leaders leaving out details of the major issues I described above? Why aren’t these part of the explanations revealed to our politicians and decision makers when the opportunity is given?