Appraisal industry experts address whether technology will replace appraisers and other weighty topics.
During a recent HousingWire webinar, “What is going to happen to appraisers in 2017? panelists, including Zachary Dawson, director of collateral strategy and policy at Fannie Mae; Matt Simmons, partner at Maxwell, Hendry & Simmons; Brian Coester, CEO of CoesterVMS and Alan Hummel, chief appraiser, First American Mortgage Solutions, also addressed hot topics, such as whether there is a true appraiser shortage; Fannie Mae’s policy regarding use of appraiser trainees; and appraisal management companies and whether AMC fees are fair and reasonable. To gain greater insight into these important topics, OnCourse Real Estate interviewed one of the panelists — Matt Simmons — and The Appraisal Foundation’s Director of Appraisal Issues John S. Brenan.
Technology: An appraiser’s friend or foe?
The panel experts seemed to agree that technology is necessary for the appraisal industry but will not replace the need for human appraisers. John S. Brenan, director of appraisal issues at The Appraisal Foundation, who wasn’t part of the webinar, agrees that technology is not something for appraisers to fear. Rather, appraisers should embrace it, he said.
“There are many tools that can assist appraisers in performing assignments more effectively and efficiently, and appraisers should analyze how such tools can benefit them,” Brenan said.
Looking critically at technology types is important for optimal use of technology, he says. For example, automated valuation models can render credible results in certain cases, such as in markets with homogenous housing and strong market activity (sales, listings, etc.).
“However, many markets do not fall into this category. Markets with homes that vary significantly in size, quality, amenities and other characteristics generally require analyses performed by competent appraisers with knowledge and expertise to produce credible assignment results,” Brenan said.
Simmons, a former state regulator and former chair of the Florida Real Estate Appraisal Board, said technology’s threat isn’t new to the profession. Appraisers—especially, residential appraisers—have been concerned for decades that technology might replace them.
“It hasn’t happened, and I don’t see it happening now,” said Simmons, who is a licensed real estate appraiser and real estate broker.
That doesn’t mean, however, that things aren’t going to change. And appraisers need to adapt. In fact, the appraiser’s role in mortgage finance appraisals is changing. Loan products that do not require a full appraisal already exist, according to Simmons.
“That’s okay, though,” he said. “Appraisers must consider themselves to be analysts and users of technology, rather than just a person measuring a house, taking photos and filling out an appraisal form. Technology is offering opportunities for appraisers to demonstrate market knowledge, organize data into usable information and provide a tangible value to their client.”
Appraisal trainees: setting the record straight
Dawson clarified Fannie Mae’s long-standing policy allowing the use of appraisal trainees. According to the policy, supervisory appraisers do not have to accompany trainees on their inspections. The policy is nothing new but was clarified in Fannie Mae’s recent Selling Guide announcement.
Brenan said The Appraisal Foundation is in complete agreement with Fannie Mae in this regard.
“We think trainees are currently underutilized and can serve an important role in appraisal practice. Trainees are legally eligible to participate in assignments that the supervisory appraiser is eligible to perform, provided they are competent to do so,” Brenan said. “Some states mandate a certain number of transactions before a trainee can inspect a property on their own. However, once a supervisory appraiser has accompanied a trainee and deems them competent to inspect a property or property type, we see no reason why the trainee could not perform the inspection without the supervisory appraiser.”
Brenan added that the Uniform Standards of Professional Appraisal Practice require competency; therefore, if a trainee inspected a property and determined it required competency beyond what they possess, it would be incumbent upon the trainee to notify the supervisory appraiser to make additional inspection arrangements.
Is there really an appraiser shortage?
Models presented during the Webinar suggested the supply of licensed appraisers has been somewhat flat and steady, despite media and other reports of a current industry shortage.
“I don’t think there’s a shortage as it stands today. There are certain markets (mostly rural) that are underserved. But the national licensing numbers and most state registrants are not inconsistent with a normal expected growth pattern in the industry,” Simmons said.
Brenan agreed that there are shortages of appraisers in some markets, particularly in rural areas, many of which were historically underserved, but that the numbers don’t point to an industry-wide shortage.
“Some markets have been adversely impacted by the sharp decline in the number of licensed residential appraisers, which was due in large part due to the Congressional mandate precluding licensed residential appraisers from performing appraisals for FHA,” Brenan said.
What many don’t realize is that during the last decade, the number of certified residential and certified general real property appraiser credentials has increased, according to Brenan.
“The ‘decline’ in numbers has been due exclusively to the licensed residential classification, where the number of credentials has dropped by approximately 75%,” Brenan said.
Simmons said that the idea of an appraiser shortage is, in large part, coming from AMCs that are having trouble placing assignments with low fees and extensive supplemental standards.
“So yes, there is a shortage of appraisers willing to work for a very low wage,” Simmons said.
That’s not to say that the threat of a shortage should be ignored. In fact, Simmons said, the pipeline of incoming appraisers is of concern.
“There has been a slight uptick in the number of trainees coming into the profession over the past year, but there have been few new entrants over the past five to eight years,” according to Simmons.
Simmons says he believes the lack of new entrants could be tied to lower AMC-driven wages.
“Why would a practicing appraiser want to bring on a trainee if the margins are too tight and they aren’t willing to complete work for many of the large mortgage lenders?” Simmons said.
One must address the economic factor, according to Brenan.
“Even with an oversupply of available appraisers, if the available assignments require greater work, particularly for lower fees, the result may be an apparent ‘shortage,’” Brenan said.
Still, there’s no need for panic, according to Simmons.
“There are solutions to many of these problems and the industry is just going through growing pains. The current turmoil is natural for an industry that from a professional licensing standpoint is not even 30 years old. Supply and demand is always the chief regulator, and these issues will eventually pass,” he said.
About those AMCs
Fees and AMC broadcasting practices seem top of mind for many in the profession today.
The question of whether or not AMC fees are fair and reasonable depends on which AMC is being analyzed. And addressing the matter is more complicated than looking only at the AMC, according to Simmons.
“Many [AMCs] do pay a fair and reasonable fee; others do not,” Simmons said. “It’s up to appraisers to also make sure that the fee they accept for an assignment is commensurate with the work involved. It’s important to remember that while ‘customary and reasonable fees’ has become a hot-button issue, and the legislation placing a responsibility on AMCs is in flux, lenders are unquestionably responsible for making sure that an appraiser is paid a [customary and reasonable] fee. That’s regardless of whether that order was filtered through an AMC. The AMC’s involvement does not absolve the lender’s responsibility under Dodd-Frank.”
The Webinar panelists seemed to agree that broadcasting to a large number (sometimes, thousands) of appraisers is not a good practice.
Simmons said he doesn’t think the practice of AMCs’ broadcasting appraisals to a panel of appraisers is in consumers’ best interests.
“It creates a frenzy atmosphere among appraisal panels, and often causes an appraiser to react quickly and accept an assignment that they may not be competent to complete or being offered enough compensation to handle,” Simmons said. “Lenders and AMCs are compelled to have an appraiser selection process that involves measuring competency, as well. Broadcasting an assignment and giving it to the first taker is also not in the spirit of those selection standards, in my opinion. I know that this AMC practice is something that many state licensing boards are looking at as they try to get a handle on how to effectively regulate AMCs.”
In general, it’s a matter of weeding out the good from the sub-par AMCs, Brenan said.
“Like so many things, there are some AMCs that are very good, some that are not so good, and just about everything in between,” Brenan said. “We think it’s crucial that AMCs observe appraisal independence requirements, and pay appraisers reasonable fees. It’s also important that AMCs have staff that understand appraisal issues and communicate effectively with appraisers.”