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Editor’s Note: Seasoned appraisers give their advice on finding success. This story appears in Working RE’s NEW January Print Edition. OREP insureds enjoy it free! Now reaching 60,000+ Appraisers in Print and Online! (Am I a Working RE Subscriber?)
How Can Appraisers Thrive?
By David Brauner, Publisher of Working RE Magazine
At the Appraisal Summit in Las Vegas (Nov. 2017), a comment was made by a veteran appraiser that the big changes the industry has heard are coming for the last 25 years—finally are. Here is the unvarnished advice from a handful of industry leaders on what you need to do to succeed in the future. The question of the day that we asked our contributors, and the question for the industry at large, is this: What will appraisers need to remain in business and flourish over the next five to ten years?
Michael Brunson, MNAA, 2017-2018 Board of Directors of National Association of Appraisers (NAA)
When I entered the appraisal profession in 1995, I was told that it was changing and that there was no guarantee that my position would exist in a few years. There have been some significant changes in the appraisal profession in my tenure. Some have been good, some have been bad. Most have included a combination of both. Over more than two decades, I have heard warnings and laments of change from many in the profession.
While a minority position, the sentiment was present at the recent Appraisal Summit in Las Vegas. Clearly, the fear of change is a constant in the appraisal profession. This year at the Summit, I was honored to present “The Future of the Appraisal Profession: Gazing into the Crystal Ball.” As I listened to the presenters, there was a constant theme—appraisers are a necessary and valued part of the mortgage lending and banking landscape. Are there changes in the wind? Yes. In fact, Danny Wiley (who happened to co-teach my USPAP Instructor’s Course many years ago) said during his presentation, “The change we have been hearing about is here.” The question that really affects the appraisal profession is not: “will there be change?” Of course there will. The question that affects professional appraisers is how the profession and the individual practitioners respond to that change. While there have always been firms that distribute specific tasks within the appraisal process among multiple individuals, many appraisers operate as a sort of one-man band. Marketing for clients, maintaining those relationships, receiving assignments, preparing the assignment file, searching for data, conducting analysis, typing the report, delivering the report, answering any follow-up questions, and trying to collect on past due invoices (all while holding a clipboard and navigating to the next appointment). There is a current movement to allow appraisers to transition into a more specialized role—and it is meeting with great resistance.
Some are suggesting that others may be able to provide the field assessment—freeing the appraiser to focus on other aspects of the assignment. This is not a new concept. This has been done in the past when an appraiser would have an intern/trainee conduct the field inspection and rely on that work in completing an appraisal report. The fieldwork was conducted under the direct supervision of the appraiser and disclosed as significant real property appraisal assistance in the certification. Under the proposed scenario, the fieldwork would be conducted independent of the appraiser, relied on under an assumption of accuracy, and disclosed as significant real property appraisal assistance in the certification. Personally, I do not see the issue.
In the first scenario, the appraiser is responsible for any number of potential issues. Was the sewer connection public or private? Did the appraiser leave the water running and flood the house? Was the appraiser the last person in the house before it burned down? Why did the appraiser not disclose the missing shingles on the snow-covered roof? In the second scenario, the appraiser relies on assistance from an independent source, discloses the extent of that assistance, assumes the information provided is true, and discloses that the assumption might have affected the assignment results. That sounds like less liability and more time to me.
Different does not equal bad. When different allows a professional to avoid liability and spend more time doing what they are good at—it can be a very good thing. Moreover, nothing precludes a professional appraiser from performing a full range of property services or deciding to specialize in one aspect of the appraisal process. As technology and methodologies change, the key to the survival of the profession will be the ability of its members (new and old) to adapt and to provide a useful answer to the question: “what is my risk?” —Michael Brunson
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Richard Hagar, SRA, busy appraiser, and author/instructor of “How to Support and Prove Your Adjustments” – 7 Hours CE Online
Appraisers must make themselves more valuable than an AVM or a form with some boxes checked. If an appraiser’s only redeeming quality is providing a value statement, how is that different from an accurate AVM? It isn’t. An accurate AVM is cheaper and quicker, thus beating the competition (the appraiser) in speed and cost, which renders it more appealing to any customer. Many appraisers are running themselves out of the business by failing to provide more than what an AVM can provide. Many have been classified as Tier 2 or 3 appraisers (ranked lower), considered no better than an AVM, mainly due to poor appraisal skills. This may shock many appraisers but a value conclusion isn’t the end all, be all of an appraisal; it’s only a small part.
Our customers, lenders and clients, need several things that AVMs cannot provide and this is where we have strength and a future:
1. An accurate, relevant description of the neighborhood, not some generic description that applies to every neighborhood everywhere.
2. An analysis of the subject’s highest and best use as if vacant and improved, not just a box checked on the form.
3. An accurate measurement and description of the subject, not just a “it’s typical of the area” generic blah, blah.
4. Current photographs of the subject and comparables—not something stolen from the county or MLS and used in a different appraisal. The lenders already have that.
5. The ability to provide an accurate, up-to-date appraisal of a property located outside a subdivision.
Appraisals of easy-squeeze homes in a subdivision are going away; AVMs will handle them. What will remain will be the need for appraisals of properties outside of subdivisions that are filled with similar homes: homes on rivers, lakes, acreage, unusual styles, large size, or very expensive, which cannot be accurately valued by AVMs. If appraisers want to survive they MUST increase their ability to appraise these properties. The inaccurate, “how fast can I provide an appraisal” form-fillers are being killed off by technology.
Hopefully appraisers who are willing to tell it like it is with USPAP compliant appraisals of complex properties will survive and charge fees starting at $800, even in Los Angeles. Appraisers with low status with their clients are going to face serious challenges, so the sooner they upgrade/update their abilities the better chance they have to survive and flourish in the years ahead. —Richard Hagar, SRA
Dustin Harris, owner of a busy appraisal office, and a leading appraiser coach and trainer (TheAppraiserCoach.com)
Throughout the past decade, there has been more than one wave of fear and uncertainty in the appraisal community. The Home Valuation Code of Conduct (HVCC) was a big one in 2010 and currently, there are the Fannie Mae/ Freddie Mac announcements that some loans will no longer require an appraisal. Those who are unwilling or unable to change are struggling to survive. At the same time, others have shown creativity in adjusting their business models accordingly, to fit the ever-changing financial world. Flexibility is the key. While others suffered greatly or went out of business after HVCC, I actually increased my appraisal net income with a little business redevelopment.
No one has ever accused me of being static and saying, “If it worked in the past, it will work in the future.” This kind of thinking can be the death knell for a businessperson. We live in a fast-paced world. Technology and knowledge are advancing at breakneck speeds. With that change also comes the need for appraisers to adjust and change as well. The valuation profession is not what it was 10 years ago, and the next decade will continue to bring changes. Perhaps, in a few years, the 1004 form will no longer exist. Are you prepared to make the adjustments to your appraisal business model to remain relevant into the future? A key to being successful has always been to see where your profession is trending and be able to make adjustments accordingly. Those who are willing and able to make these changes will continue to see success long into the future.
A big key to survival is to not have all of your eggs in one basket. “But, Fannie Mae is an awful big basket,” you might say. I agree, but if lender finance is your only source of appraisal income, you run the risk that things can change and you are left holding an empty basket. Diversify! I do a fair amount of work on the 1004 form, but not everything. With the latest announcement, you can bet your bottom dollar that I will be diversifying even more. For example, there is still a lot of non-lender work out there to be had. No, it is not easy to come by. Yes, it takes some time and money to procure, but the peace of mind it gives a valuation professional makes it worth it. Consider offering some additional services such as estate and divorce work. Pre-listing or tax appeal appraisals can be a huge boost to your regular business. Speak to real estate agents and lawyers. Get creative!
“Big data” is a phrase that many appraisers despise. Their loathing comes, at least in part, from a fear that big data will replace them as a valuation professional. Well, big data is here to stay. It does not have to be a replacement for appraisers, however. There’s no need for appraisers to see big data as a hindrance. Instead, they should see it as a boon to their work. Clients are increasingly seeing big data and appraisers in the same light. The future of appraising may depend on how we embrace big data and offer our clients the best of both worlds. Appraisers are already using “big data.” The MLS and public records are forms of big data. These days, there are many more sources for big data and, rather than run away from it, perhaps appraisers need to embrace it. Taking a large amount of data, manipulating it, and being able to read the results is the job description of the future (and present) valuation professional. Pulling three comps, making adjustments, and reconciling the report is becoming more and more a thing of the past. The new appraiser needs to be able to look at large amounts of data (with the help of technology, of course) and know what that data is telling them.
It is changes like this that remind me I am not invincible. Business is continually evolving. There are appraisers who are just unaware or unwilling to adjust the way they do business. It is those appraisers who may need to be worried. If you want to remain relevant today, tomorrow, and into the future, you need to be aware of what is happening in your profession and be willing to adjust and innovate with the changing times.
Throughout the past decade, there has been more than one wave of fear and uncertainty in the appraisal community. In 2010, the Home Valuation Code of Conduct (HVCC) was a big one and currently, there are the Fannie Mae/ Freddie Mac announcements that some loans will no longer require an appraisal. Those who are unwilling or unable to change are struggling to survive. At the same time, others have shown creativity in adjusting their business models to fit the ever-changing financial world. Flexibility is the key. While others suffered greatly or went out of business after HVCC, I actually increased my appraisal net income with a little business redevelopment. —Dustin Harris
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Zachary Dawson, Director of Collateral Policy & Strategy— Single Family Mortgage at Fannie Mae
There will continue to be a role for appraisers in the market although that role will likely change in the future. As we anticipate a declining population of appraisers, it is important that we think about their highest and best use. With the advent of big data and emerging technology, tasks like measuring the subject property or taking exterior photos of comparables may not require the services of a licensed or certified appraiser. However, the industry will continue to need appraisers who are adept at analyzing local market data, appraising more complex properties, and handling higher risk transactions. The appraisers that will flourish will be the ones willing to adapt, contribute to broader innovation in the mortgage industry, and continually sharpen their analytical skills. Days of defaulting to average condition and quality ratings, capping MLS searches based on arbitrary guidelines, and defaulting to rule-of-thumb adjustments are over. —Zachary Dawson
Danny Wiley, Chief Appraiser at ServiceLink
I recently heard a speaker challenge appraisers with the following question – What value do you add to the process? In order to flourish over the next decade, I think an appraiser needs to answer that question after an honest and objective look at what they do and how they do it. For twenty years now, we have been told that technology will change what we do as appraisers, and it appears that prediction is finally coming true. It seems we are constantly hearing about hybrid valuations, bifurcated processes, big data, drones, etc. Continuing along the same path, doing what we have done the same way we always have, holds a very limited future. Much of what we do used to be focused on data collection, but that focus is now shifting to data analysis instead. The future appraiser will need deeper analytical skills and the ability to better communicate the analysis in a concise way. —Danny Wiley
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About the Author
David Brauner is Publisher of Working RE magazine and Senior Broker at OREP, a leading
provider of E&O Insurance for appraisers, inspectors and other real estate professionals in
50 states (OREP.org). He has provided E&O insurance to appraisers for over 20 years.
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