|>> See Past News Editions
>> Click to Print
>2016-2017 TAF Approved USPAP Online
Enroll Now! (7 hours – $143.95)
>FHA Checklist/Field Guide
The Decline of Appraisers
By Isaac Peck, Editor
Every year, for the past eight years, the number of active real estate appraisers has declined. The Appraisal Institute (AI) estimates that the number of appraisal professionals is currently shrinking at three percent a year and warns that sharper declines may be on the horizon as appraisers begin retiring en masse.
And the problem is not simply that too many appraisers are retiring. Very few appraisers are entering the profession. In Illinois, the drop in real estate appraiser trainee applications went from 1,231 in 2005 to only 55 in 2015. That’s an over 95 percent decline. This drastic reduction in new entrants is being seen in states across the country.
Many appraisers welcome the shortage, which has already driven up fees in many areas. But many believe the celebration is shortsighted. A decline in the number of appraisers threatens the integrity of lending and undermines the stability of the real estate market according to many, not to mention putting the economy at risk for future bubbles. It does not bode well for the appraisal profession either. Many fear that lending interests are itching to find a reason to replace appraisers where and when possible—with big data and automated systems, should turn times for appraisals become untenable.
Some appraisers believe this is a fight for their very existence. The debate rages at national conferences, company meetings, and even around the family dinner table: what to do about the declining number of real estate appraisers in the United States.
The Appraisal Foundation (TAF), a nonprofit agency empowered by the federal government to regulate appraisers, implemented a bachelor’s degree requirement for Certified appraisers, which took effect in January 2015. This means that an appraiser cannot become Certified without a college degree. Because much AMC work and all FHA appraisals require Certification today, this move chokes off opportunities for both longtime appraisers without a degree, as well as those contemplating joining the ranks. With the onerous 2,000 hour experience requirement for trainees—a one or two year period when newbies earn next to nothing—and the 150 hours of additional appraisal education required for licensing, the odds seem stacked against replacing the supply of retiring appraisers with new recruits. This is a huge challenge for the profession.
Limitations on Trainees
A number of states have strict limitations on how trainees can work under a mentor appraiser. Many states have provisions that require “direct supervision” with the licensed appraiser being “physically present for the inspection of each appraised property.” This all but removes the financial incentive for taking on a trainee, according to many. Lenders require that supervisors inspect both the subject and the comparable properties personally, and cannot rely on the work of the trainee. These state laws and lender requirements are a serious obstacle for appraisers to take on trainees, as it prevents them from fully benefiting from the economies of scale that trainees once provided the profession.
Fees and Supply/Demand
Low fees are frequently cited as the biggest reason why appraisers are leaving the profession and why new recruits are not lining up to replace them. The decline in fees was precipitated by the passage of the Home Valuation Code of Conduct (HVCC) in 2009, which ushered in the era of AMC prominence. As a result, most appraisers doing lending work saw their fees cut by up to half by AMC middlemen.
Appraisers argue that if AMCs and lenders paid more, more college grads would consider the profession and fewer licensed appraisers would exit. But AMCs and lenders counter that it’s supply and demand. They don’t have to pay more if appraisers accept the low fees they offer. The bigger picture is that the decline in the number of appraisers could one day become a shortage and in the midst of the next real estate boom there may not be time to train the next generation adequately. Such a scenario might create long delays in loan closings, gum up the wheels of commerce and expedite the demise of the profession. At that point, lenders will push to replace appraisers with a combination of big data and lesser-trained “property inspectors” to get the job done quickly and cheaply.
De Minimus Threatened
In response to the low number of appraisers entering the profession, some stakeholders in the mortgage industry
are declaring that there is an appraiser “shortage” and are calling to have the federal de minimus raised from $250,000 to $500,000—the threshold below which an appraisal is not required for a federally related transaction. Just this year, the Federal Financial Institutions Examination Council, indicated that the $250,000 threshold is under review as part of a larger effort to identify “outdated, unnecessary, or unduly burdensome regulations.”
The effort to raise the de minimus is led by the American Banker’s Association (ABA) and a coalition of smaller regional banks which are more likely to experience a shortage of appraisers in rural markets. The ABA argues that appraisals are unnecessary costs that make it hard for small banks to compete. While it’s unlikely the de minimus will be raised in the immediate future, the fact that it is on the table is an indication of the challenges facing the appraisal profession.
The National Appraisal Congress (NAC), an organization made up of some of the largest national AMCs and appraisal firms, has recently begun advocating for reform to the experience and education requirements for trainees. The NAC sees changing the “direct supervision” requirements in state laws and in lender guidelines as critical in helping the appraisal industry meet the coming demand for appraisal work. An NAC white paper, Removing Barriers to Entry in Valuation, argues that given that the average age of an appraiser is 55, there is a “very real potential that over the next 10 years there is likely to be a large segment of the currently practicing residential appraiser population that will retire or become semi-retired, thus further decreasing the supply of appraisers.”
The Mortgage Banker’s Association projects an increase in 12.7 million owner households from 2014 to 2024,
averaging 1.3 million households per year. The inference is that the formation of these new owner households will require appraisals. The NAC believes that “even without further attrition, the current population of residential appraisers will be inadequate to fulfill that growing mortgage demand.”
The NAC’s solution is a revision of state and lender client requirements. Instead of having to be directly supervised and accompanied by their supervisor on all inspections, trainees can be allowed to perform appraisal inspections on their own after being adequately trained by performing at least 30 inspections in no less than 90 days with their supervisor.
The NAC argues that this is a critical component of making the training process more economical for both the supervisor and the trainee. The trainee may be able to negotiate a higher fee split or greater compensation because of the increased contribution. The supervisor would be able to delegate more to their assistants and profitably employ trainees.
The NAC draws similarities between appraisers and Certified Public Accountants (CPA), arguing that CPAs are currently able to utilize their trainees to a much greater extent than appraisers. The NAC believes that much like accountancy, the appraisal industry must “maintain a gold standard for qualifying and testing new appraisers, while also creating a structure that prevents the process from becoming cost prohibitive, redundant and a barrier to entry that prevents the admission of newly qualified appraisers.”
In an interview with Working RE, John Brenan, Director at The Appraisal Foundation (TAF), says that TAF’s Appraiser Qualifications Board (AQB) is not looking to roll back the college degree requirement. “At the AARO Conference in 2015, we didn’t hear any testimony saying we’ve gone too far. Members of the panel were actually supportive of the requirement and said it has raised the level of the candidates to where it should be. However, the AQB is looking at alternatives. If you’re a licensed appraiser with a track record of professional experience but you don’t have a college degree, is there a way to be a Certified Residential? The AQB is considering that,” says Brenan. “We want to ensure that people who want to be in business can be in business.”
Brenan says the AQB is looking into the experience requirement. “TAF and the AQB are considering if the 2,000- and 2,500-hour experience requirements are the right numbers. What is 2,500 hours of experience today compared to when these numbers were first done? Technology means appraisals are being performed in less time. We are also exploring what are other ways people can get that experience to enter the profession and become certified because we recognize the supervisor/trainee mentoring model is experiencing difficulties,” says Brenan.
According to Brenan, the AQB is also looking toward the further development of practicum courses, which would be additional coursework that would satisfy up to 50 percent of a trainee’s required experience.
While the AQB is evaluating the trainee model, Brenan is quick to note that it is not the AQB that requires direct supervision of trainees. “There is nothing in the AQB criteria that prohibits trainees from inspecting properties or even from signing appraisals. These issues will need to be addressed on a state and client level. However, the AQB is looking at its own requirements for ways to facilitate the process and incentivize supervisors,” Brenan says.
Note: The AQB recently issued a call for comment on a Discussion Draft regarding changes to the Real Property Appraiser Qualification Criteria. One of the proposals considered is setting an experience threshold through which appraisers can petition to waive the College Degree requirement for a Certified Residential license after they have worked full-time as an appraiser for five to ten years. The AQB is also considering setting alternative experience requirements, perhaps allowing real estate agents, brokers, loan officers, or county assessors to count their experience towards up to 50 percent of the required trainee hours. Hundreds of appraisers submitted their comments in the run up to the April 8, 2016 deadline. After taking public feedback, the AQB is now deciding what changes to the qualification criteria are necessary to ensure the health of the appraisal profession.
As the overall number of active appraisers has decreased, according to the Appraisal Subcommittee’s national registry, there are actually more Certified General and Certified Residential appraisers now than there were in 2006. The result has been relatively positive for appraisers, as they’ve seen fees rise modestly. No acute shortage of appraisers seems imminent either. Baby boomers are retiring later and real estate appraising is a profession that lends itself well to working part time in one’s retirement, as many appraisers report doing. However, the number of appraisers is expected to continue to decline with no end in sight.
The decisions of the AQB and the success of the NAC and other interested parties in reforming state and lender requirements for trainees will play a role in how many new appraisers enter the field in the coming years. Given the time required to bring new professionals into the industry, the recent actions by the NAC and others seem timely. Because of the appraiser’s central role in real estate lending transactions, the health of the real estate appraisal industry will remain something that appraisers, AMCs, and lenders will continue to watch closely in the years ahead.
Webinar (Feb. 17th):
Appraisal Adjustments: Solving Common Problems- Part 2
Do you want hands-on training on how to make supportable adjustments? Have you been waiting for in-depth, detailed examples on the different adjustment methods available to you? This webinar will explain the most common methods that can be used for determining adjustments and show examples of how it applies to numerous components throughout an appraisal. Richard Hagar, SRA takes appraisers deeper into the adjustment process with real world examples and case studies. Sign Up Now!
Working RE Winter Series Savings
January: Persistent Appraisal Failures ($49 – Available Now)
February: Appraisal Adjustments: Solving Common Problems (two parts – $79)
March: Complex/Unusual Properties (two parts – $79)
Save $48 when you purchase the Winter Series Season Ticket (five webinars)!
About the Author
Isaac Peck is the Editor of Working RE magazine and the Director of Marketing at OREP.org, a leading provider of E&O insurance for appraisers, inspectors and other real estate professionals in 49 states. He received his Master’s Degree in Accounting at San Diego State University. He can be contacted at Isaac@orep.org or (888) 347-5273.