Feature: The Appraisal Problem

Written by Erik Richard & Jessica Guerin

In the appraisal world, it’s no secret that the industry is facing a drastic decline in its workforce, and as the number of certified residential appraisers continues to dwindle, HECM lenders are feeling the pressure. Already lenders are seeing higher fees and longer turnaround times, and some are complaining about a lack of quality as stressed appraisers struggle to meet increasing demand.

A closer look at the issues currently facing the appraisal sector reveals a slew of deep-seated problems that are seriously stressing its workforce. For reverse mortgage lenders that rely on quality appraisals to close their loans, these issues are complicating business as they must grapple with the consequences of this appraisal problem.

While some may disagree about what needs to be done to solve the problem, everyone seems to agree that, with all signs pointing toward decline, something has to change.

A Shrinking Workforce
The appraiser workforce is notably shrinking, specifically among certified appraisers, whose advanced designation qualifies them to work on FHA-insured loans. At the same time, refinances in the real estate sector are booming and loan applications are on the rise, meaning that there is a lot of business out there, but few people to do the work.

An FHA-published roster of certified appraisers lists 46,212 appraisers in the U.S. as of December 12, 2012. Compared with the 64,472 appraisers listed in September 2009, this number illustrates an alarming 28 percent decline in just three years. Also, keep in mind that just because these appraisers are listed on the roster, doesn’t mean they are necessarily active. Some could still have their licenses, but may have retired or moved on to another position in a related field.

Len Fishman is one such example; he is a certified appraiser but works as operations manager at Genworth Financial Home Equity Access. In an August webinar hosted by NRMLA 8 titled “Managing Appraisal Expectations,” Fishman said that the appraiser shortage is the No. 1 issue facing the industry right now. “Right now the roster is losing about 200 appraisers a month,” said Fishman, who oversees Genworth’s appraisal department. “We’re really kind of circling around this perfect storm [with] the lack of trainees coming into this industry and people getting out.” Fishman said this shortage will have an impact on the lending process. “It’s going to make it difficult to locate appraisers in rural communities,” he said during the webinar. “Appraisers are going to be busy and will cherry-pick the assignments they want, so locating appraisers for difficult projects is going to be a challenge over the next couple of years.”

A Multitude of Concerns
Industry experts point to myriad factors that have contributed to this decline in the appraiser workforce. Some assert that it all began when a number of longtime appraisers left the industry after the housing bubble burst. The business, once booming and lucrative, saw volume tank with the collapse of the housing market, prompting the departure of industry veterans who never returned.

Of those who did stay, a sizable number are getting ready to retire. A recent survey by appraisal industry publication Working RE magazine revealed that 20 percent of respondents indicated plans to retire in the near future. In fact, trade associations and industry experts estimate the average age of a real estate appraiser to be between 52 and 55.

At the same time, there is a distinct lack of new appraisers entering the market, so while the current workforce is aging, few newbies are taking their place. Some say there is simply no incentive for young people to enter the industry, as the profit margin is slim and licensure requires extensive education and training.

David Brauner, publisher of Working RE, said this lack of new recruits is a result of a combination of lower fees and increased training and education requirements. “I think there are fewer appraisers entering the profession because being an appraiser these days is much less attractive than it used to be, given the lower fees and raised bar,” he said. “It just doesn’t make as much sense to enter this profession as it used to.”

Indeed, the process of becoming a professional appraiser is extensive. In many states, it can take between two and five years, depending on the type of license. Basically, there are two main types of real estate appraisers: licensed and certified. A licensed designation requires a minimum 150 hours of coursework and 2,000 hours of apprenticeship in no less than 12 months, but it does not require any sort of college degree. Licensed appraisers, though, can only work on noncomplex jobs in which the real estate is valued at $1 million or less.

Certified appraisers are the only professionals approved to work on FHA-insured HECM loans. As a specialized product designed for members of a protected class, more experience is needed to handle HECM loans, and the pool of qualified appraisers to draw from is significantly smaller as the process to obtain this designation is far more intense. Certified appraisers must complete a minimum of 210 hours of coursework, and they must have an associate’s degree or 21 college semester credits in related coursework. Most importantly, they must also complete a 2,500-hour apprenticeship in no less than two years under a supervising appraiser. For many, it’s this mandatory mentorship that is a large part of the industry’s problem.

A two-year apprenticeship is certainly stringent, but it was designed to ensure that aspiring appraisers get the education and real-world experience needed to do the job properly. The reality, though, is that there are few certified appraisers out there who are willing to take on a trainee. This is especially true for independent appraisers, who some say comprise as much as 80 percent of the workforce, but it’s also true for AMCs. Even though AMCs are more likely to take on trainees to beef up their office staff, a 2012 study conducted by the Appraisal Institute determined that even they have dramatically decreased their number of trainees over the past two to three years.

The problem is that under the current structure, there’s no real benefit to playing the role of supervisor. Supervising appraisers are not compensated and they are often unwilling to take on trainees because doing so would mean sharing their clients and splitting their profits. On top of that, many find it economically unfeasible to set aside time to inspect a trainee’s work while managing their own workload. Compounding these issues is the fact that, in a post-Dodd-Frank world, some banks and other institutions will not accept work from an appraiser in training, or will only do so in limited situations. Fishman acknowledged that the trainee situation is a problem for the industry. “We haven’t had a good mechanism to bring trainees on and to develop an actual internship program,” Fishman said during the NRMLA webinar, calling the current system “short-sighted.”

Aside from the mentorship issue, there are other factors that have contributed to the decline of this workforce. Some say that the heightened regulations that arose in part from the Home Valuation Code of Conduct (HVCC) and a significant updating of investor and GSE underwriting requirements pushed industry veterans out of the business. HVCC was instituted in 2009 to preserve an appraiser’s independence, but some say that the regulation it set forth had a negative effect on the industry. Many appraisers chose to leave the business all together as opposed to retooling their operations to accommodate the endless changes and establish new AMC relationships. Brauner agreed that HVCC played a role in the drop-off. “I think the changes wrought by HVCC were a major reason why a lot of appraisers left the business,” he said.

Industry players have noted a growing impatience with the regulatory scrutiny, saying that many are weary from constant concerns about compliance, and in light of minimal profits, they’re not finding the payout to be worth the trouble. In some cases, HECM-certified appraisers have opted to scale back the amount of FHA work they accept in order to focus on more conventional work on the forward side, where the refinance boom has generated a higher volume of simplified assignments and where regulations are less severe.

The Impact on HECM Lenders
The problems imploding in the appraisal sector have had a palpable impact on HECM lending. Already, some lenders have noted that fees are rising, and that will likely continue as the demand for a limited number of appraisers remains high.

The cost of an appraisal can vary widely depending on a variety of influencing factors, including the location, the AMC and the lender. Currently, the average cost of a full-fee residential appraisal starts at about $300 to $350 in most metropolitan markets. But as a result of this appraiser shortage, many expect to see these fees rise. It’s a simple case of supply and demand.

While they are not perhaps immediately palatable for reverse mortgage lenders, higher appraisal fees do have an upside: They could help jumpstart this stalling industry.

With the promise of greater profits, more people could be enticed to enter the workforce. Higher fees would also elevate appraiser satisfaction, which is notably low, and help the industry in its recruitment efforts. And of course, higher fees would help ensure quality. Busy and underpaid appraisers are not going to churn out acceptable work. A higher fee might provide that extra incentive to complete the job properly and with care.

The bottom line is that the appraisal sector has undergone a drastic decline and as a result, lenders are not going to get the same service for the same price anymore… perhaps instead of being reactive to what is clearly at the end of this path, both industries should work together and be proactive about instituting change.

Can the Problem Be Solved?
Many familiar with the appraiser situation and its impact on HECM lending admit that it’s not an easy problem to solve. But if lenders collectively decide to do nothing, the problem will likely get worse. Consider the situation in Montana, for example. There, six-week turnaround times and $800 fees are the standard, simply because there are more transactions than certified appraisers and the closest appraiser might be 100 miles away. If we continue to witness this decline without attempting to change the narrative, we may very well see Montana’s standard become the norm in other parts of the country.

Perhaps instead of being reactive to what is clearly at the end of this path, both industries should work together and be proactive about instituting change. This means that HECM lenders might need to simply accept slightly higher fees and slightly longer turnaround times. We might need to just face the fact that the old 48-hour post-inspection turnaround is no longer a reasonable expectation.

But if lenders agree to accept this change, they should also have the right to demand a higher quality of work and a better level of service. If lenders are able to give a little, perhaps appraisers will too.

Within the appraisal industry itself, many say they hope to see changes made to the training requirements so that working appraisers are given an incentive to mentor trainees. Some also say the FHA should ask Congress to pass legislation allowing licensed—not just certified—appraisers to work on FHA projects, thereby increasing the appraiser pool for HECM lenders. But, considering the tough regulations surrounding government-sponsored programs, others contend that such a change is unlikely.

Still, even if helpful modifications can be made, the fact remains that things are not going to drastically improve any time soon. Provided that recruitment efforts do pick up steam, it will take time to bring in a new crop of appraisers given the current two- to three-year education and training period. In the meantime, lenders are left with few options other than to begin a dialogue with the appraiser community in the hopes of supporting the industry’s evolution so that we can continue to work together to help the borrowers we serve.

  • Kevin McGreal


    This problem was created by lenders and AMC’s.  When the HVCC went into effect lenders and
    AMC’s demanded that the fee for the AMC service should come from the appraiser’s
    fee.  Using an AMC was perceived by the
    lenders as the best way to comply with the HVCC.  The lenders stood by while the AMC’s stripped
    billions in fees from appraisers.  It
    didn’t bother them since many lenders owned a portion of the AMC.  This became a great profit center for them.

    Since then, additional requirements by Fannie, Freddie and
    the FHA were added to a standard appraisal assignment including the 1004MC and the
    UAD format.  The worst parts of the HVCC
    were then rolled into the Dodd-Frank Act. 
    The lenders and AMC’s refused to pay for the additional work and the
    standard response was that we should have been doing this already! 

    Today, every lending related appraisal assignment comes with
    lengthy scope of work requirements.  In
    many cases each comes with two – one from the lender and one from the AMC.  The appraiser then has to reconcile the
    conflicting requirements for the same assignment.  Of course, every lender and every AMC has their
    own set of rules.

    These days, when an appraisal report is completed, I’m
    nowhere near finished with the assignment.  I must reconcile the scope of work, add additional
    listings, add additional sales and bracket every feature regardless of how
    small the contributory value.  Most of
    the work we do today as appraisers has nothing to do with the opinion of
    value.  A large amount of the work includes
    balancing the lender/AMC requirements while trying not to produce a misleading
    appraisal and violating USPAP.  

    The solution to this problem is simple.  A cost plus model is the only answer.  Lenders and AMC’s should get back to paying
    the appraiser the full fee and add the value of the AMC service.  (Exactly what value an AMC contributes to the
    appraisal process is a topic for another time.)

    The mortgage crisis could also have been avoided with a
    simple solution.  The actual lenders, not
    the brokers, should have been directly selecting and paying appraisers. 

    • Scott Hammond

      I am working on my Appraiser course work (Licensed 150 hrs.) and rolling the dice, hoping that my education, desire, and willingness to finance my appraiser education will entice a Certified Appraiser to take me on as a trainee. Risk assumption is significant but RE appraisal is something I always wanted to do. In the final analysis, how many people are willing to invest money and time to enter a field that may or may not allow them in?

      • John Phillips

        How did you do? It’s been 6 months and I was thinking of getting my license. I’m basically starting blind with this industry, but the reason I’m choosing this is because of the hands on benefits. Making my own hours, traveling, detective work.

        • Retired Appraiser

          You both need to have your heads examined. You can earn more working at McDonalds than in the residential appraisal business. You can earn twice as much working at Gap now that they’ve adopted a $10 minimum wage.
          Either do your research or quit the crack. Why in God’s name do you think tens of thousands have already left the business?

  • Appraiser

    Increase the fees and appraisers will come. That’s economics 101, banks and AMCs deal with numbers all day they know!!!!!!

  • cali

    the law changes in 2015 are destructive to the enticement for new appraisers. also, the licensed appraiser who has to go back to school and get a bachelor’s degree to be certified. get real. the appraiser doesn’t need requirement changes the government needs to stop passing the buck cause its their fault for pushing loans on people that did not qualify.

  • Bob

    The answer is simple. Cost plus. Make AMC fee a line item fee on the loan and have the
    appraisal fee separate from the AMC fee. Additionally allow appraiser to sign as review appraisers, not for trainees but for other Licensed or Certified appraisers. In my state assistants were never allowed to sign the report. There is no reason to train a new appraiser because each appraiser is individually approved by the AMCs. Once a new appraiser is certified and have a few AMC approvals they immediately become my competition. Why would they do a fee split with me when they can go out on their own and have the whole fee?

  • Brett

    The people making the rules are not the ones on the inside who actually know the real problems with the whole spectrum, such as manufactured home dealers who see it all so clearly…

  • Retired Appraiser

    “An FHA-published roster of certified appraisers lists 46,212 appraisers in the U.S. as of December 12, 2012. Compared with the 64,472 appraisers listed in September 2009, this number illustrates an alarming 28 percent decline in just three years.”
    Actually the situation is FAR FAR worse than you indicate in the above statement. Keep in mind that the FHA opened their doors around 2009 or 2010 and begged every appraiser with a pulse to climb aboard their band wagon.
    We have barely scratched the surface of the numbers who will quit this “profession”. The refi market is certainly dead but interest rates have yet to climb significantly. Once that happens you will lose tens of thousands of certified residential appraisers.
    Why anyone remained in this industry beyond 2009 boggles the mind. They have been clueless, independently wealthy, living off of a spouse’s good graces, or living off credit cards. In short, they deserve a trip to the nut house. Five years have now passed since the HVCC extortion gig kicked in. I believe we can all agree that nothing will improve until the last 5 appraisers grow a set and boycott AMC orders.

  • Aztecm

    I am one of the Certified Residential Appraisers (Southern California) spoken of in this article. I DO NOT work on appraisals anymore, but have kept my license active (why I don’t know…). I used to get $400 an appraisal for a basic residential house, from local mortgage broker contacts, in around 2007-2008 time frame. After HVCC, the fees dropped to as low as below $200 paid to the appraiser, while the overall fee the homeowner pays the AMC jumped to over $600 from what I understand (most of the appraisal fee goes to the AMC, NOT THE APPRAISER). The fees to the appraiser (in this area) are now in 2014 back up to around $300 per appraisal (still way below the $400 in 2007, not taking into account the inflation of all costs and additional work addendums, etc). The fees for insurance have gone way up, same with software, same with gas, same with food, office expenses, and same with you name it. The whole reason I went to work was to make money doing honest decent work. I did not go to college and then to work as an appraiser to get lectured by some 18 year old high school graduate, WITH NO LICENSE, who works for an AMC, and thinks he can pressure me into new comparable sales, new consideration of this or that. All for maybe $200-$300 per appraisal, gross, before all expenses. THIS IS A SELF EMPLOYED BUSINESS typically. No benefits, no vacations, pay your own medical, etc, etc. I LAUGH OUT LOUD WHEN SOMEONE ASKS ME ABOUT GETTING INTO APPRAISING. This industry has become a laughing joke among the former quality appraisers, THAT WERE CHASED OUT by the HVCC and AMC’s. WHO WANTS TO WORK FOR FREE (or to lose money…) ??????????