Thus far the housing industry has been applying “Band-Aid” solutions to the
bigger real estate crisis. There are several problems going on at the same time,
all contributing to the big picture, which is bleak to say the least. One true crisis
in the real estate industry is an "information crisis." This information problem,
trickles down to appraisals, lenders, and ultimately, mortgage investors. Standardization,
national guidelines, and disclosures are the only way back from this nightmare (i.e.
the RESPA disclosure. One fee on the good faith estimate for appraisal is all consumers see).
Current RESPA guidelines virtually allow AMC's to work in the dark, often not even
disclosing to their clients what they pay for the actual appraisal reports. In a world full of
guidelines and rules, how does this happen? How can this possibly NOT be a conflict? And,
how can consumers NOT suffer from this lack of disclosure? The potential for abuse is
enormous, but no one is talking about fixing this problem. It's tunnel vision - let's
concentrate on appraisers and we'll worry about these other problems later. This just makes a bad situation worse. There is no improvement in the quality of appraisals. In fact, it is going in the opposite direction.
As appraisal fees go downward, quality is going in the same direction. The best appraisers, who have invested years and years in building their careers don't want to work for a company that they have to check in with every 12 hours, and get treated like a school kid in the principal's office. An untrained and unlicensed person on the other end of the phone is making their schedule and deciding who gets paid what. And guess what - it's going to get worse... The best appraisers are finding other types of appraisal work (that values their craft), and the appraisers that work on mortgage loans are often the newer licensees or trainees. If all this Reform we're talking about is still hoping for higher quality appraisals for use in mortgage lending, we're in deep trouble. The best appraisers are leaving mortgage appraising as fast as they can.
Appraisers get together and discuss how "bass ackwards" all this "reform" is, and why something that is so logical has been stretched far enough that the government is biting; hook, line, and sinker... If you want a higher quality product, you have to pay more. Look around. Do the best doctors get paid more? How about the best mechanics? The best architects? The best teachers and speakers? The best attorneys? People seek out the best and they are in such great demand, they command higher fees. This is nothing new, it's just the way the system is supposed to work. So why do we think that appraisals should be different? The lenders, and government officials, and AMC's think appraisers can be paid less, be required to do more work in each report, and then the quality of appraisals will go up? Come on, this is not rocket science. In most cases, when you add a middleman to any process the price goes up and the quality goes down. Ask Walmart...
When the bubble began to burst back in late 2006, everyone was looking for
someone to blame, the appraisal industry provided the perfect solution.
Appraisers are the smallest and least organized group in the mortgage lending
process. That’s the reason they were selected to make changes during this
crisis, because big banking knew they couldn’t fight back. There is no one
voice that speaks for the industry, especially the residential side of the
industry. Appraisers are, in general, isolated from their peers and only discuss
topics of interest with their peers for about seven hours a year during a mandatory CE course. These
factors, along with many others, helped to make the appraisal industry the logical target to place blame until this crisis subsides.
Appraisers didn’t cause a real estate crisis. Take away all the crazy loan programs and instantly the so-called appraisal problems disappeared. What did appraisers have to do with homeowners ceasing to pay their mortgages? Appraisers were often forced to substantiate values that Realtors® and lenders provided for them. The game was
simple; hit this number or I will find someone else who can. Should more appraisers have stood firm and said “no”? Sure. But, we are all trying to make a living and feed our families. During this crazy loan time, appraisers were intimidated into working by the rules their clients made (same game today). There were loans and appraisals going out at a fevered pace and if you wanted to work, you provided what the lenders or agents wrote. Most of the time you had a contract price supposedly agreed to by all the parties involved, each equally motivated. Who’s to say this was not “market value” at that point and time. Realtors® often set the prices, lenders took the loan applications, and they in turn helped the appraisers understand just how important it was for their value to work out. Appraisers are brought in after the listing agent, the sellers, the buyer’s agent, and the buyers have all agreed to a price. So, what defines market value?
Along comes a huge problem in the national spotlight and before anyone knew what was really happening, the HVCC was born; the “Code” that changed the appraisal industry forever. Prior to the HVCC, AMC’s accounted for less than 20% of appraisal ordering (12-15% by some calculations). Today, that number is upward of 80%. All because of the HVCC. Even when the HVCC expired, the AMC’s stayd. AMC’s can be a good thing for the industry. However, no one likes to be force fed what they have to do; and for the new player in the game to decide what appraisal fees should be. It is still hard for many appraisers to get excited about working with these new companies. Yesterday I was my own boss and made my own fees and schedule. May 1, 2009 came along and my entire business model was gone. Try that in any other business and it would never have been allowed to happen. Whether AMC’s are good for the appraisal business or not, the way they were brought into power was NOT the way to win friends and influence people. Downright un-American!
Appraisers are not happy. AMC’s are also not happy with the assortment of state laws going into effect. A national management company is in a nightmare trying to comply with all the different rules. And, some of the fees being charged by the states make sure that only the biggest players can stay in the game. For right now, we are all still in a state of limbo. Without national leadership and regulation, this nightmare will continue and the real estate market will never rebound until all this bad real estate news disappears. All consumers have heard for the last few years is about real estate and appraisals and mortgages (all bad). Enough! Let the media move on to the next topic and let’s get back to work.
As for the current appraisal industry, the poorly trained have flourished. They seemed to understand that the valuation really didn’t matter and the lender didn’t care about the value, just the form. It’s really time for a range of value to be used instead of one absolute valuation number.The best appraisers who need to teach the next generation have been scattered or lost. There’s no accurate way to gauge how many quality appraisers have been lost over the past few years. Today, no one seems to know the definition of a quality appraiser any more. Somewhere the true appraisal artist lost their job and the industry is transforming into a new industry; and, not one that is good for the secondary mortgage market, or for consumers. Honest, competent appraisers have been removed and replaced by those more agreeable with whom they do business. Appraisers, good appraisers are mad as hell and have every right to be so.
So, when someone asks, where have all the good appraisers gone… They starting leaving the day the HVCC began. This historic act changed the future for the appraisal industry and for all the consumers who just want to know the fair market value of their homes. The biggest lenders control the flow of money and make the rules for all the rest to follow. Take appraisers out of the picture and life will be much easier for them. They will own their own AVM and their profits, in the billions per quarter (in the middle of the worst real estate crisis in history) will really start to show a profit. Remember the Golden Rule? It is alive and well in America today.