Editor’s Note: Appraiser Richard Hagar asks: “Is it a shortage of appraisers or a shortage of appraisers willing to take less so AMCs can make their ‘low cost’ business model work?”
Appraiser Shortage or Just Fed Up?
By Richard Hagar, SRA
There’s a lot of shouting and arm waving going on: there’s a shortage of appraisers! No there isn’t! Well which is it?
Let’s start off by acknowledging that there is a shortage of Tier 1 appraisers and appraisers working in many rural areas and small towns. However, a lot of what some perceive as a “shortage,” really isn’t; the appraiser endures.
Appraisers are fed up with being blasted with appraisal orders paying less than $400, scheduling the appointment within 24 hours, traveling 50+ miles to the subject and delivering the appraisal within 48 hours, in addition to a “you’d better be happy we are allowing you to work for us” sort of attitude by the lender/AMC.
What we really have is an ever shrinking pool of appraisers willing to be paid less than the equivalent of minimum wage, while being micromanaged by computers and undertrained employees of poorly run AMCs. The problem AMCs are really having…. is that they can’t find appraisers willing to be treated less than professionally any longer.
Order Examples
In the past month we’ve received requests:
•To accept this order we’ll require your cell phone number (so that we can personally get a hold of you, when we feel like it, any time between 5:00 a.m. and 11:00 p.m.)
•For a property in Anchorage, Alaska (my office is in Seattle, 2,200 miles away); the AMC was willing to pay a whopping $350.
•For a property in a small town that would require the appraiser to drive two hours and take a ferry just to get to the subject; the fee offer- $250.
•For a duplex created from a corner grocery store built in the 1800s; the offered fee, $500.
•For a house in the midst of being remodeled (no walls). The client knew its condition and wanted an “as-is” value of the unfinished building; the fee offer, $450.
We rejected all of these orders but continued to receive email blasts that went on for weeks. It seems as though few others were willing to work for these low fees but they kept on trying. In one instance, I knew the person who owned the property. The lender was telling them “There’s an appraiser shortage so finding an appraiser is taking some time.” Finding an appraiser wasn’t taking time, they had our email address; finding an appraiser willing to work for peanuts was the issue.
So, is it a shortage of appraisers or a shortage of appraisers willing to take less so AMCs can make their “low cost” business model work?
Micromanagement
Now, before AMCs get their hackles up, I fully understand that there are many appraisers who are incompetent and have a bad attitude when being asked to answer simple questions. I know of a particular lender who has more than 8,000 appraisers on their “do not use” list and for good reasons (addressed in a different article).
In order to cut costs, the business model for many AMCs requires automating their processes. Appraisers are forced to deal with problem-plagued automated ordering, delivery and “review” systems. We are in an era of computerized micromanagement where the AMC computer is likely to message you saying:
•Now that you’ve accepted the order, which won’t be delivered for four weeks, have you called and set the inspection appointment for next month?
•It’s been six hours since you accepted the order and the homeowner hasn’t heard from you, please contact them immediately! (An automated message sent out every 12 hours.)
•Our AMC only charges a $10 upload fee for every appraisal you’ll deliver to us, please provide us with your credit card number.
Yes there are appraisers with bad business practices who need closer management. However there are also many appraisers who deliver services in a business-like manner. So is it a shortage of appraisers or a shortage of appraisers willing to pay an upload fee while being micromanaged by an annoying automated computer system?
Square Pegs, Square Holes and Weak Algorithms
An appraiser can’t deliver an appraisal to AMC clients unless it’s “reviewed” by software. As most of us know, even if the property is unusual with nothing more than a PO Box for an address, the software requires that the square peg must fit into a square hole before you can convert to XML. Every box on the appraisal must have information that fits what the software demands or you hit a roadblock. Every day I hear appraisers in the office banging their heads and other body parts against the desk frustrated with simply trying to get through this process.
After getting the appraisal through their internal “reviews,” appraisers must log into the AMC’s sporadically functioning web portal, use custom, ever-changing IDs and passwords, navigate to the non-intuitive “upload” section and sit around waiting for the AMC’s spiffy custom program to “review” the appraisal again. Often the program requires answers to foolish, time-wasting questions that are already explained in the addendum:
•The flood map number doesn’t match what we have on file, please check the number and make sure it’s accurate. Is it really accurate… Yes/No?
•One of your line item adjustments is more than 20%, did you make an appropriate comment… Yes/No?
•Within the box [______] please explain why it was necessary to make such large adjustments.
Not only are appraisers providing the appraisal but now some AMCs require the appraiser to interface with the AMC’s program and review their own work…again! Oh I love this automated system, sign me up..... or shoot me now!
Email from the AMC/Client
“A copy of your E&O policy was not included in the appraisal report, please attach and re-upload the appraisal (to our $10 per upload web portal).” My answer was simple – No! We do not include a copy of our E&O or license with the appraisal report. So the AMC email comes back: “Within the body of the appraisal report, make a statement that “A copy of the E&O and license are not included in the appraisal” and then re-upload the new report through our web portal [that charges $10 per upload].” My reply: “A statement regarding E&O and our license has nothing to do with USPAP or appraising of real estate, therefore we will not alter the appraisal to include non-relevant text because you ‘feel’ it should be there.”
For the vast majority of questions asked by the AMC’s computer or “reviewer” our response has been “It’s in there, page 9, paragraph 5, didn’t you read the addendum?” And of course most of us know the answer from the AMC…. “No the computer doesn’t provide us the addendum text. Please upload an addendum that tells us where in your appraisal we can find the text we didn’t look for.”
Supply vs Demand
Over the past decade, lenders and their AMC agents have relentlessly pursued lower appraisal fees. They use the excuse that they have to keep costs low. However, since the borrower pays for the appraisal, their excuse is disingenuous. They blast email orders to hundreds of appraisers looking for the cheapest appraiser, not the best. In many areas of the U.S. fees in 2016 were similar to what they were in 1995. Low fees result in many appraisers making less than $35,000 per year. Top tier appraisers, being underbid by cheaper, form filling appraisers, exit the business or seek superior clients willing to pay a reasonable fee for high quality work. The lending system, by failing to pay reasonable fees for quality work, has reduced the number of appraisers, slowed down the current lending process, reduced its profit and created a bigger problem; the supply and demand of appraisers is out of balance, a problem lenders and AMCs helped create.
Our firm won’t jump through the hoops I’ve described, deal with time-wasting questions, pay fees that enrich an AMC or tolerate micromanagement by computers. How well does our business model work? Our base fee is $800 for a residential 1004 appraisal and we are booked solid for the next four weeks (in Seattle area). Superior clients are willing to treat appraisers professionally and pay a reasonable fee; they are seeking and obtaining Tier 1 quality appraisals. Competent appraisers have a choice with whom they work.
Many AMCs depend on “cheap” form-filling appraisers; without them their business models fail. They are yelling about a “shortage” of appraisers because they need an over-supply to keep fees low and their profits high. As Fannie Mae’s Collateral Underwriter raises the standard for a minimally acceptable appraisal, it takes longer to appraise a property and fees are going up. With the higher standard, many appraisers can’t “cut it” and exit the business, while others improve the quality of their work and prosper. The “over-supply” of appraisers and low fees are rebalancing the industry in the appraiser’s favor.
As supply/demand rebalances, many AMCs, unable to find cheap appraisers, will cease to exist. The tide has turned to the appraiser’s advantage. Over time, higher fees will result in more appraisers entering the business. New appraisers will have superior skills, better understand how to support adjustments and will not be the “push-overs” that lenders & AMCs are used to. Lenders and AMC created the problem – now they have to deal with it!
The lending/AMC system needs to ask itself: is there really a shortage of appraisers or shortage of appraisers willing to be micromanaged by annoying computers and underpaid by poorly run clients? The correct answer will decide the fate of many AMCs. Are they ready to die or willing to adapt? Going forward, appraisers will decide their fate.