Real Estate Appraisal Issues 2016

Which appraisal “issues” are important has a lot to do with perspective.  If you ask real estate agents, they will tell you resoundingly that the biggest appraisal problem is that their appraisal reports conclude values that are not high enough.  Agents argue that appraisers don’t consider the most recent sales so appraised values come in too low and disrupt their market negotiated sales.  The central theme of the agent argument is that appraisers cannot be right if they haven’t validated their deal and called it market value.

What real estate agent don’t consider is the fact that if left to their own devices real property prices would increase with every sale and quickly become out of control.  We have been there and done that before and those booms have always ended badly.  Appraisers have been forced into the role of gatekeeper by banks who prefer that appraisers draw the line in the sand since they have failed miserably when attempting to do it in the past.  So yes, appraisers can expect more negative comments and harassment from real estate agents as long as they have to wear the gatekeeper’s hat.

If you talk to a government official, they may tell you that one of the most important appraisal issues is the fact that the number of appraisers in the country is falling and they need to address that situation or fees will become too expensive.  It sounds to me like we are headed for an appraisal education and experience “downgrade” much like that seen in medicine.  Have you noticed that you now see a nurse instead of a physician?  The government is saying “there’s a problem here and we may need to lower the basic requirements” and if they do the hard fought barriers to entry in the appraisal world will just disappear.  I guess this would also solve the problem of real estate agents also in one fell swoop.

While there has been some discussion about educating appraisers in “programs” the outcome of this scenario is always the same, it floods the market with new entrants because there is no regard taken into account for market forces.  Those who devise these programs really don’t care about whether or not a market for appraisers exists after a few years, they only want to get paid large dollars to educate appraisers.  The educational system used to limit enrollment to take into account the absorption of students that consideration is entirely gone.   

Appraisal organizations point to appraisal mistakes, education, USPAP compliance and the attacks taking place on appraisers via litigation as the most important issues.  In theory these are important issues but appraisers are not robots, they are people and there will always be mistakes, compliance issues and litigation that is beyond their control.  These organizations will have little or no control as the government creates the new waves of new appraisal trainees, it’s just beyond their control.

Banks talk about appraisal issues by addressing how a customer can avoid appraisal problems, like they have nothing to do with appraisers who are just in their statements causing problems and deterring them from making loans.  Some banks note that it’s just a matter of communicating with appraisers.  Appraisers know that the problem is not about communications, it’s about the new role of appraisers as gatekeeper as previously discussed.  Banks prefer to give lip service to the appraisal “problems,” why should they step back into the fray when the appraisers can take the heat from customers and agents?

So what do appraisers consider the most important issues?  Of course the number one issue to appraisers is being paid fairly for their work.  With appraisal management companies (AMCs) siphoning off large portions of appraisal fees and competitors moving quickly toward automation, it’s becoming more and more difficult to make a profit.  Could this be one of the reasons that the number of appraisers are evaporating?  No, the government would have you believe that it’s all about the aging of the appraisal population and not about profitability.  Would there be more appraisal trainees in the pipeline if the typical appraisal business was more profitable?  The answer is an absolute yes, there would be many more trainees ready to fill the shoes of retiring appraisers.

Increasing regulations is also a problem for appraisers, and over the last several years it has become more and more difficult to deal with them.  If you have been doing appraisals for any period of time you have seen banks and government agencies want more and more data and more complex analyses with little compensation being added for the work. 

Individual, non-bank appraiser clients are concerned with prices, turnaround times and appraisal quality.  In my opinion these direct appraisal users are the best served since they don’t have to deal with AMC price add-on’s, appraisal report interpretations by third-parties and agent’s biased by needing specific results.  If someone wants a value to set a home or commercial property price to sell themselves or before they list a property, they are in my opinion some of the best appraisal customers that exist.  There have few issues and they are happy with the price that they pay for the work, fee are not “padded” by AMC’s and appraiser are not burdened with the outrageous requirements imposed by the government.

Appraisal issues depend on your perspective.  The government “solution” to their perceived issues will be in part the creation of standardized educational programs and those programs will likely be catastrophic to the industry.

Update:  a couple of days after I published this article the Appraisal Foundation came out with proposed qualification changes that will make it easier to become a certified residential appraiser, it's on the tracks and moving your way.

For more appraisal information contact Glenn J. Rigdon MA, MRICS, ASA is a Las Vegas / Henderson Nevada based appraiser who can be contacted via email or via his business website known as Appraiser Las Vegas  (http://www.appraiserlasvegas.com), or you can also click on “Contact Us” on the home page of this website or visit my public profile at LinkedIn at http://www.linkedin.com/pub/glenn-rigdon-ma-mrics-asa/1a/30b/879/

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