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Do Appraisers Have a Future?

March 21st, 2017 by Bill Collins Leave a reply »

In the course of doing some office cleanup, we came across the following article appropriately titled “Do Appraisers Have a Future?” Please take the time to read our excerpts from it and the comments that follow, it is well worth the time.

“Do Appraisers Have a Future?”

“…While I must admit that I am not sure that I always see things clearly, it seems to me that the appraisal industry is in trouble and the continued existence of the Appraisal Institute and the industry as a whole is less than certain…they worry me and I have some ideas about what is wrong and how to fix it.

I believe that the world is at war. It is an economic war. We now live in a global village where only the brightest and most clever will prosper. This new village has little room for sentiment or inefficiency; no longer can we afford to pay for services that provide no real economic benefit. If appraisers are to survive, we must provide services that our clients need and want. If we do not, we will, as an industry, cease to exist and someone else will provide those services.

Today, most appraisers are still doing things in the same ways their grandfathers did half a century ago. While the complexity of the real estate market has increased dramatically since the founding of the Appraisal Institute, we as a group are still insisting on teaching and using methods born in the 1930s. While others experiment with expert systems, artificial intelligence, geographical information systems (GIS) and other sophisticated analytical tools to address valuation issues, we are still focusing on the techniques of the past.

The most intelligent of our former clients understood long ago that our tools and techniques were no longer applicable and sought out other professionals to answer their increasingly difficult questions. Accounting firms, statisticians, GIS professionals, site-selection specialists, architects, and property tax specialists now provide solutions to problems that were once the domain of the appraisal profession.

The clients who still use appraisal services generally do so because they are required by law or regulation to do so. The appraisal industry is being left with clients who really don’t care about what we can do. They have come to expect little from appraisers and are not willing to pay much for our services. It is a vicious downward spiral-as clients put downward pressure on appraisal fees, providers of appraisal services tend to do less. Clients become even more disenchanted, insist on paying less, get less, ad infinitum.

Is there any hope? Maybe. We must wake up to the realities of the marketplace…

…Today, appraisers find themselves standing on a railroad track in the path of an oncoming train bound for the future. Many other professionals are already on that train and many more are on the platform waiting to board. Many appraisers, I fear, are not even vaguely aware that the train is approaching. As I see it, we have two alternatives: We can wake up and board the train (i.e., change our curriculum, embrace technology, adopt new professional standards) or we can continue to fret…and be run over”.

Turning the Clock Back..23 Years..to Understand Where We Are Now

Last newsletter, we turned back the clock to an AppraiserNews article from 3 years ago to assist in understanding where we are now as an industry/profession.  This time, we have gone back 23 years: the above article was written by then California appraiser Robert E. McHolland, MAI, and was published by the Appraisal Institute in The Appraisal Journal, October 1994.

My guess is that many readers will interpret this to mean that they should discount all the recent warnings regarding over-dependence on mortgage appraisal business since past predictions have not been borne out. Frankly, the opposite is true: we appraisers have generally paid little heed to the clear warning signals and have really been living on borrowed time.

Diminishing Demand for Mortgage Appraisal Services

“The clients who still use appraisal services generally do so because they are required by law or regulation to do so”.  This statement by Mr. McHolland from October of 1994 rings true today and is of grave concern to appraisers in an era where Fannie Mae’s utilization of the automated risk assessment tool Collateral Underwriter has already led to implementation of the Property Inspection Waiver whereby appraisals are waived for certain refinance mortgage transactions.  Great uncertainty prevails in today’s anti-regulatory climate in conjunction with these trends towards reliance on automated risk assessment models in lieu of appraisals.

To date, residential appraisers have been more negatively impacted by these changes.  Predictions regarding commercial lending activity are somewhat brighter and the appraisal/appraiser substitutes have not made the same inroads into appraisal volume.

This does not mean, however, that commercial appraisers need not evaluate new technologies, new methods of doing business and new markets for their services.  Change is coming to all sectors of the appraisal profession; with this, those who are prepared are likely to be winners while those who snooze will lose!

What’s an Appraiser to do? Some Suggestions

1) When business is slow, check out new appraisal software, new appraisal hardware and new information services that will help you to work more efficiently.

2) Market your business: Invest even a small percentage of the money that you made while business was good in developing new clients.

3) Branch out into all of the areas outside of mortgage appraisal business including work for attorneys, accountants, homeowners and commercial property owners, municipalities, etc.

4) Perform appraisals for all of the reasons that appraisals are truly needed: buy/sell, pre-listing, estate, estate planning, divorce, divorce planning (for those forwarded minded individuals), legal, partnership buyout, bankruptcy, insurance, tax grievance and appeal, etc.

5) Expand into related businesses (i.e. real estate consulting, property inspection, real estate sales) or even something unrelated to appraisal and real estate (whatever makes you excited about going to work and offers the promise of fair compensation).

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Rates & Dates

Freddie Mac and the Mortgage Brokers Association (MBA) reported strong upward movement in mortgage interest rates last week.

In their survey on March 16th, Freddie Mac reported that 30-year fixed-rate mortgages rose from 4.21% the previous week to 4.30%. They also noted that one year ago, the 30-year rate was at 3.73%.

Sean Becketti, the chief economist of Freddie Mac noted that:

“As expected, the FOMC announced its first rate hike of 2017 and hinted at additional increases throughout the remainder of the year. Although our survey was conducted prior to the Fed’s decision, the release of the February jobs report all but guaranteed a rate hike and boosted the 30-year mortgage rate 9 basis points to 4.30 percent this week. Increasing inflation, continued gains in the labor market and the Fed’s intentions for further rate increases — all three will keep pushing mortgage rates up this year.”

The MBA reported on March 15th (for the week ending March 10th) that 30-year rates with conforming loan balances ($424,100 or less) increased to 4.46% from 4.36%. The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances (greater than $424,100) also moved up, from 4.27% to 4.44% while rates for FHA backed mortgages rose from 4.18% to 4.29%.

Mortgage applications increased by 3.1% from the previous period.  Refinance applications as a percentage of all applications increased from 45.4% to 45.6%. The FHA share of applications decreased from 11.8% to 11.1% while the VA share also declined to 11.1%, from 11.6%.

Additional information from Freddie Mac can be found by going to: Primary Mortgage Market Survey PMMS – Freddie Mac

Additional information from the Mortgage Bankers Association can be found by going to their site at: Research and Forecasts – Mortgage Bankers Association

Ask Angie

Angie would first like to acknowledge the winners of her last contest: New Jersey appraiser Craig Brotons of CRB Appraisal Services; and California appraisers Lynne Johnson of Lynne Johnson Appraisal Group and Ginny Furr of Ginny Furr Appraisal Service.  Craig covers the northern New Jersey counties of Hunterdon, Warren and Somerset; Ginny covers Shasta County in northern California; and Lynne covers Santa Clara and San Mateo Counties in central California.  They were the first to answer correctly that Henry David Thoreau was the answer to all three questions in the last newsletter: “What you get by achieving your goals is not as important as what you become by achieving your goals”; “Wealth is the ability to fully experience life”; and “It is not enough to be busy. So are the ants. The question is: What are we busy about?”

Today’s questions:

Who said all three of the following:

1-“I grew up thinking art was pictures until I got into music and found I was an artist and didn’t paint”.

2-“Don’t let the same dog bite you twice”.

3-“It’s gotta be rock and roll music, if you wanna dance with me.”

a) Chuck Berry
b) Elvis Presley
c) Buddy Holly
d) None of the above

The first to respond with the correct answers wins:

One Free Regular Listing on AppraiserHelp.com

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Tell us what you think!

We invite your responses to any of the issues raised in this newsletter. Please e-mail us at: bill@appraiserhelp.com with your thoughts!

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We really hope you find our newsletter to be informative!  If you have any input on future topics for discussion, please email me your questions and I will do my best to address them in the next issue.  If you want to look back at past issues you can see our archive at www.appraisernews.com

Regards,

Bill Collins, Appraiser Help Inc.

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