Together We Can Mend our Broken Appraisal Industry

Last Updated on Thursday, 20 May 2010 03:53 Written by Tim S. Forsythe Wednesday, 05 May 2010 16:50

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Let’s begin by accepting the fact that we have challenges in the appraisal industry, such as:

·         Appraisers are leaving the industry;
·         It is far more difficult to gain entry into appraising today;
·         We have an aging appraiser panel, with an average age of 55-58;
·         There seems to be a never ending downward pressure on appraisal fees;
·         Appraisers are making considerably less money than they were years ago; and
·         Increased lender requirements require more time and more detail on each report.

CAN WE OVERCOME THESE CHALLENGES AND CREATE AN APPRAISAL INDUSTRY THAT IS BETTER THAN EVER?

The people with whom I spoke last week at the Collateral Risk Network in New Orleans are betting that we can!

My grandfather, Al Forsythe, started our company 70 years ago.  Over time, we have slowly grown to over 250 full time staff appraisers.  As the CEO of my company, and as someone who has helped train a generation of industry recognized high quality appraisers, I want to make sure there is a future for appraisers.  But, before we can fix the problems, we need to be brutally honest in assessing the current situation.  We are told that the average appraiser is between 55 and 58 years old.  My company is starting to lose appraisers who are getting out of the industry, and to make matters worse, we can no longer replace them with trainees because our clients will no longer use trainees.

THE BIG RISK

Over the past 70 years, our company has gone through these economic cycles many, many times.  After difficult times there is always a recovery.  When it happens, there is usually pent up demand for real estate and mortgages, and appraisal companies become swamped.

The appraisal industry may have a perfect storm on its hands.  Consider the situation when these three realities come together:

1.       The lending community has an increased need for appraisals.
2.       Aging appraisers have gotten out of the business to retire or go into more lucrative fields.
3.       We have eliminated the opportunity for trainees to get into the business.

The result is a doomsday scenario.  Trust me, the lending industry will not let the lack of appraisers become a bottleneck for something so important to the economic recovery as new mortgages.  When this happens, lenders will simply find an alternative to appraisals (AVMs, BPOs, Mortgage Insurance Policies against default, etc).  This could be the end of appraisals as we know them.

I AM PREACHING TO THE CHOIR

It is the forward thinking appraisers who read publications like LiveValuation Magazine or attend the Collateral Risk Network (CRN) that will solve these problems.  In my 31 years in the business, I have seen appraisers lay down their competitive hats and generously work together to improve the appraisal industry.  We do a good job of “piggy-backing” off each other’s ideas in an effort to find solutions.  I am going to share my thoughts and hope the readers will respond with even better ideas, so together we can avoid the crisis I have described.
We need a portal to bring good people into the industry.  In the past, trainees had been an exploited group.  During good times, many unscrupulous appraisal companies hired eager, well intentioned appraiser trainees.  These individuals were not given adequate training.  They were thrown in over their heads with too many assignments and not enough quality control.  Some of the pain that is being felt today is a result of the irresponsible way trainees were being treated by many appraisal companies.  As a result of those abuses, the pendulum has swung way too far the other way; lenders insist on no trainees.

I am suggesting a paradigm shift; in the past, trainees have been a weak link in the industry.  In the future, we need an industry-wide standard to thoughtfully bring in eager, well educated young people that are technologically savvy.  At the CRN conference in New Orleans, I suggested we develop a gold standard for the best appraisal firms in the industry.  The better appraisal companies would invite a rigorous independent audit on the firms trainee program; it would analyze the steps taken to screen and hire appraiser trainees.  Included in the audit would be continuous in house education programs, rigorous testing, mentoring, and a robust quality control program.  If these rigorous standards were met, the company would be given certification and lenders would be asked to allow trainees to be used by that company.  Consider the positive implication if your appraisal firm was on the short list of appraisal firms that could use trainees.  It would give you a true competitive edge in the business.

WHAT IS THE INCENTIVE FOR LENDERS?

Like any industry, some lenders have a commitment to big vision and industry leadership.  We need to convince those banks that the industry needs eager, well educated, well trained appraisers if we hope to avoid a looming crisis—which will happen when the appraisal industry does not have the capacity to meet the banks’ valuation needs.  We would partner with the better lenders, inviting their participation as we develop the gold standard to certify the very best appraisal companies.  Using a restaurant analogy, we would be inviting independent auditors right into our kitchen to see how we train our apprentice chefs.

A BRIGHTER FUTURE FOR APPRAISERS

Three years ago as the Collateral Risk Network (CRN), Rick Langdon, the Chief Appraiser at Wachovia Bank, shared an exciting vision on the way technology was going to give appraisers more tools in the future.  We are going to get away from the monotonous, mind numbing form-filling that we have done in recent years.  Instead, appraisers will have a much more interesting and challenging career of analyzing data to help lenders make better lending decisions and thus avoid many of the problems banks are experiencing today.  A well educated, well trained work force that cut their teeth on ever changing new technology will be a part of this picture.  I asked Alan Hummel, our Chief Appraiser here at my company, to do a nationwide search for new products and opportunities.  One of the products he found is the Collateral Valuation Report (CVR).  I feel this type of a product is a peek into the future; it is a sophisticated, fascinating appraisal tool that uses regression analysis and other meaningful data.  It allows appraisers to do a much more sophisticated appraisal than the 1004 in considerably less time.  Best of all, it is an alternative product to BPOs and it is done by appraisers!  Like many of the better appraisal companies, we have been asked many times to be a beta site for AVMs.  In almost every case, AVMs seem to fall apart when appraising a complex property or a property in a neighborhood that was not homogenous.  We have rigorously tested the CVR product at our company.  The fact that it holds up and is accurate even on complex properties—when used by a properly trained appraiser—is an indication that appraisal technology continues to evolve and improve.  In the future, new high tech products will give appraisers an opportunity to make more money and have a more interesting career.  These products will provide lenders with more meaningful analysis done by appraisers as they underwrite loans to more effectively manage their risk.  To make this happen, we need to bring educated, motivated people into the appraisal business.

THERE IS NOTHING LIKE A CRISIS…

Over the past 70 years, Forsythe Appraisals has experienced the challenges of rising and falling economic cycles.  We have found that our best ideas have always come during challenging times.  During good times, it is easy; anyone can cut up a warm pie.  By working together to meet the challenges, we can avoid what I feel is a looming crisis on the horizon.  The appraisal industry MUST have the bandwidth to meet lenders’ needs when (not if) the economy recovers.  I am confident the appraisal industry will come together to meet these challenges just as we have in the past; if we don’t, we all lose.
 

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