Vail Daily column: Appraisal crisis impacting homeowners
The Mortgage Guy
If you’ve had to get an appraisal on real estate lately, then you’ve probably been pretty surprised at the cost and the length of time it takes to get one.
During the meltdown of housing in 2007 and beyond, the appraisers became the target of a great deal of blame for apparently not standing up and proclaiming that properties were likely getting overvalued.
While there are isolated instances where this criticism might be warranted, in general, the appraisers are simply the messengers of what was going on in the market. It seems that everyone and their fifth cousins were buying up real estate like there was no end to how high values could go.
Indeed, the lending programs that allowed a cashier at Wal-Mart to qualify to buy two or three properties with little if any money down were far more culpable than the appraisers, but no doubt some lenders out there wanted to distract the blame and insisted they would not have make the loans if the appraisers had supposedly been doing their job.
What was overlooked was the fact that the appraisers are there to report on the impact of recent sales to the perceived value of the subject property being appraised, they ware no there to weigh in on the possibility of “irrational exuberance” of property buyers.
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With the drastic drop in volume of transactions starting in about 2007 what had once been a fairly lucrative career as an appraiser suddenly became a very difficult one to make money in. As a result thousands of appraisers left the field and few young people took up the profession.
Toughening Up requirements
In addition, several federal and state agencies decided to toughen up on the requirements to become and appraiser. At a minimum to be a Certified Residential Appraiser (which is a notch above a licensed residential appraiser) one must have either an associate’s degree or 21 semester hours in appraisal related topics. New CRAs must also work 2,500 hours as an apprentice. In addition, numerous new requirements, forms and blanks to fill in have been added to appraisal forms, including a requirement that each bathroom be photographed. I’ve never talked to anyone that could explain how that one would insure the integrity of an appraisal.
And of course the cost of license fees, forms and insurance went up drastically as well, and likely the basis on which an appraiser could be sued expanded geometrically. I also am told by appraisers that lenders sometimes come back a year after the fact wanting more and more data to support a value even if the loan has performed and the borrower never missed a payment.
All of the above has drastically limited young people from entering the appraisal profession, and the number of appraisers practicing has dropped steadily. Since 2011 the total number of appraisers nationwide had dropped by about 15 percent. In addition, the average age of an appraiser is now reported to be about 54. Add to all of this the Appraiser Independence Rules require that a lender hire an appraisal management company to be the blind go between the lender and engaging the appraiser and another layer of costs, bureaucracy and frustration has been added to the appraisal process. In short, the purpose of the AMC and AIR is to, in theory, prevent a lender from influencing an appraiser. The general conclusion among lenders is that there is no such thing as a competent AMC and if we fire all the bad ones there will be no on left. Some lenders have found ways to exclude themselves from dealing with an AMC (the rules are complex and the liability is high, so few lenders opt to, settling for often horrible service from an AMC) but many of the appraisers will only work for those lenders leaving the AMCs a often limited pool of talent to choose from. And of course the AMCs charge a fee for their questionable services as well.
Frustrations abound
The net result of all of this has been that the cost of an appraisal has skyrocketed and wait times have extended, requiring longer loan locks (which cost the borrower more money).I recall when an appraisal cost $350 to $450. Now they cost from $475 up to $1,600. We frequently have to ask our clients to pay $700-$800 for an appraisal, and people are genuinely shocked and of course their initial reaction is that I must be marking up the cost.
Recently I ordered an appraisal for a condo in a downtown Denver and several of the AMC’s were quoting as much as a 60-90 day turn time and fees as high as $800. I finally got an AMC to do it n 30 days for a fairly reasonable fee of $475 but it took quite a bit of effort. I heard of an appraisal on a small home in Aurora that recently cost $1,500.
To add to the frustration lenders are now required to quote a uniform fee to every applicant even though we know the fee will likely be higher, and we won’t know the final fee until the AMC has found an appraiser who will do the task, and we then have to advise the borrower that there is a “change of circumstances.”
Chris Neuswanger is a loan originator at Macro Financial Group in Avon and may be reached at 970-748-0342. He welcomes mortgage related inquiries from readers. His blog and a collection of his columns may be found at http://www.mtn mortgageguy.com.