Challenges in the Appraisal Industry
A lot of uncertainty lies surrounding the appraisal process. Consumers are unclear and wary as to how home valuations are conducted and how prices can vary drastically. The media is pointing out the mistakes behind failed appraisals but fails to dig into the reasoning behind the underlying issues smearing the industry with a negative light.
Clarifying the Process
Provide an overview of the appraisal process and clarify the steps involved in conducting a successful appraisal. Research and analyze the various challenges facing the industry and why mistakes occur. Cite varying opinions from industry professionals to relay different opinions on the subject while providing clarity.
Understanding Industry Challenges
As the real estate industry evolves to adapt to a technological age ridden with data, appraisers with a traditional background are facing a challenging environment where their skillsets and approach are slowly becoming outdated. The industry is grappling with how to transition and adapt to a new form of digital revolution taking over the real estate market.
Clarity Through Insight Analysis
Consumers were provided with clarity and a deeper understanding of the appraisal process. Simple and prudent advice allows consumers to grasp the appraisal process in an easily digestible format. The challenges imposed on the industry are clearly laid out and consumers provided strong positive reviews of the issues being addressed.
Getting An Appraisal Of Your Home
If you’re selling your home, you may want to hire an appraiser to assess your home’s value. Getting a home appraisal before selling isn’t required, but can be a strategy to help determine how to price your home for sale. It can also help with negotiations as you’ll have an independent real estate analysis you can show to buyers. Most often, your buyer’s lender will require an independent appraisal before they approve the mortgage to make sure the home is worth what they are loaning to the buyer. That process will happen during closing and will be ordered by the bank.
If you plan on getting your home appraised before you sell, there are several things that you can do to receive an accurate report.
How Does The Appraisal Process Work?
The job of an appraiser is to provide an objective opinion on your property’s fair market value. The process begins with an on-site property inspection where the appraiser examines your home’s amenities, square footage, rooms, renovations, and conditions. This takes about 1-2 hours to complete. After the inspection, the appraiser will evaluate neighboring properties with an eye for:
- Property sales within the last 3-5 years
- Past sales of similar properties
- Comparable properties that are currently for sale
Questions You Should Ask Before Selecting An Appraiser
You need to find an appraiser you can trust. Unfortunately, there can be some variance in appraisals. Your appraiser should be experienced and familiar with your neighborhood to help ensure they provide an accurate report. Here are a few questions you can ask an appraiser before hiring her:
- Are you licensed or certified in the state where you live?
- What are your professional qualifications?
- Do you have past experience with this market and with this type of property?
- Are you familiar with other properties in this neighborhood?
- How long have you been an appraiser?
- How many hours do you work in a typical week?
What To Do During The Appraisal
Different people can place different values on the same home. You will be more likely to receive a desirable report if you clean your home before inspection and provide your appraiser with relevant details. Here are some other things you can do to put your home in the best light:
- Provide your appraiser with the property’s sales history, purchase contract, and property tax statement
- Make an itemized list of personal property that you plan to sell along with your home
- Show your appraiser all home upgrades and renovations
- Point out features that differentiate the property from comparable homes in area – like a killer view of the ocean or bordering on a nature preserve that can’t be developed
The more information you give your appraiser, the more accurate her estimate will be.
What If I Am Not Satisfied With My Appraisal?
In some cases, you may receive an appraisal that you feel is incorrect. It’s rare that you can get your estimate changed, but if you have a compelling reason to believe your home is worth more or you feel like something was left out, here are some steps you can take:
1. Make sure your home’s property description is accurate and submit any important information you initially left out
2. Send your appraiser information on comparable neighboring homes that were sold recently but not included in the Multiple Listing Service. You may also want to include information on comparable property sales that occurred after your appraisal.
3. Make sure your appraiser is not comparing your home to other properties that were sold more than 90 days ago. If she is doing this, ask her to adjust his estimate so that it reflects recent market trends.
4. If your appraiser is comparing your home to similar properties in another neighborhood, make sure her estimate is adjusted to reflect the location differences.
A home appraisal is not a science. Different appraisers reach different results. Understanding the process can help get the best results.
Challenges Facing the Appraisal Industry
Shrinking Appraiser Population
One statistic from the Appraisal Institute in a study published in June of 2016 seems to strongly indicate that the industry is now set to experience a shortage inevitably: About 62% of appraisers are age 51 or older, while 24% are between 36 and 50, and only 13% are 35 or younger. The Appraisal Institute further suggests that a decline will continue over the next 5 to 10 years mainly due to the older demographic of appraisers retiring and fewer young people entering the appraisal profession. With fewer appraisers available to handle the volume of home sales, appraisal fees will likely increase and the turnaround time for appraisal reports can only be extended as a result.
With the average age of appraisers pushing the retirement limit, “It’s really a supply and demand issue” according to UWM President and CEO Mat Ishbia. He goes on to say, “There’s more appraisals needing done than appraisers out there to get them done.” Strict qualification requirements are the main source of blame for the shortage of new appraisers into the profession.
Revising Appraiser Qualifications
To become a Licensed Residential Appraiser, and have the ability to do appraisals on your own, most states require you to become a Trainee Appraiser and obtain experience. This level of experience is currently under questions and is being scrutinized by the National Association of Realtors (NAR) and the Appraiser Qualification Board (AQB). Currently, there are three levels of certification in the appraisal profession following the successful completion of the apprenticeship: Licensed Appraiser, Certified Appraiser and Certified General Appraiser.
The AQB has proposed several terms for the revision of education standards to the NAR including:
- removing the four-year degree requirement prior to appraisal school
- removing or lessening the time limits required to accrue experience towards all appraiser qualification types
- removal of the 30-hours of college-level education required for licensed appraisers.
Interestingly, while senior appraisers agree that the most useful preparation for becoming an appraiser is the actual experience, the hours requirement is still be proposed by the AQB. This is a sticking point for the NAR, and they argue, “the AQB would be jeopardizing the quality of incoming appraisers into the profession.”
Joan N. Trice, CEO, and Founder of Clearbox and author of a white paper entitled “Reengineering the Appraisal Process, Revisited” submitted her comments recently in November on the subject. Joan acknowledged various issues facing the appraisal industry including shortages, poor quality, cost and delayed delivery of appraisals. However, she claims you cannot simply, “replace appraisers with push-button technology” and that it is the present regulatory system that is need of an overhaul which causes undue stress on the appraisal process.
If the education requirements do end up being scaled down, are we ensuring a future generation of appraisers fit for the job of handling the valuation of Americans’ greatest asset – their home?
Lack of Local Knowledge
With nearly a fifth of all appraisers possessing certification in one or more states, local market familiarity is sacrificed as a result. Local market knowledge and the ability to understand distinct neighborhoods and real estate market trends relative to the location of the subject property are critical elements in the formulation of home valuation. This is a cause for concern, and as a client, you should ensure that the appraiser conducting your home appraisal is either from your area or at the very least familiar and experienced with performing home valuations within your respective area.
Technology is an essential tool in an appraiser’s toolbox. It can also add significant efficiency as well as a measure of quality control when it comes to completing their real estate valuation process. As big data and real estate data analytics grow to become more accessible in the real estate field along with mobile technology advancements, appraisers’ jobs will not only become more streamlined, but quality will also be reflected in the report themselves adding further credibility to their work.
However, the question that remains to be answered is how will the adoption of these technologies come to penetrate the aging breed of appraisers. Terms like big data, machine learning and algorithms are still foreign subjects to many real estate professionals, and they are not known to be early adopters of technology in general. While technology cannot replace the skills and judgment of an experienced appraiser, it can add a layer of quality assurance by verifying the data found in their reports and potentially uncover additional factors that ultimately affect the home’s value.
Compensation Affecting Quality?
In a report published in February 2016, the Appraisal Institute admits that appraisals are sometimes “assigned to the least qualified, least competent appraisers.” When a lender hires the services of an appraisal management company (AMC), effectively acting as a middleman between the lender and appraiser, the AMC typically will try and keep as much of the appraisal fee as possible.
Frank Danna, CEO of an AMC, makes a strong argument for regulators to play a more significant role in the moderation of fee splitting between the appraiser performing your appraisal and the AMC. He asks a provoking question, “If an AMC can convince an appraiser to work for a lower fee, either through the promise of future work or by threatening to take future work away, should those savings be passed back through to the party that actually pays this fee? Is the AMC doing more work to deliver an accurate and fully compliant appraisal report to the lender?” As the home buyer or seller, it’s important to note whether the appraiser performing the appraisal is working independently or working with an AMC and what their relationship is like with the respective firm. Otherwise, quality may be lost in the process.
Time Pressure Affecting the Quality of Reports?
In the Seattle market, sheer demand is a big reason why appraisal wait times are so long. In markets where there is relatively significant sales growth, the volume of transactions places an additional burden on local appraisers and their ability to conduct a timely yet professional valuation.
According to an annual forecast report published by realtor.com, the top 10 markets are predicted to see an average sales growth of 6.3%.
When you have tremendous sales growth within a city, and the backlog of appraisal reports extends from three weeks to six weeks, one can naturally suspect that the appraisers will be pressured to churn out more reports per week and consequently spend less time per report. This impacts the quality of the report.
Quality Consistency in Appraisals
If only there was a magic formula where you could enter an address of a specific property, and a valuation would be returned within mere seconds. There are a few platforms that provide such a service but be warned that they are not to be substituted with a valuation from a professional appraiser. Zillow has an automated valuation process called Zestimates driven by a sophisticated scientific algorithm. There are specific variables that this Zestimate cannot take into account including:
- Condition: Zillow has no idea about the condition or upgrades of a property.
- Knowing the niche: it is very challenging for Zillow to capture and compute the niche characteristics of highly specific markets.
- Miscellaneous features: new parking additions, renovated basement or an upgraded kitchen are just some examples of features that would not be taken into its valuation equation. Items like these involve some level of subjectivity.
However, these varying features are somewhat subject to the opinion of the appraiser and their opinion may differ compared to that of their fellow colleague. The best option to minimize the risk for residential properties is to have an on-site appraisal and on-site collection of data conducted by a qualified appraiser. This due diligence ensures that the decision maker has a reliable appraisal report with a well-supported valuation. Or dare I say, an opinion of value.