When will it end? And who will be left?

GUEST POST: David Burns is a State Certified Residential Appraiser. He has been appraising for almost 14 years in a family business with siblings that are also appraisers. David is passionate about fighting for the integrity and independence of the appraisal industry.

 

As an appraiser today, the landscape is pretty bleak. The industry has suffered so many blows, I wonder if it will ever come back. A once thriving industry based on integrity and ethics has been replaced by the demand of "how cheap will you work and how fast can you do it".

If you could turn back time or look thru a window into 2007, it would be as if looking at night and day compared to 2012. 2007 saw appraiser earnings in the range of 80,000-120,000 or more per year. The independent appraiser worked for his or her self or for small appraisal firms. There were a few large appraisal firms and a few Appraisal Management Companies, but they made up only 20% of the market. 80% of the market was independent fee appraisers, most with trainees. There was free market competition and appraisers could pick and choose who they worked for based on their morals and ethics. Appraisers could advertise and market themselves to the people in need of the product they supply. Appraisers established long term relationships with loan officers and mortgage brokers, who would select appraisers based on trust, experience, and knowledge of the local market. Product pricing was stable for the consumer and had remained level for many years. 2007, saw increased numbers of appraisers and trainees. We also saw increased education requirements to further the professionalism of a thriving industry. In 2007 the number of appraisers peaked at 121,407 from a steady increase over 7 years according to the Appraisal Subcommittee.

Flash forward to present day and lets review the landscape in this window. Average appraiser earnings have been cut in half, due to the rapid increase of unregulated, unlicensed Appraisal Management Companies. These AMCs take half the fee just for delivering a report. This shift from a 20% presence in the market to an 80% dominance in the market was due to a flawed deal, now known as the HVCC. Appraisers can no longer market themselves on a local level. We can not advertise to the people in need of our products. All the long term relationships with LOs and Mortgage brokers were severed by the HVCC. Appraisers these days are not selected based on trust and knowledge, they are selected on fee and speed by the AMC, for their own profit margin. The use of staff appraisers (employees of the bank or AMC) has skyrocketed to levels never seen before. The level of appraiser independence is at an all time low. Banks and the AMCs they own have more control than ever, despite efforts to prevent it. The cost to the consumer has risen, due to the profit margin of the AMC. AMCs now, dominate the market and they do not allow the use of trainees. With no trainees entering the market, when will the profession end? Imagine if there were no medical students or law students. Or even, imagine if there were no more plumbing apprentices, how quickly would that problem back up? Today, 2012 there are 104,657 appraisers nationwide (less than the # in 2005). It is June, and in the next 7 months, being an even numbered year, more than 34, 300 appraisers are in a renewal year. Since our decline has already taken us to below 2005 levels, it is reasonable to think that by Jan 31 2013 the # of appraisers will be comparable to 2004 levels, less than 100,000!

Unfortunately, there appears to be no potential remedies in sight. We have seen laws passed that are not being enforced, and rules written to contradict those laws. We have seen the transfer of power that is so dissected between individual states, appraisal boards, Federal Reserve, CFPB, Fair Trade Commission etc., it is impossible to navigate. Noone appears to have the appraisal industry at the top of their to do lists and the damage continues.

Now, lets use our powers once more and look thru a window in the future. Since the decline began 5 years ago, lets look 5 years ahead. To date (2012)we have lost 16,526 appraisers since the peak. That is 3,305 per year as an average. If we continue the decline for a further 5 years in 2017 there will only be 88,355 appraisers (in 2002 there were 89,512). Since there are no trainees currently entering the market and the current average age of appraisers is 50-55 years old. Add 5 years to that and I begin to question the willingness to train your competition at a late stage in your career, not to mention the ten years of lost revenue to the AMCs and banks. As we peer thru our window in 2017 we see that the housing market has had substantial recovery and the economy has improved.

Demand for appraisals has increased and there is an insufficient supply of appraisers to meet demands. It takes two years to become an appraiser, after a college degree, so there will be no quick fix in the number of able bodies and minds to enter the market. The industry will be comprised of primarily 55-60 year old appraisers, bitter from years of abuse, strapped from years of unreasonable fees, unwilling to take on the responsibility and liability of trainees. In 5 years the average cost to the consumer for an appraisal could see increases as much as 50-75% more than today’s rates. This shift in supply and demand will have both positive and negative consequences. Positive for the appraiser to be able to make a living again, but negative to the market as there will be noone to replace the appraisers as they retire.

When will it end? And who will be left?

GUEST POST: David Burns is a State Certified Residential Appraiser. He has been appraising for almost 14 years in a family business with siblings that are also appraisers. David is passionate about fighting for the integrity and independence of the appraisal industry.