On Friday October 16th our own Joan Trice spoke in front of the Appraisers Qualification Board in Washington, D.C. This is the comment letter she presented on the topic of the next generation of appraisers (or lack thereof) and how the current standards for entering the appraisal industry should be reviewed.
TO: Wayne Miller, Chair
Appraiser Qualifications Board
RE: Comments to Alternative Track to the Experience Requirements
in the Real Property Appraiser Qualification Criteria
DATE: October 16, 2015
FROM: Joan N. Trice, CEO
Allterra Group, LLC
As everyone is already aware this issue is a complex one. I speak with lenders, Appraisal Management Companies (AMCs, regulators as well as appraisers on a frequent basis. Appraisal quality (or a lack thereof) is a growing concern especially in the shadow of the largest housing finance crisis in our history. Appraisers, in part, played a role in that crisis.
While no doubt the intentions of the Appraisal Qualifications Board (AQB) were to tighten standards with the effect of elevating the quality of the work product, there appears to be no evidence that that has actually occurred. In fact, it would appear that a new set of problems has resulted. The Collateral Risk Network (CRN) produces two surveys each year- one of chief appraisers within the lending community and a second one of chief appraisers from AMCs. Both stakeholders report that Appraisal Quality is the single biggest concern they have.
How can we discuss the next generation without a discussion of this generation? Who would step up and mentor this next generation? Is there a shortage of appraisers or just a shortage of well-trained appraisers? What impact does the lack of enforcement of C&R have on the current population and the future generation of appraisers? Do we have the right educational offerings available? What role should the appraiser play in the future of housing finance? We all have more questions than answers. The only thing clear is that we are all operating on a dearth of information.
STATE OF THE PROFESSION
Many report a shortage of appraisers. Some in the appraisal community believe there to be an oversupply. It has been suggested by others that the only shortage is of appraisers who will accept low fee orders. Attached is a chart detailing the top 30 SMSAs, the appraiser population per Appraisal Subcommittee (ASC) in those SMSAs, and the general population. The areas of NY, CO and TX are where AMCs and lenders report a shortage (meaning extended turn-times). According to this chart Colorado appears to have an oversupply; the Texas markets are in balance and only New York appears to indicate a shortage. It would not be prudent to expand the population to serve a bubble.
The population of appraisers today is indeed growing old. Statistics from Clearbox, a database of appraiser credentials, indicate an average age of 54, which is likely skewed to a somewhat younger population as older ones are less inclined to use technology. There is no financial incentive for an appraisal firm or a single appraiser to retain a trainee. There is no incentive for a college graduate to enter the profession.
The simple truths are that:
- Standards are too high
- Earnings too low
- Future is uncertain
- Current population may not be equipped to train the future generation
Support the enforcement of Customary & Reasonable fees
While not a panacea the enforcement of C&R would cure a lot of what ails the appraisal industry. Many of the problems find their source as an economic one. If economic opportunities existed, the trainee situation would be resolved. If the payment of a fair fee to the appraiser was occurring in the marketplace the only remaining barrier to entry is of course the AQB experience requirements. It simply takes too long to produce a new appraiser.
Study the demographics of the appraiser population
We know very little about the population of appraisers. Having national numbers does nothing to address what is happening in each local market.
Examine the role of the appraiser
There are a lot of conflicting demands on appraisers. Some are demanding more analysis while the current URAR form does not support any technical solutions. This is a recipe for disaster. Clients are demanding more data, photos, and analysis while simultaneously increasing pressure for faster delivery and at compressed fees.
This is simply not working. We are encouraging the brightest and the best to exit the profession.
If the conclusion at the end of the study is that appraisers’ role is to simply measure, take photos and verify data, a college degree should not be a requirement. It is quite possible that there is a role for licensed appraisers to complete the field work while a certification denotes an analyst role requiring a college degree.
Eliminate trainee and mentoring requirements
AQB should consider supporting the elimination of the trainee license altogether. It is reasonable to assume that most recent graduates are unwilling to invest 3+ years as an intern before appraising becomes a viable career opportunity. Once one completes the course work they should be allowed to sit for the exam and be admitted.
The goal of elevating appraisal to a profession and not a trade is an admirable one. But the mission of the TAF is one of public trust.
Let the clients dictate the standards by which they will engage an appraiser. As with other professions typically someone just entering business practice needs to affiliate with an experienced professional.
Establish peer review
One thing to consider is to replace the experience requirements with peer reviews. This is the process in Germany. Appraisers there are regularly audited. If their work is found deficient they are instructed to take classes and work with a mentor. This process ensures that new entrants, as well as all license holders, remain abreast of modern standards.
The current AQB Continuing Education matrix needs to be modernized. It restricts those outside the profession from instructing. A risk analyst or actuary would not qualify to teach a course in real estate mathematics or a Fannie Mae employee, not a currently licensed appraiser, could not instruct a course on the evolution of the valuation in housing finance.
Standards are a good thing but the AQB should not restrict the opportunity to develop fresh new courses. Many appraisers who have been in the field for years commonly complain of repeating the same class over and over again.
The Course Approval Program (CAP) is a voluntary program. Only approximately half the states participate. The current process for course approval is a burdensome one and one that encourages low quality on site courses where standards are not monitored regularly and fairly. AQB should assist with standardizing the educational standards and provide incentives for the states to participate.
I invite the Appraisal Foundation (TAF) to consider exiting the education business they recently entered with the Alliance for Valuation Education (AVE). Having TAF compete with education providers and trade associations removes the competitive market forces from investing in new material. This is the exact opposite of what should be achieved to reinforce the public trust.
The state of the profession is one in crisis. The public trust has been diminished greatly. It is difficult to find a stakeholder who holds the appraisal profession in high regard. I propose that this study and discussion needs to go much deeper than simply the examination of experience requirements. That issue only scratches the surface of a population at risk.
Appraisers play a pivotal role in the housing sector and in commercial finance. It is imperative that we find a solution sooner rather than later.
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