The shortage of appraisers within the industry has been well publicized recently and no doubt plenty of you reading this article have experienced the impact of this shortage first hand. However, placing the appraiser shortage into a broader context helps us to better understand the causes, as well as the solutions that are already underway to remedy the problem.
According to the Appraiser Institute, more than 10,000 appraisers have left the industry since 2013. This represents a decrease of 13% of the working population of appraisers across the country over that time period. This talent drain is further compounded by the fact that of the appraisers that remain in the industry, more than half are approaching retirement age, while 20% are aged over 66.
With the current red hot housing market, demand for appraisers is outstripping the reduced supply, which is pushing up fees and pushing out appraisal completion times. Some brokers are stating fees for residential properties have increased from an average of $750 up to $2,000. Meanwhile, appraisal completion times are taking up to 2 months in certain cases.
A natural reaction to this situation, especially when faced with these statistics, is to try and get more appraisers to enter the industry. But this alone cannot solve the underlying issues with the current appraisal process, such as inefficient workflows and analogue data collection.
Instead, tech innovations have started to enter the market with the goal of optimizing the appraisal process by automating key portions of a property’s valuation. Whether through machine learning tools that create quick and accurate measurements, or digital platforms that allow lenders and appraisers to interact directly, technology is helping modernize previously inefficient workflows, which enable appraisers to add efficiencies to the appraisal process.
AMCs Driving Tech Innovation
A number of appraisal management companies (AMCs) are at the forefront of this new tech wave. A number of them have made strategic acquisitions of related technology platforms over the last few years. In addition, AMCs have been investing heavily in R&D.
One of the AMCs who has been most active in the space has been Class Valuation who recently acquired the proptech company DataMaster, which built one of the nation’s most comprehensive multiple-listing service integration networks. With the acquisition, Class Valuation is looking to deliver a completely digitized appraisal process. The company’s CIO Scot Rose said that the end goal is not to replace appraisers, but instead to help them by giving them more useful tools that can drive efficiencies across the appraisal market.
Class Valuation has been leading the way in this department, as it launched a tool in 2019 called Property Fingerprint, which leverages machine learning to improve the way appraisers capture property data. More specifically, the platform’s automated formula uses photos of a property to provide accurate measurements through 3D scans and detailed floor plan models. Appraisers can then store and access all that data through the software, dramatically speeding up the process.
In September, another AMC called Clear Capital acquired Finnish proptech startup CubiCasa. Clear Capital can now integrate CubiCasa’s automated floor plan sketching technology to provide more accurate results when measuring a home. With square footage being the second most indicator of a home’s value (after location), CubiCasa automates one of the most crucial parts of the appraisal process.
Cutting Out the Middleman: Alternative Tech Solutions
Appraisal innovation isn’t just being driven by AMCs. In fact, other actors within the property buying process, such as lenders, are making their own play into the appraisal market and bypassing AMCs altogether. They’re doing so by providing brokers with tech applications that can connect them directly to appraisers, removing the need for AMCs.
For example, wholesale mortgage lender United Wholesale Mortgage (UWM) announced it is launching its own in-house appraisal service in October of this year. Called UWM Appraisal Direct, the new service leverages technology and in-house administrators, to pass jobs directly to appraisers to execute.
In order to support the roll out of this new service, UWM has dropped it’s requirement that brokers have to use AMCs to complete appraisals (although they are still free to do so if they wish). The service is targeting a 5 to 7 day turnaround for all appraisals, and will pass on 100% of the fee to the appraiser.
Another interesting development comes in the form of back-end platforms and marketplaces that automate communication between lenders and appraisers. Cleveland-based AppraisalWorks, for example, provides a cloud-based appraisal management technology platform that acts as a marketplace and automations platform for lenders to manage and assign valuation orders. They have the choice to go through AMCs, or to communicate directly with appraisers.
As with other tech platforms, the ultimate appeal comes from faster processing times by setting up shortcuts like electronic payments and portals to upload documents. This allows for appraisers to reduce their heavy workload and automate a number of steps that used to add days to valuations.
Up until recently, the appraisal process has seen relatively little tech innovation compared to other parts of the real estate process. But the current high fee landscape has provided a huge opportunity to groups that leverage technology to undercut the market by offering lower fees and quicker turnaround times.
What’s more, with solutions coming onto the market that replace or remove the traditional role of AMCs, expect even more competition and innovation among AMCs as they battle to cut costs and retain market share.
While only time will tell if and when appraisal fees will start to normalize, one thing is certain: increased competition and new entrants into the marketplace will drive innovation, which will help alleviate the appraiser shortage in the long term.