Over the past year I’ve read a lot about appraiser shortages. Some articles argue there is currently a shortage while others say one is looming. A smaller number suggest there is no shortage of appraisers, only a shortage of appraisers willing to work for low fees. Many of the articles used anecdotes rather than statistics. They tell stories about a high fee or long turn-time as evidence of a shortage. Others use data for their argument but are unable to show how the numbers are relevant. All the articles failed at answering what seem to be the most important questions.
What is a shortage? How is it measured? If there is a shortage, how do we fix it? Perhaps most importantly, what does all this mean to practicing appraisers?
The above graph from The Appraisal Foundation (TAF) relates the number of appraisal licenses to mortgage volume. Dave Bunton, President of TAF, points to the ratio of total appraisers and mortgage volume as proof there is no shortage. However the number of licenses is not the number of practicing appraisers. Of roughly 98,000 licenses, about 23,000 belong to appraisers licensed in multiple states meaning there are fewer individual appraisers. How many individuals are licensed in multiple states or whether they are general or residential is unknown. Just under 60,000 licenses are residential certified or licensed appraisers. This figure is much higher than Fannie Mae’s estimate of about 40,000 individual residential appraisers uploading to the UCDP. Some of this difference may be due to post-recession requirements for QC, reviews and AMCs that transferred field appraisers into offices, but there are no good estimates of how many. These are all real, verifiable numbers, but each tells a significantly different story. Lastly, while TAF had the presence of mind to plot supply against demand, the volume of mortgages in dollars is not a direct reflection of the number of appraisals ordered or the amount of work required. An appraisal in 2017 is a different product than it was in 1992 or 2005. The bottom line is that like all measures of a shortage, this lacks well-defined benchmarks and measurements.
If you conclude there is or isn’t a shortage based on the national numbers, is that relevant? As appraisers we know it’s all about location. National numbers don’t mean that there can’t be a surplus in Cleveland but a shortage in Denver. Similarly, it may be possible that there are plenty of appraisers in the winter, but a shortage during the summer or other peak times. A number of articles refer to increasing fees and turn-times of proof of a shortage; a simple reflection of supply and demand. To the contrary, some argue that since there are still many AMCs offering $250-$300 for 1004 URAR, that perhaps it’s just a shortage of appraisers willing to work cheap.
Regardless of whether or not a shortage exists, or even if one is pending, if appraisal users think appraisals are too expensive and take too long, they will look for alternatives. Fannie Mae has already started the Property Inspection Waiver (PIW) program for refinances, where qualifying properties won’t require an appraisal. Lenders are the 800 pounds gorilla in this equation so perception may as well be reality.
So how do appraisers meet spikes in demand whether they be seasonal or locational? Simply put, there are three ways to address a shortage of appraisers; add appraisers, increase appraiser efficiency or reduce the number of appraisals required. That’s the short of it. However each of the solutions has a whole host of good and bad and there is no simple answer.
Let’s rule out reducing the number of appraisals since that’s an unappealing solution to appraisers. To add appraisers means reducing the entry barriers into the profession or increasing fees. Lenders are wary of fee increases and are paying more for appraisal services than they used to with the added costs of QC, reviews and AMCs. Even if fees did rise enough to attract new blood, it would take years to get them trained, licensed and on rosters. So increasing fees, while appealing, is a long term solution at best. It’s risky too since lenders not wanting to wait or pay the higher costs might seek alternative.
The Appraiser Qualifications Board (AQB) has set in motion some changes to licensing and is considering a host of others. However according to Joe Traynor, Chair of the AQB, these changes were made because the current licensing system is decades old, not because of a current or impending shortage of appraisers. I asked Mr. Tryanor exactly this at an AQB meeting last summer and he explained that he does believe it’s the board’s job to control the number of practicing appraisers.
Licensing changes aren’t a simple solution. Given the purpose of USPAP, can we maintain public trust with constantly changing or reducing standards? Is that fair to appraisers who worked to meet current standards like a four-year degree? Could sudden influxes into the work forces could erode both public trust and fees?
If each appraiser could complete more appraisals in less time, there would be no shortage. Technology has increased efficiency a great deal over the past decade and there are an increasing number of tools available to reduce typing and analyze adjustments, but if a shortage exists, these efficiencies have not been enough to absorb demand or there are not enough appraisers are using them.
The most effective means to increasing efficiency might be trainees. USPAP, Fannie Mae and Freddie Mac allow qualified trainees to complete property inspections independently but most lenders and investors don’t. Trainees might be the best means to meet spikes in demand. If retail chains can hire for seasonal help, why can’t appraisers?
So, is there an appraiser shortage? Like most appraisal questions, the answer is – it depends. It depends on how you define shortage. Like most aspects of real estate, it depends on location. Appraisers are experts at reading the market. As such, most of you probably know if there’s a shortage in your area. If you get calls from new clients asking for a fee quote and turn time, there’s likely a shortage, at least for that assignment on that day.
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