With that level of responsibility you would assume the appraisal industry would have an excellent relationship with the lending community; however, anyone working in the industry knows that appraisers are often seen as a necessary evil by most lenders. In turn, most appraisers believe lenders to be money-hungry deal makers that don't understand an appraiser’s profession or the independence required to act prudently. The disconnects don't stop there, as even from within the lending community you have a variety of opinions on the appraiser’s job within the transaction. Some lenders are under the impression that an appraiser’s job is "to get the deal done", and, on the reverse, I’ve been told by some lenders that “they want an appraiser that everyone in production hates” as their job is to prevent risky situations. I personally lean towards the middle of the road, as an appraiser’s job is to be unbiased and completely independent of the transaction but simultaneously realistic and practical.
This post is designed to help mortgage lenders understand what appraisers go through and what they wish you knew about the industry.
What Every Appraiser Wishes Lenders Knew – Residential Edition
- The appraisal never goes away – Similar to the way a lender gets a repurchase request years later, once an appraisal is signed and delivered it never goes away and there’s no safe harbor. I haven't personally done an appraisal in years, and I still get requests from time to time on appraisals that I did years ago asking for clarification. Unlike a repurchase request – which lenders get for deficiencies on loan and can be resolved with money – one bad appraisal can get an appraiser blacklisted for life. The worst part is most of the time it simply comes down to a difference of opinion, and the appraiser may never get a chance to defend their work. Appraisers are keenly aware that the appraisals they complete never go away and consider this when making their decision on a particular property.
- Appraising is a full-time profession – An average realtor will close 1-2 deals a year, an average appraiser will do 1-2 appraisals per day. Most appraisers have been in the business for 20+ years and want to stay in it for a very long time. They are trained to be very careful when it comes to what they will and won’t do when it comes to value, property condition, and selection of comparables. One deal or favor is very often one too much. What most Realtors don’t understand is that an appraiser’s job is to be completely unbiased about the transaction. Appraisers want to dig up everything they can on a property – both good and bad) – so that the lender (client) can make an intelligent decision about the property. The appraiser doesn’t approve or disapprove the loan but rather reports what they find.
- An appraiser license is difficult to obtain – You may not realize it but an appraiser’s certification took 2 years, 300+ tested education hours and 3,000 field hours to get. Becoming an appraiser is no easy task. You have to hold a trainee license for 2 years and log over 3,000 field experience hours before you’re in consideration. If you're selling a loan to Flagstar you have to wait an additional 5 years on top of that. The licenses are also expensive to maintain with annual continuing education requirements and USPAP certifications.
- State boards are notorious for fines – Because it’s an opinion and is part art as well as science, a lot is left up for interpretation. As a result, appraisal boards are notorious for fining appraisers on every compliant received. The infamous "Consent order" in the industry is something appraisers are starting to push back on as it seems there's little reason to agree when often it's just a difference of opinion. Nevertheless, the process is stressful, and something that is always an appraiser’s worst nightmare. Going to court over one file isn’t worth it – it’s difficult to approve or disapprove an opinion and it ends up being a waste of time for everyone. From what I've seen, good, bad, or indifferent no one get's out of a state board without a fine.
- USPAP is the only true requirement – The appraisal foundation publishes a book, Uniform Standard Principles and Appraisal Practices (USPAP). It, for the most part, discusses how appraisers go about handling things and is the only thing appraisers are bound to. Everything else is considered guidelines or suggestions and varies from client to client. Appraisers have full discretion when it comes to variations in or outside of the guidelines that lenders and investors publish as they often don't fit the actual market area. Legally, enforceability of lender’s or investor’s guidelines is typically not possible. Thus, appraisers default to USPAP even though it may not fit the lender’s guidelines or requirements.
- Fannie, Freddie and FHA guidelines are unclear – Even though everyone in the mortgage lending industry ultimately has the same goal (which is to have a loan sold and accepted by Fannie, Freddie, FHA and VA) the variety of requirements and requests that lenders ask for will amaze you. As an appraiser you are often wondering what is actually required on an appraisal report by a particular lender or investor but usually don't find out until after the appraisal is sent in and revisions are requested. Most investors don’t offer training, supporting documents, or any resources that appraisers can use to check their guidelines in real time or before delivering the report. Furthermore, most underwriters haven’t been properly trained on appraisals, and as result appraisers are stuck with request and requirements that contextually don’t make sense in the realities of the market or the appraiser’s scope of work. Investors should offer in-depth training and publish clear and easy to follow requirements as most appraisal issues are actually unclear guideline issues.
- All adjustments need to be backed by data – A $5,000 adjustment for a garage space isn't just pulled out of thin air. It’s backed up by market research and data at some level that indicated garages are worth about $5,000 per space. This could be based on homes that sold with one garage vs two garages, which would be considered a market extraction, or a variety of other methods appraisers use to gather data about the market area. However, at the end of the day, the adjustment has to be backed by actual data and support that would be justifiable in court.
- The value is the appraiser’s opinion – Two appraisers could do an appraisal on the same day, on the same house, come up with two different values and have them both be right. The reality is that the value is really the appraiser’s opinion, not an average, not a range, but a number the appraiser picks by looking at the data, understanding the market and all factors considered. They put a number on the line and sign it. With that type of responsibility nothing is averaged on the report. Although many think the appraiser just averages the report, any good appraiser doesn’t even consider this.
- The information available determines a lot of the results – Appraisers are only as good as the data they have available. Most areas have an MLS but not all. As a result, the output is only as good as the input. This is a bigger issue when it comes to new construction, rural areas, and builder sales. You're typically dealing with incomplete and inaccurate information provided by questionable data sources and then expected to give a completely accurate and concise report and attest to its accuracy.
- The inspection isn't supposed to take that long – Many lenders have complained about the time it takes for an appraiser to do an inspection on a property. An average size home will typically take no more then 30 minutes to complete from start to finish. Over 80% of the appraiser’s work is done in the office and in the field inspecting other comparables and driving around the neighborhood. The inspection is more or less to get a general idea of the characteristics and condition of the property, upgrades, features and potential problems. From that basis it's all about looking at what other homes in the market area are doing.
This list is not comprehensive but rather a glimpse of what appraisers go through on a day to day basis. The lenders vs. underwriters battle has been going on for years and I think that offering insight and a peek into the appraiser’s world will help everyone understand the modern appraiser working in the mortgage lending community.