In a prior blog post, entitled “What Home Buyers Need to Know About Appraisals,” we explained how appraisals work, and how they can sink a home sale when the appraisal value does not agree with the sale price. Yet appraisals can delay a home sale for another reason as well. Namely, too few appraisers are serving the market.
Inman News recently discussed this issue, and we’re sharing the highlights with our own information and perspective for home buyers.
First, home buyers should understand that whenever a mortgage is involved in a home purchase, an appraisal will be required. The home serves as collateral for the mortgage. Lenders have a vested interest in ensuring the home’s market value is in line with the financing the buyer has requested.
During the housing bubble, appraisals became fast and loose, with some appraisers doing little more than rubber-stamping the home sale price without question. Mortgage brokers, competing for business in a hot market, would push appraisers to work faster in order to close more loans and earn higher commissions. When the housing bubble burst and home values plummeted, homeowners, banks and taxpayers were left holding the bag.
The fallout lead to the Great Recession, and the creation of the Dodd–Frank Wall Street Reform and Consumer Protection Act in 2010. This sweeping legislation included Title XIV, The Mortgage Reform and Anti-Predatory Lending Act, with Subtitle F addressing the appraisal process.
But it was the Home Valuation Code of Conduct. (HVCC) of 2009, initiated by Freddie Mac, that first changed the operations of the professional home appraiser. With Freddie Mac refusing to buy mortgage loans that did not have HVCC-compliant appraisals, the home appraisal industry restructured, and appraisal management companies largely took over the business.
In a quest for objectivity, appraisers were now directed outside of their usual territories and were kept at arms-length from lenders. With appraisal management companies controlling dispatch and taking a cut from each appraisal fee, pay sales for professional appraisers plummeted. At the same time, the process of completing a single appraisal became cumbersome and labor-intensive.
Naturally, many seasoned appraisers threw in the towel. Others have retired; the average age of an appraiser is 53.
The barrier to entry to become a professional home appraiser is high. To become licensed, a student appraiser must spend 2,000 hours working alongside an experienced appraiser. To become a certified appraiser, one must spend 2,500 hours spread across two or more years.
The one-two punch of attrition and high barriers to entry means fewer appraisers to help expedite home sales. According to the Appraisal Institute, 2,000 fewer appraisers were in business from 2015-2016. Nationally, there is a shortage of home appraisers, and it is leading to a longer closing process and rising appraisal fees.
While this issue is of most concern to home sellers, home buyers should be aware of it. Buyers should also work closely with their Exclusive Buyer Agent, who will follow the progress of the closing process and communicate any delays or issues. See our prior blog post on appraisals for more information!
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