As an AMC, we spend a lot of time talking and thinking about the responsibility of appraisers in the housing market and the vital role they play. We’re so grateful for the many incredible appraisers we work with daily and are always looking for ways to help our appraisers be more efficient and generally better than the competition.
So, without further ado, let’s dive into what we see as the responsibility of appraisers and highlight some pieces of the very important work they do.
One of the most important things an appraiser needs to understand is the timelines associated with the contract (it’s also important for the agent, mortgage broker, lender, and AMC to clearly communicate this important information). Most appraisers are wonderful about delivering reports by the date they promise. They know that missing a lock extension date can cost the borrower thousands in extension fees, and missing an appraisal contingency date can put the buyer’s home purchase in jeopardy. If the buyer loses earnest money and/or the house, nobody is going to be happy with the outcome.
That’s why it’s key for appraisers to take deadlines seriously and get a quality report in on time, as contracted. This means that appraisers need to carefully consider their workloads. Even one day late can make a big difference to a borrower, and our panel of appraisers is very cognizant of that.
Calculate a Home’s Proper Value
Obviously, appraisers are responsible for calculating the proper value of a home. But did you know that it is illegal for anyone to attempt to influence the value that an appraiser puts on a report? Appraisers are not allowed to rely on the approval of any party—not the AMC, the client, or the lender. They have complete and total independence. It’s part of what makes the system so wonderful, and it also protects the economy.
The appraised value is determined by an independent, qualified professional who gains no benefit from producing an inflated value. This is also why it’s incumbent on appraisers not to “undervalue” properties. An unfortunate error that some appraisers have made in this wild market is not properly evaluating and analyzing purchase contracts when disclosing data on their valuation determination.
USPAP Standards Rule 1-5 states that the value opinion “must analyze all agreements of sale, options, and listings of the subject property…” This is one of the most overlooked aspects in appraisal assignments performed on purchases today. The word “analyze,” as defined by Merriam-Webster dictionary, is “to study or determine the nature and relationship of the parts of something….” And “to study or examine something carefully in a methodical way.”
Let’s say a home is listed for $450,000, quickly escalates to $475,000, and the appraiser values the property at $425,000 based on the selected comparable sales. The appraiser is required to provide a reasonable explanation for how this is possible. It is not sufficient to simply state that this is what the comparable sales indicate. What must accompany that decision is the “analysis” of the offering data, and corresponding market data, that supports this conclusion. In other words, explain how this happened. Why did the property sell for more than list price, with multiple offers, when it is worth so much less? How does this dynamic affect your reliance on other sales in the marketplace? Were your comparable sales purchased above market value, and have you compensated for that in your evaluation and analysis of those sales? Some appraisers are violating USPAP requirements by not thoroughly providing reasoning and explanation for their value conclusions.
The reality is that those appraisers cannot provide a credible explanation because they are undervaluing the subject property in the first place. Rather than adequately taking a “big picture” view of the marketplace and finding the data that supports the actual market dynamics, some appraisers are taking the path of least resistance and doing a disservice to the report, our economy, and their fellow professional appraisers.
There’s been a lot of talk about bias when it comes to home appraisals. This is a sensitive subject, and the media has been misleading in their reporting of these instances of bias. In fact, less than 1 in 10,000 reports have even been considered as potentially biased—but those extreme example reports (less than one-tenth of one percent) affected 100% of those family’s lives and are 100% unacceptable.
The truth is that when done correctly, the appraised value isn’t based on the people who live in the house or the photos on the walls. Appraisals are based solely on factors like home condition, location, and past sales. An overwhelmingly vast majority of appraisers don’t let race, age, gender, or religion play any part in a quality appraisal report, nor should they. Any appraiser that does take any of those factors into consideration should be held immediately accountable.
Bring More Appraisers into the Industry
We just wrote an entire article about the aging appraisal industry and how we can recruit more appraisers. It’s true—appraisers are getting older and are retiring, and there aren’t enough new appraisers entering the industry to fill that gap. At the same time, appraisers continue to be in higher and higher demand as the housing market continues to boom. It’s a recipe for longer turn times and increased appraiser stress levels. While the mortgage process continues to get faster, the appraisal process seems to be slowing down, thus holding up America’s immediate gratification approach, and (unfortunately) it’s a justification for more appraisal waivers.
One thing that we can do to help? Appraisers can be ambassadors of the industry and recruit new generations of trainee appraisers. Without appraisers who are willing to train, trainees don’t have a chance to enter the profession. If an appraiser brings on trainees, those new appraisers can increase efficiency and potentially help complete more reports. However, appraisers are currently limited to only apprenticing three trainees at a time, which is not economically rewarding. If we allow current appraisers to apprentice more trainees, it would allow more appraisers to enter the market AND better reward experienced appraisers. We need to better incentivize appraisers who have the desire to be ambassadors for the appraisal profession.
Staying Involved in the Appraisal Process Even with New Technology
There’s a lot of concern with the word “technology” when it comes to appraisers. When we talk about improving the appraisal process with new technology, people seem to immediately think that we’re talking about replacing the appraiser with that technology. Nothing could be further from the truth! We want to help make appraisers more efficient with technology. A more efficient appraisal process would justify a reduction in the number of appraisal waivers that are issued (the appraiser is completely removed from the valuation process when an appraisal waiver is issued, which is demeaning to appraisers and dangerous for our economy).
Technology can increase the importance of the appraiser’s job. Bringing new technology to the appraisal process will require making the appraiser the star of the show. Technology needs to enhance the appraiser’s role while making the process faster and more efficient. We believe that no matter what, the appraiser has to have a visual inspection of the home and must be at the center of the valuation process. Appraisers need to understand that technology can help them. When appraisers are more willing to try new practices, new processes, and new technologies, the appraisal industry will finally have a chance to catch up to the 21st-century technology that the mortgage industry now relies on.
Responsibility to be Professional
As a third-party contractor for the AMC, the appraiser has a responsibility to always stay professional when dealing with the borrower. This includes being kind when communicating before, during, and after the inspection, but it also includes double-checking all the details on the report—that the borrower’s name is correct, the property of the address is correct, spelling and grammar mistakes are eliminated, deadlines will be met, etc. It also means that when an appraiser states that they will deliver a report by such-and-such a date, that they remain steadfast on that delivery date. Sometimes borrowers, brokers, agents, or life in general can cause delays, and only when the appraiser immediately communicates these delays can the AMC properly take action to rectify the situation.
Many appraisers feel overwhelmed with so much potential business, so it’s more important than ever for us to overcommunicate, and turn in quality reports on time, every time. This is why appraisal management companies like Kairos Appraisal Services have hired such a friendly team to support appraisers and continue to reward appraisers for consistently delivering quality reports early.
We’d like to conclude by giving a shoutout to the thousands of appraisers we work with who do such a wonderful job of carrying out all the responsibilities mentioned. We’re grateful to work with you and are constantly advocating to empower you. The industry is under scrutiny now more than ever, and it is our combined efforts that will positively contribute to the future of the appraisal profession.