The Appraisal Paradox

Take a trip with me back in time.  A time where appraisers were able to just slowly cruise by a house and submit a value.  A time when borrowers walked in and said, "I earned $500k last year as a retail manager, so sell me that mansion" and no one would question it.  A time when values were skyrocketing so fast that fear led the buyer to make decisions so they could get a lower price on the house, because a week later it would cost $50k more.... all of this when Ken Perry was just in the first few years of what would become The Knowledge Coop! 

Okay, those are maybe a little outlandish memories, but they seem to be the premise for the world we find ourselves in today.  I began my mortgage journey by licensing in Oregon April 27, 2007 and reporting for work April 30th as a Licensed Loan Originator in the State of Oregon.  I think it wasn't more than an hour into my official work when an Account Exec walks buy and poked his head in.  The conversation went something like: 

"Hey, you're new!  How are you? How long in the business?"
"Just licensed Friday and I'm starting today," I replied proudly. 
"Oh, great.  Hey I'm with (XXXXX) and just a heads up if you hear about these SISA or NINA loans, we don't do those any more.  Fresh news this morning." And he waived goodbye. My journey began as the bubble popped.  But this isn't about that story, instead I want to remind you of some of the first people who were pointed at and blamed for the crisis of skyrocketing values and inflated equity: The Appraisers.  

Remember how quickly they were immediately maligned by underwriters questioning EVERYTHING that the appraiser submitted?  How quicly the comp requirements jumped from 4 to 7 to 10 and the diameter of the range of comparables shrank just as fast?  But appraisers don't make headlines becuase...who are they exactly?  

A few years later articles were popping up about how it wasn't the banks to blame for the high home

prices or the "inflated value" but it was the appraisers.  You can still find some of the articles if you Google it.  Or try these oldies: Blame the Appraisers or Realtors: Blame the Appraisers and even Change in Appraisals Causing Uproar.  Just as quickly as the crash hit the need for appraisers started dwindling because the markets seized up.  Who would want to join an industry, go through all the schooling and licensing, only to become Public Enemy #1. 

So now we are faced with a backlog of appraisal orders which is being fulfilled by a much maligned group of businesses who were the first to blame in 2007 and 2008.  Not only are we facing a shortgage or inventory around the nation, but the people who are desperately needed to fulfill a huge piece of that puzzle are also missing.  

One group that we like to watch for interesting updates about the Real Estate world is the The REsource.tv guys.  Here is a video they updated recently and some really interesting perspective on this whole situation.  Full site is: http://www.theresource.tv/archives/appraisal-nightmares-no-end-sight/

Makes for some interesting dialogue in the office doesn't it?  

Frankly, we don't have an answer to this either.  But before you lose your cool with the appraiser remember where they are coming from too.  And set proper expectation with your borrowers for the process.  It takes time and will require patience from everyone.  

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Until next time...