From my friends at TheTBWSgroup – Housing demand is rising rapidly, but a key cog in the wheel to homeownership is in deep trouble. The people most needed to close the deal are disappearing. Appraisers, the men and women who value homes and whom mortgage lenders depend upon, are shrinking in numbers.
That is causing growing delays in closings, costing buyers and sellers money and in some cases even scuttling deals. The share of on-time closings has dropped from 77 percent last April to 64 percent today for loans backed by Fannie Mae and Freddie Mac, according to Campbell/Inside Mortgage Finance. Appraisal-related issues in these delays jumped by 50 percent in that time.
“The appraisal shortage is massive. You’re seeing significant delays, you’re seeing cost increases, you’re seeing rate [locks] expire,” said Brian Coester, CEO of Rockville, Maryland-based CoesterVMS, a national appraisal management company.
Since 2007, when the U.S. housing market came crashing down, the number of appraisers has shrunk by 22 percent, according to the Appraisal Institute, an industry association. With so few new cadets, the current population of appraisers is aging. More than 60 percent are over the age of 50.
Ironically, the decline in new appraisers is largely due to new regulations designed to safeguard both banks and borrowers. They were put in place at the end of 2008 by Fannie Mae, Freddie Mac and the FHA, as the entire mortgage banking community was under strict scrutiny after the financial crisis. They changed the rules that would allow appraiser apprentices to do full appraisals and instead require the licensed appraiser to be on-site for the inspection.
The result is that appraisers no longer see a need to pay apprentices, but at the same time, licensing requirements to become an appraiser include 2,500 hours of appraisal experience to be completed in two years as an apprentice. “The typical appraiser, he’s going to do approximately 10-15 appraisals a week. For him to be able to take a trainee, he needs the ability for the trainee to go ahead and inspect the property for him,” said Coester. “The rules have changed now, and you cannot do what you used to be able to do 10 years ago, which is hire three to four trainees and really have them go and inspect the properties, go and do work for you and really function as an apprentice. That market has been completely eliminated.”