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Residential Department: Q&A: James L. Murrett, Appraisal Institute: May 2018

 

Q&A: James L. Murrett, Appraisal Institute

The value of appraisals is worth paying for

Housing demand has been rising for years, which has driven residential real estate prices across the nation to near (or above) pre-crisis levels. Another side effect of this demand has been an increase in demand for appraisals.

Unfortunately, a shrinking appraiser community, along with new regulations and fee issues, has resulted in a shortage of appraisers in some areas. This means appraisals are taking longer and, in some instances, the quality is slipping, which can be an issue when it comes to financial risk management. We spoke with James L. Murrett, the 2018 president of the Appraisal Institute, about the problems facing appraisers today.

What is the most pressing issue facing the residential-appraisal industry today?

The number one thing we hear about most — and I don’t know that it’s as critical as people think it is — is an appraiser shortage. … Smaller community banks are concerned with the lack of appraisers in rural areas. … In some instances, I think that is very legitimate. However, I think the institution has to look at who they are looking to do it and what they are willing to pay.

That said, there is an appraiser shortage in some areas, and there are reasons for it. We are losing appraisers. There is about a 23 percent decline in the number of appraisers since 2007. Certainly, it’s due to retirements, but a big concern is fewer people entering the profession.

Why is that and what can be done about it?

It’s economically not as attractive on the residential side because of the AMCs [appraisal management companies] that are coming into play and the clients have a set fee for what they’re willing to pay. That makes it very difficult for appraisers to make it economically viable to be a residential appraiser starting out on their own.

We have state laws that say you must be licensed … but then they say you can’t get your license until you have at least — in the residential world for a general [license] 12 months [of experience] and then for the licensed [certified] residential, it’s 24 months. … Then you say you also have to go back to school and take another 1,500 hours of classroom [lessons] and, if you can find a job as a trainee, you might get paid $30,000 or $40,000 a year.

It’s the Appraisal Institute’s contention that licensing and certification are the minimum requirements. Why are we saying to potential appraisers that you need two to three years of experience before you meet the minimum requirements? … Once an attorney passes the bar exam, what are they? They’re an attorney. Once a CPA passes the CPA exam, they’re a CPA. … I think the pendulum has swung too far to the one side.

What is your view on the role of appraisal management companies (AMCs)?

From the Appraisal Institute’s perspective, there are some very good AMCs, and there are not so very good AMCs. … One of the biggest problems we see is that many AMCs take a significant percentage of the appraisal fee as their management fee. So, it might be a $600 appraisal fee shown on the closing statement, but in reality, the appraiser gets maybe $200. So, many appraisers now are doing the same or more work for less money.

And even though Dodd-Frank calls for customary and reasonable fees to be paid to appraisers, this goal has proven to be, at best, inconsistently applied. The lender’s closing documents do not indicate the split between the appraisal fee and the management fee, so consumers think they are paying the appraiser much more than the appraiser actually receives.

What can be done to fix this issue?

AMCs are now subject to a lot of state oversight, but it’s only as good as the structure in place. … I think one of the prudent things would be on closing statements to break out the appraisal fee from the management fee. All of sudden, AMCs can’t hide behind “quick and cheap” as much. … I think once Fannie and Freddie have their rules in place where they really do honestly want to look at the quality of the appraisal and the human involvement versus the waivers of appraisals, that is going to enhance the quality of the portfolio of the institution from a risk-mitigation standpoint.

What do residential mortgage originators need to know about the appraisal process?

It’s not as cumbersome as one might want to think. The appraiser and the appraisal are value-added to the process. My banking background has taught me that the appraisal is just one spoke in the wheel of the underwriting process, but it is an important part of it. What I would recommend to [originators] is don’t short-circuit the process of ordering an appraisal. You get what you pay for. … So, don’t always look for the quickest and the cheapest appraiser. Look for the best appraiser.

James L. Murrett is the 2018 president of the Appraisal Institute. Murrett, who holds the institute’s MAI and SRA designations, has served on the Appraisal Institute’s national board of directors and strategic planning committee and as chair of the finance committee. In addition, he has served in many chapter roles, including as president of the Upstate New York Chapter of the Appraisal Institute. Since 2009, Murrett also has been the executive managing director of compliance and quality assurance at Colliers International Valuation & Advisory Services, where he is responsible for the general oversight of appraisal quality.


 

Will McDermott is managing editor for Ask a Lender. Reach him at willm@scotsmanguide.com or (800) 297-6061.

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