Today’s consumers expect mortgage originators and lenders to deliver. They are mobile, information savvy and accustomed to digital transactions in many other areas of their lives. They want the same experience when buying a home.
The record mortgage sales volumes of 2020, along with challenges related to the COVID-19 pandemic, have increased delays in one critical component of the mortgage process: the home appraisal. In many parts of the country, appraisal turnaround times and costs have risen, exacerbated by the fact that there are fewer appraisers today than there were 10 years ago.
In 2019, the Appraisal Institute stated there were 78,015 real estate appraisers working in the U.S., a number that was down more than 20% from 2007 and down 5% compared to 2017. The California Bureau of Real Estate Appraisers noted last year that the number of active appraisers in the state dropped below 10,000 — a decrease of more than 50% from 2007 and the lowest number since recordkeeping began in 1993. Appraiser availability is predicted to tighten even more over the next few years as the number of new appraisers entering this profession sorely lags behind the number nearing retirement. Exacerbating this trend is the unfortunate fact that many lenders do not allow trainee appraisers to inspect properties.
Given this, it’s unsurprising that turn times and fees have increased, to the consternation of originators, lenders, borrowers and real estate agents. Thankfully, the appraisal industry has recognized this, and there are initiatives under development to further streamline the appraisal process through technology while making it easier to become an appraiser. In the meantime, what can a lender do today to mitigate the challenges of high demand and a strained appraiser pool?
Appraisal management companies also focus on next-generation innovations, such as mobile inspections, that will help reduce costs and extend appraiser availability.
Demanding profession
Many mortgage originators complain about how appraisers are dragging out the process and taking too long to complete it. There may be a misunderstanding of the way that appraisers operate. Much of the appraisal business in the U.S. is handled by appraisal management companies, often called AMCs, on behalf of lenders. The reasons for this are good ones that have to do with compliance, cost reduction and efficiency.
Many originators, however, are unaware that AMCs take an average of three to five weeks to pay an appraiser for a completed report. Because appraisers are independent contractors, corporate pay cycles for them are not consistent, like they are for full- or part-time employees.
Don’t forget that appraisers are business owners. In addition to trying to complete an overwhelming number of reports, they have to devote precious time and resources chasing down appraisal management companies that pay slowly. Some appraisers have reported turning down business requests so they can cut down on this burden. Appraisal companies that employ trainee appraisers also feel this pain because they need to be able to pay the bills and stay cash flow positive.
Lenders can improve this situation for appraisers by partnering with companies that consistently pay appraisers in two weeks or less. In current times, when appraisers have more work than they can possibly perform, they are selective about who they will work for, what they are being paid (customary and reasonable fees) and how fast they will work. Lenders and appraisal management companies that pay quickly are usually prioritized by appraisers who have a low tolerance for risk and difficulty. The faster the pay, the better the situation for the appraiser, as they do not have to worry about receivables or devoting time and effort to collecting payments.
Many lenders understand and accept the reality of supply and demand on appraiser pricing. But there are those who still expect fees to be what they were a few years ago. They are failing to realize that both increased business costs as well as high demand are driving up appraiser fees. An appraisal is probably going to cost $100 to $200 more than what it did in the recent past. Lenders would do well to verify these types of changes in the market, coach their loan officers and brokers to be less sensitive to the price of an appraisal, and to prioritize turnaround time and quality.
Effective arrangement
Lenders tend to understand that they cannot make money by managing the appraisal process internally. Therefore, it will always be a cost-neutral task at best. An outsourced model moves the process to a third-party appraisal management company that assumes the base costs of maintaining appraisal management staff, technology investments, service delivery and appraiser network upkeep, appraiser payments, compliance activities and maintenance. The AMC cost is typically paid for by the borrower, freeing up lender resources and funds for operations and customer service.
In addition to shedding a cost center, lenders benefit from not having to scale employee headcount up or down based on volume, which tends to upend internal processes, cause inefficiencies and create needless delays. Moreover, there is a real audit and compliance benefit to having a clear line of separation from the appraisal process.
With respect to technology, AMCs continuously invest in solutions that bring both transparency and efficiency to the process. Automated quality assurance expedites reports to qualified staff appraisers for prerelease review. Appraisal management software makes it faster and easier to identify and assign the right appraiser in the right location. Providing technology tools to appraisers to help them accomplish more work in less time also is key to increasing efficiency. Ordering and management of the appraisal that is integrated into a loan origination system saves both time and processing load.
Appraisal management companies also focus on next-generation innovations, such as mobile inspections, that will help reduce costs and extend appraiser availability. Leveraging this strength positions a lender for the future. Understandably, it doesn’t make sense for lenders to invest in these types of solutions. This is why internal lender appraisal processes tend to lag behind those of professional AMCs. They also are far more manual and costly from an operational perspective.
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There is no question that the remainder of 2021 will be challenging as appraiser availability remains tight due to a hot purchase market and refinance volume that, while slowing, is still strong. There’s no time like the present to rethink the key components of a successful appraisal program — appraiser support and processing efficiency — as part of your lending strategy. ●
