New Tech, Old Attitudes Bring Appraisers To Brink Of Existential Crisis
Appraisers are at an inflection point.
The issues pressuring the industry are decades in the making: an easing of mortgage borrower policies, a lack of recruiting into the profession and, perhaps most importantly, rapidly changing technology. Appraisers, however, have largely operated the same way for decades.
“Appraisal education, standards, habits, client expectations and government regulations still enforce the old way of doing things,” said George Dell, an appraiser and valuations educator. “I call those the five frictions holding back the appraisal profession.”
Appraisers touch every real estate transaction, from sales to refinancings and property tax assessments. The third-party professionals review properties, internally and externally, and pair that with market conditions to put together comprehensive reports. Their judgment determines value, marketability and return on investment.
In a way, appraisers contribute to greater market activity as much as they are impacted by it. Yet, on the cusp of nearly $1T of outstanding commercial mortgages reaching maturity by the end of the year, the industry fears obsolescence.
The associations and regulators with oversight of the industry haven't been helpful in bringing it into the digital age, said valuation professionals from across the country that Bisnow spoke to for this story. Instead, they have been burdened with their own troubles, including litigation and allegations of dysfunction and corruption.
“Everybody's trying to solve the appraisal problem but the appraisers,” said Thaddaus Dawson, a licensed appraiser based in Atlanta and the founder of 10KBA, an organization that aims to bring more young, diverse appraisers into the profession.
‘Box Checkers’
The appraisal profession is particularly sensitive to macroeconomic shifts. When borrowing and lending stall due to changes in interest rates, tariffs or any of the other uncertainties that have surfaced over the past five years, there can be large fluctuations in the number of assignments available for appraisers.
The number of appraisal jobs awarded skyrocketed in 2021 as interest rates hit record lows and transaction volumes hit record highs, before falling once the Federal Reserve switched its monetary policy.
Activity has slowly ticked up over the past six months, with Lightbox registering approximately 18,000 CRE jobs on its platforms in the second quarter, up 7% year-over-year.
The job board doesn't account for assignments that appraisers land through direct relationships, which is a large portion of the business. However, the number of jobs is below the roughly 19,000 appraisers registered to do commercial work, according to MtgeFi.
Meanwhile, new competitors have emerged in the space, allowing lenders and investors to rely less on the traditional appraisal process.
For internal decisions, like whether to buy or build at a site, developers more commonly opt to use automated valuation models or other algorithms, tap advisory firms or seek broker price opinions.
While an appraiser’s signoff is still required for the majority of loans and other formal transactions, an EY survey found that the valuation process has become more collaborative — and less reliant on licensed appraisers.
The 2024 poll of real estate firms found that less than a quarter used external appraisers to value properties. Appraisal management firms, which assign projects to appraisers and take a cut of the fees, were used 31% of the time. In-house valuation teams were tapped by 46% of respondents, while 38% relied on their portfolio management teams.
EY said that relying on internal valuation teams, which “are often stretched thin,” and asset management roles raises questions about objectivity.
“The quality and accuracy of valuations may suffer, undermining investor confidence and decision-making,” EY's report found.
Dodging appraisers has become more possible on the residential side, where lenders can sometimes allow borrowers to skip the traditional, in-person process entirely. Among those that have increased usage of alternative models is Fannie Mae, which expanded the eligibility for appraisal waivers at the start of this year.
Matt Simmons, former chairman of the Florida Real Estate Appraisal Board and managing partner at Maxwell, Hendry & Simmons, said there has been a “misalignment” between appraisers and their customers.
When real estate buyers and lenders have sought to improve antiquated parts of the system, appraisers have viewed it as being pushed out of the business.
“There are scenarios where, as a matter of policy, I frankly don’t see why a full traditional appraisal would be appropriate or necessary,” Simmons said. “I sell valuation services for a living. I’m not trying to ever scare work away, but you have to be reasonable about what our role is in the process and where we're really needed and why.”
Alternatives have risen in popularity as pressure has increased to speed up the process. The average appraisal turnaround time in the second quarter was 14.1 days, 0.3 days faster than a year ago, despite job volume increasing, according to Lightbox.
On the residential side, the National Association of Realtors found that the median wait time for an appraisal report dropped from 14 days in 2022 to 11 days in 2023.
“They are laser-focused on the assignment. Appraisers don't really have the luxury of interacting with everyone else,” said Duane Burress, a land and air rights valuations specialist who provides internal research to real estate firms. “The things that you have to dig into, appraisers, they don't have time.”
A 2017 analysis by Simmons shows that jobs were dwindling even prior to the pandemic. Including the residential sector, there were nearly 97,000 certified appraisers and approximately 8.6 million originated mortgages in 2016 — a decline from the 120,000 appraisers and 17.6 million loans during the early 2000s peak, prior to the Global Financial Crisis.
Simmons believes that many lengthy and manual duties, like property visits, can be “eliminated, automated or delegated to somebody else in the chain who will do it for less money.”
Instead, the profession should focus on market and data analysis.
“Appraisers have not been trained as well as they need to for those things. It’s just a bunch of education about [Federal Housing Administration] standards,” Simmons said. “We have created a lot of box checkers.”
Old Dog, New Tricks
To enter the appraisal industry, apprentices must find a mentor willing to take them on for more than 1,000 hours of training to qualify for the most basic industry credential — a difficult task given that small businesses make up so much of the industry. The majority of student work is not accepted by lenders, and neither mentor nor mentee is paid for the training.
Simmons said that leadership organizations often encourage appraisers to take on mentees to “give back to the industry.”
“Is the argument for fixing the appraiser shortage altruism?” Simmons said. “That's a goofy argument, and you guys literally could fix this.”
Dell, who teaches classes through his Valuemetrics Appraiser Education program, is among those providing more advanced training. His workshops revolve around statistics and data science.
He said that beyond evolving the job, requiring such training could also solve some of the problems facing the industry's leadership organizations.
In lawsuits and investigations, residential appraisers across the country have been accused of racial bias in how they value the homes of Black families. Approximately 77% of appraisers identify as white, according to data from the Appraisal Institute. Just 2% are Black.
Increasing requirements for data science learning and usage could make appraisers less vulnerable to such accusations, Dell said.
“Picking comps is subjective. It's what some providers call the ‘Trust Me Approach,’” Dell said, noting that most firms refuse to share data and algorithms with each other. “‘Trust me, I know a good comp when I see one.’ But how do you pick that? ‘Oh, no, trust me, I've been doing this for 22 years. I know what I'm doing.’”
Collecting and using larger sets of data, including through the use of algorithms and formulas, is more reliable, he said.
But teaching such concepts to appraisers, the majority of whom are close to retirement, can be difficult. The median appraiser is 60 years old, and 80% are over 50, according to the National Association of Realtors. Dell said that younger students tend to grasp the material more quickly.
Throughout their careers, veteran appraisers have taken hundreds of hours of mandated continued education. But professionals have admitted that they often seek to satisfy the requirement, rather than pursue something rigorous.
“Critical thinking is dead, and that's what's needed to be able to advance the profession,” Dawson said. “Everybody's upset because they feel like [artificial intelligence] is going to take their place. Well, it is.”
That’s why his 10KBA program focuses on attracting younger people, who are less resistant to change, into the profession.
“These old folks are about to be passing on,” Dawson said. “There's nobody coming to take their place, because they've had such a stranglehold and have created such barriers to entry that now it's a workforce development issue.”
To address the generation gap, the Appraisal Institute launched the Practical Applications of Real Estate Appraisal program in March 2023 to connect students and mentors virtually. It also provides scholarships for participants.
The program was part of a settlement between the U.S. Department of Housing and Urban Development and The Appraisal Foundation, a quasi-governmental entity responsible for setting standards for the profession, to resolve an investigation into alleged discriminatory barriers that prevent people of color from entering the industry.
As of September, PAREA has graduated 51 students and has another 194 in the pipeline, according to the institute. While PAREA certifies residential appraisers, additional experience is required to value commercial real estate, which the Institute does not yet offer.
Passing The Torch
While the Appraisal Institute, which provides licensing classes to appraisers, is making attempts to get more people into the profession, it has also been preoccupied with allegations that threaten its standing in the industry.
Most recently, a lawsuit revealed that the head of the Appraisal Institute’s program that designates specialty credentials has not held an appraisal license since 2018.
It is the second formal complaint filed against the Appraisal Institute alleging deficiencies in its testing and review processes. Months prior, a former executive filed a lawsuit alleging that the organization has been misreporting test results for mandatory continuing education to state regulators. If true, the accusations would mean that the institute has passed students who should have failed and vice versa.
The complaints were filed two months before The New York Times published an investigation into claims of sexual harassment and a related cover-up among executives at the Appraisal Institute. The accusations were the basis of a lawsuit brought by former CEO Cindy Chance, which has since been settled.
Allegations of wrongdoings stretch beyond the group. The government agency overseeing the appraisal system, the Appraisal Subcommittee, has been riven with internal turmoil, to the point that a bipartisan pair of senators requested an investigation. That resulted in the ousting of the subcommittee's acting director.
Both have the potential to shake the industry’s structure, but those on the ground are concentrated on their own survival, according to Valusight Consulting Principal John Russell, who works with small businesses and local groups.
He was previously involved in the passage of federal appraisal legislation and has served in various roles at The Appraisal Foundation.
“The human cry that does exist, I don't think is coming from a large universe of individuals,” Russell said. “Most people, because they are focused on the individual assignments and the individual clients, they really aren't affected by a lot of the top-line drivers that moved the conversation nationally.
“Maybe that’s for better or worse.”
To combat the issues, Russell said focusing on the next generation is key. Young professionals have to be encouraged to step into leadership roles to reshape archaic parts of the system that no longer serve the industry. Most of those roles — from state licensing bodies to TAF’s board of trustees — are volunteer positions.
“We've got great servants who continue to serve, but they've been doing it for a very long period of time. We're not getting those new perspectives, and the available universe of individuals wanting to serve gets smaller,” Russell said. “That's where we could run into some challenges.”
