Gaining Perspective On Our Profession
by Mike Armentrout
I hold no particular pedigree or credential to speak for
everyone in the real estate appraisal profession. All I can do is draw from
nearly 26 years of being a part of it. In that time, I have heard almost every
opinion on every issue that promises to be the next big challenge for our
industry.
It’s true that like everything, change is inevitable. We
adapt to new technologies and practices as well as learn new skill sets. From
FIRREA to Dodd-Frank, appraisers have continued to evolve when swift moving
currents require them to alter their course.
In the wake of the financial collapse, we had major impacts
on what we do. A precipitous and prolonged drop in work volume resulted in a
significant migration out of the industry and sped up retirements for others. For
those of us that remained, we were left with a regulatory framework that now
defined who our clients were supposed to be. The net result was the proliferation
of appraisal management companies. While the use of AMCs is not directly
mandated, we now compete for the same space in the market.
In large part, this happened because we appraisers
perpetuated the notion that we were being pressured for value from loan
origination. In doing so, we may have been accepting guilt as a profession
for mass mortgage fraud and the subsequent financial meltdown.
There is however a major problem I see with this. It assumes
that a majority of our industry caved to pressure and produced erroneous reports
to allow an artificial real estate bubble. I’m not sure we have any clear data
to support this but if it were true, then the real indictment would be industry
wide incompetency and absence of ethics; not pressure. I don’t think any
appraiser could make a case that pressure did not exist but assuming that it
automatically results in bad appraisals ignores several factors.
When I have this discussion with colleagues, I always ask if
they think that pressure has been contained as a result of new regulation. The
answer is almost always “no”. In many cases, pressure that used to be overt has
now become covert. The convoluted process just veils the pressure but in no way
eliminates it.
By nature of what we do, pressure can never be removed from
appraisers. Almost everyone who engages our services has a goal or expected
outcome. If it’s not value, then it’s pressure to ignore adverse conditions or
provide extensive stipulations. Whether it is a lender, AMC, homeowner, seller,
buyer, realtor, contractor, builder or attorney, all want to accomplish
something.
If I complete a report for a third party AMC and the final
value estimate is significantly short of the purchase price, it’s a pretty safe
bet that the deal will die and several parties will be upset with me. In
theory, I could lose that client even though no correspondence was ever had
regarding value. That’s still pressure. It simply can’t be done away with. Some
of the most heated appraisal disputes I have ever battled involved private
parties who engaged me just to “have an idea” of what their property was worth.
By not appeasing them, I jeopardize word of mouth business as well as my
perceived reputation to new potential clients.
As a profession, we need to understand the nature of what we
do. Unfortunately, we are in business where the goal is not always customer
satisfaction. We provide products and services under the umbrella of unbiased
outcome which does not always assure a happy end user. Just as a CPA cannot
promise a low tax burden for a client, an appraiser cannot attain a
predetermined value. In either case, both would have to misrepresent or commit
fraud to comply which would then place them in violation of law, policy, and professional
standards.
When an appraiser does produce erroneous reports either by a
lack of competency or by intent, there is a system of checks and balances. This
could be, but is not limited to lender approval, fines, license suspension,
license revocation, civil lawsuits and even criminal charges. Each of these
have consequences based on the severity of offense that can result in anything
from a damaged reputation to limiting one’s ability to complete appraisals and
even all the way to jail time. These safeguards comprise what we call
liability.
It is our liability that serves as the most effective tool
in maintaining quality, expertise and high standards and promoting the public
trust. Liability is in fact, the appraiser’s best asset and very well may be
what provides our longevity in the marketplace.
In the age of big data, the future of the profession is
often discussed. Most appraisers can more than adequately argue the
shortcomings of AVM products but we must ask ourselves why lenders still opt
for appraisals when a valuation product is available instantly at a fraction of
the full appraisal fee. The answer of course is risk exposure. A low
loan-to-value ratio allows them more latitude. Let’s remember that before the
financial crash, there was an ever increasing reliance on these products as
well as no appraisals at all.
The first thing a potential new lender client wants is a
copy of our E&O policy and license. They rarely inquire about our
experience or competency within a given market. The primary reason
they still utilize traditional appraisals is to mitigate risk on higher LTV
loans. This also means they have the option to sue upon a takeback and can recoup
some of their losses. From their perspective, both AVMs and appraisals offer
estimates of value. What separates us is that we have liability
and AVMs do not.
Liability not only serves as a deterrent for
mass malpractice in our profession. It is also our best asset in preserving our
livelihood. This is why we should embrace it.
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