It has been said many times before that it takes two numbers to make a loan: credit on the borrower and a value on the collateral. This discussion will focus on the second number – collateral.
Appraisers are integral to the lending process in virtually all mortgage loans; they are the source of the collateral value lenders use to make underwriting decisions about the quality of the collateral, the ability to repay and more. There has been much written regarding a current appraiser shortage; that’s partly due to the fact that low rates and a strong economy led to high loan volume this past year, which, in turn, led to a high demand for appraisals. High demand and a limited supply side of appraisers equaled long wait times in some areas – many weeks, in some cases. This impacted rate locks, lender workflow and the overall consumer experience. The challenge to increase the supply side with new qualified appraisers has placed the current requirements for education, experience and the licensing processes at the forefront of industry discussions.
Rather than rehashing the past, let’s instead seek to address why this matters going forward.
There is much discussion these days on how much education is required to become an appraiser. Many feel the current requirements to become an appraiser are out of alignment with the activities required in an appraisal assignment. As evidenced by the lack of new entrants to the profession during the past five years, there aren’t many people choosing to become appraisers. In a recent survey conducted as part of a state of the industry article by Appraisal Buzz, 20 out of 24 states responding in the survey reported a significant decline in the number of trainees. The Appraisers Qualifications Board, the group that sets the minimum qualifications states must follow in granting licenses to appraisers, is currently proposing new rules and methods for allowing aspiring appraisers to get the education and experience they need to become licensed.
Today, to become a certified residential appraiser, one needs 200 classroom hours, a bachelor’s degree and 2,500 hours of appraising experience under the supervision of a licensed appraiser. The current proposed qualifications would change the education requirements to an associate’s degree, taking 21 hours of classroom time in certain subjects or taking CLEP exams on certain subjects, and completing 1,500 hours of appraising experience, within no specified time frame. Keep in mind, however, these are just proposed changes and have not yet been approved.
This approach may help attract new entrants to the profession; however, this is only one area where education is at play because appraisers must still gain the hours of experience needed to qualify.
The education and experience process hasn’t changed fundamentally since the Financial Institutions Reform, Recovery and Enforcement Act of 1989, which was the beginning of appraiser licensing. Today, many believe we need to take appraiser education to a new level, both in the pre-licensing and continuing education stages, and we do see efforts to do so. To help aspiring appraisers gain experience, ideas such as allowing the use of virtual reality to help appraisers gain the experience needed should be considered. This potential new kind of education and training is a good example of progressive and practical thinking for the industry.
As the lending environment continues to change with technology, interest rates, new regulations and so forth, the appraisal industry needs to evolve, as well. One thing we have learned since 2007 is that the patterns of the past are no longer reliable for indicating patterns of the future. Technology is beginning to permeate everything and will fundamentally change how appraisers operate and what they are asked to do in the next 10 years. Appraiser education will need to address these new patterns and new expectations of lenders. Relevant education, in both subject matter and type, will be key in helping appraisers contextually understand how these new tools, processes and technologies deployed by lenders and the secondary market fit together.
New technologies will most certainly “disrupt” the current valuation processes in the coming years. Some of the future thinking includes the use of drones for inspection of the exterior, neighborhoods and comparable sales. Video recording tools may allow an appraiser in a remote location to take a virtual walk through a home. Ubiquitous data allows technology tools to assist an appraiser in understanding market data and neighborhood trends with regression analysis and other similar tools in ways previously unavailable to the masses. These tools alone don’t hold the answer to modernizing the appraisal industry, but likely a combination of the aforementioned potential technologies, along with yet-to-be-identified tools and processes, could. What is of paramount importance is ensuring there is an education process to help appraisers properly use these technologies as expected by their lender clients in order to keep up with the changing market.
These trends may naturally lead an appraiser to a role that is different from today, focused more on the analysis of data and the rendering of a value opinion than on the data collection process. Education will play a key part in whatever direction the industry trends. To protect the interests of the lenders and the consumer, appraisers will continue to play a key role in both the current process and (yet-to-be-determined) new processes. They will need the right type of education on how to use these tools and, more specifically, how they are used inside of the mortgage lending process.
Many leading lenders and valuation service providers are beginning to address this need for education by integrating directly with service providers that work with them. This education focuses not only on the minimum requirements to get an appraisal to pass an underwriting review, but also on providing a more comprehensive education. Lenders, appraisal management companies (AMCs) and others in the valuation production chain are well positioned to improve education. These companies, both lenders and valuation service providers, believe that any costs invested in educating appraisers are more than recouped in service, quality, and utilization of new tools and processes. Our firm, for example, has invested heavily in the valuation industry by acquiring, and merging, two leading AMCs with hundreds of staff appraisers in key areas of the entire U.S., as well as acquiring a leading provider of collateral valuation technology platforms and valuation analytics. We also acquired The Columbia Institute, a long-established provider of appraiser education, to create the vital component of staff and panel appraiser education in its new business model.
Our firm believes this will ultimately deliver to lenders higher-quality valuation products, better customer service, and higher utilization of new tools and technologies. We are committed to developing the ability to modernize, transform and accelerate the valuation space and, perhaps most importantly, to creating a route for new appraisers to enter the market with the highest-quality education and a clear path to needed experience.
Lenders hold the appraisal function to high standards and expect professional, innovative and educated service providers. Choosing providers that value education, especially a new and innovative curriculum, is a terrific way to ensure a better valuation product with enhanced service standards and with less uncertainty.
Shawn Telford is vice president of product management and development for CoreLogic. He can be reached at firstname.lastname@example.org.