The Appraisal Industry At the Crossroads of Change and Re-invention
By Tony Pistilli
January 21, 2019
Tony Pistilli is Senior Vice President, General Manager of Valuation Services and Chief Appraiser for Computershare Valuation Services LLC, Highlands Ranch, Colo. He oversees the company's valuation business, including Traditional Appraisal, BPO, Inspections, Data and Analytics and Hybrid Appraisal. He has over more than 25 years of real estate appraising and lending experience with national banks, mortgage companies, a federal agency in addition to being self-employed as a fee appraiser. He is an AQB certified USPAP instructor and holds a certified residential appraisers license.
Appraisers and the appraisal industry today are at a crossroads. It's not an exaggeration to say the manner in which we respond to the changes coming in the upcoming years could determine whether our profession will have lasting purpose and significance, or is headed towards irrelevance--and even extinction. For some appraisers, these changes could take place as soon as the next few months.
Every industry goes through a transformational period at some point, whether it's provoked by changes to the profession's culture, economic reform, technical development or the evolving preferences of customers. Each industry's longevity and capacity for success are determined by how they adapt to change.
Before the 1980s, anyone working in automobile repair shops dealt almost entirely with mechanical parts. During that decade, manufacturers began introducing computers into cars. Anyone who refused to learn how to work with new technology risked being replaced. Those mechanics who continue to work on our cars today are those who were open to change and embraced the opportunity to expand their skill sets--and learned to use computers in addition to their wrenches.
The appraisal industry has changed too. Just look at what we did 20, 15 or even just 10 years ago. Imagine still typing an appraisal report on a typewriter, using a glue stick to affix photos and mailing it to clients after making three copies. New technology has not only changed the way we undertake appraisals; most people, I believe, would say it has improved our work. However, much more radical change is coming. How well is our industry prepared for it?
Fannie Mae and Freddie Mac are both currently engaging industry stakeholders to discuss how to reengineer the appraisal form over the next few years to take into consideration the way the profession is changing. We've also seen pilots taking place that are testing the idea of bifurcating the appraisal process, with a real estate agent, another appraiser or someone else doing the inspection, while the main appraiser performs property analysis and develops an opinion of value from a desk miles away.
For appraisers who trained to complete an entire appraisal, this may be a difficult concept to embrace. Some will feel uncomfortable basing their opinion of value on someone else's inspection. Others will insist that public records and MLS photos are no substitute for evaluating homes or visually inspecting comparables in person.
Some appraisers will also argue--incorrectly--that the Uniform Standards of Professional Appraisal Practice (USPAP)--the appraisal industry's widely recognized ethical and performance standards, do not allow this type of appraisal. Rest assured, however, that the methods being tested will most likely become industry policy sooner or later. Our obligation as appraisers if we are to survive is to keep an open mind, welcome these changes and remain experts in our practices as they evolve.
Valuations as a Service: ‘VaaS'
You may be familiar with the term Software as a Service. It's a model by which technology providers allow users to take what they want, when they need it, paying only for what they use, rather than the traditional, one-size-fits-all approach.
Similarly, I believe appraisers need to begin thinking of their valuation businesses as an "on-demand" service of sorts. As appraisers, we are experts in real estate markets and valuation methodologies. What we sometimes fail to understand is that there are many potential users or clients that could benefit from this valuable knowledge. We need to be open to packaging this knowledge into a variety of different delivery methods, not just in a Uniform Residential Appraisal Report. By communicating and marketing our knowledge and expertise in different ways, we can open up new markets.
As part of this change in approach, we need to be open to the idea that we can be responsible for part of the appraisal, not the entire product. Just like SaaS providers, we have to be able to offer services to those who want them. As our clients' preferences change, we need to adapt.
Years ago, dental hygienists began doing much of the work formerly performed by dentists. Similarly, paralegals do much of the legal research and writing for attorneys and nurses perform many routine functions for doctors. When someone else performs a property inspection, allowing the appraiser to contribute his or her professional understanding of real estate markets and valuation methodologies, we can provide clients with a more cost-effective solution that is just as reliable as the services we offer today.
A Continuum of Valuation Services
We've all done the "easy" appraisals in our careers--for example, the three-bedroom rambler in a huge subdivision of three-bedroom ramblers. When the homogeneity of the subject property is combined with a high FICO score and a low LTV, maybe a full 1004 appraisal isn't always necessary?
Just like many of us no longer rely on travel agents for every aspect of our travel needs, an appraiser may not be required to be involved in every financing transaction?
Going forward, appraisers may be asked to perform many different types of services. No longer will it be just a 1004 or 20155 appraisal. Requests may be to only inspect the subject property, maybe review and inspection and data provided by a third party, maybe an appraisal with a very limited format of reporting. Imagine an ala carte, menu of services, each with specific fees based on length of time and amount of expertise. All of this dependent on a variety of factors that make up the entire credit decision.
Working Per Hour, Not Per Appraisal
Over the years, appraisals have become commoditized by the companies that order them, but soon it will no longer be the norm for appraisers perform appraisals for a fee that is constantly challenged and outbid by less experienced appraisers. In the near future, undertaking an appraisal exclusively on a URAR 1004/70 form will become only a portion of our business.
As the "Valuations as a Service" concept takes hold, appraisers will be paid for their services by the hour, not by the product. We will be asked to perform a wide variety of services on the valuation spectrum. Appraisers may be asked only to inspect the property, analyze an inspection with data and analytics, provide an opinion of value, or perform the entire appraisal process. Knowing the value of your time--and therefore how much to charge per hour--will be critical. Appraisers could earn more money per hour in the future than they earn today, but it will require a dramatic shift in their mindset to achieve it. Appraisers will need to ask themselves if they would prefer to spend eight hours doing a URAR 1004/70 for $400, or perform a specific valuation service that may pay them less overall but take up a fraction of the time, enabling them to take on more work--and earn more money.
Become the Local Market Expert
This drastic change may sound frightening to some, but it could also be the biggest opportunity for appraisers in the upcoming years. It will require appraisers to be local market experts. They will need to know more about their own markets than anyone else if they want to be paid for it.
The late Earl Nightingale, who was known as the "Dean of Personal Development," once said, "If you are willing to spend an extra hour each day of study in your chosen field, you will be a national expert in that field in less than five years." Now, maybe an hour a day is too much for some of us, but what about an hour a week? How many of us can honestly say we are the acknowledged expert in our market? How many of us put in the time to become the local expert?
Beyond local knowledge--and our continuing education--we must all also ensure we maintain a high level of understand of USPAP. But how many of us do? When was the last time we read the USPAP Standards, the FAQs or the advisory opinions?
Appraisers need to be an irreplaceable source of local market knowledge and possess an understanding of valuation methodologies that is beyond reproach. This professional expertise is crucial to the future success of the appraisal industry--and the very survival of our profession.
The Crossroads of Change and Reinvention
We all need to be open to change and embrace the opportunity it holds to improve everything about the appraisal industry, or risk becoming less relevant. We need to keep open minds about what we are doing today and how we do things tomorrow. Is it really necessary to do the entire appraisal? Could I not just be the dentist and not the hygienist as well?
We should be looking for ways we can do something better than anyone else rather than keep doing what we've always done. That road has no future. We must not only accept change, but embrace it--and see it as an opportunity to prove our worth. If we are not open to change, there may very well be another way to value real estate in the future--and it might not include appraisers.
(Views expressed in this article do not necessarily reflect policy of the Mortgage Bankers Association, nor do they connote an MBA endorsement of a specific company, product or service. MBA Insights welcomes your submissions. Inquiries can be sent to Mike Sorohan, editor, at firstname.lastname@example.org; or Michael Tucker, editorial manager, at email@example.com.)