A native Californian and a certified real estate appraiser, Aaron O. Thomas began appraising in Arizona and eventually ended up in San Diego where he owns and runs San Diego Appraisers. His firm specializes in greater San Diego County area residential properties and his clients include mortgage brokers, CPAs, lawyers, businesses and homeowners. Aaron is very outspoken and passionate about real estate appraising. Colleagues on Appraisers Forum have long known him as “Tucson Appraisals.” Good thing it’s too warm in San Diego to have the wool pulled over his eyes to the unethical business practice of the day: “comp checks.” Like me, he experienced a growing frustration in recent years with the form-filler mentality that many appraisers and users of appraisal services have embraced.
I am lucky to have Aaron contribute to the appraiser dialog on Soapbox.
– Jonathan Miller
Initially and some time after licensing was implemented there was talk of increasing the requirements of attaining a real estate Appraiser license. Regulators had some concern that if the requirements were too stringent, it would create a lack of real estate Appraisers. This of course would have made it a longer process to attain a mortgage. Needless to say, this extra criterion was never implemented until recently.
The real estate boom of 2004/2005 created a situation where there were more appraisal orders than there were Appraisers. This created an influx of Appraiser trainees that eventually outnumbered the amount of licensed Appraisers. They were depended upon to carry the weight of Appraisal orders that were flooding in from the higher rate of mortgage applicants. At the risk of making a generalization, these trainees were not given the amount of attention needed to properly train them because the licensed Appraisers were too busy trying to meet the demand of all the appraisal orders. This out of control situation created numerous appraisals that were inaccurate and in some cases downright fraudulent.
Now that mortgage applications have declined and more strict lending guidelines have been implemented from the collapse of banks across the nation, there are more licensed Appraisers than the market can support in appraisal orders. Appraisers are getting pushed out of the business and they are letting their licenses lapse.
Regulators (and others) have learned their lesson. Now that there is an overflow of Appraisers that can easily meet the demand for Mortgages, regulators are now implementing more stringent criteria on licensing without the worry of creating a lack of Appraisers. But, would they still have implemented these stringent qualifications criterion if there were a lack of licensed Appraisers? After all, we are tied to a larger system that still needs to flow smoothly. We are tied to it and governed by it more than people would like to admit.
Prediction: Licensing criteria will be loosened again when there is a lack of Real Estate Appraisers needed to supply the market.
Tags: Soapbox Blog, Aaron Thomas, Appraisal Contemplations
To amplify my postion once again: filling out a cheap and fast Fannie form is something other than a USPAP appraisal. I.E. “mortgage appraisal work sucks.” My comments translated by those who do mortgage appraisals comes out something like “Gillespie is a crusader.”
When the mortgage industry is feeling good, there are parallel universes in appraising real estate. Both pay homage to USPAP, but one is nominal.
“After all, we are tied to a larger system that still needs to flow smoothly. We are tied to it and governed by it more than people would like to admit. Prediction: Licensing criteria will be loosened again when there is a lack of Real Estate Appraisers needed to supply the market.”
As your comments recognize, when the mortgage industry is on viagra, the “credibility” appraisal standards of USPAP that address honesty, thoroughness, or accuracy are given lip service, but USPAP appraisal “credibility” has been crafted to remain in the eye of the beholder.
I have heard many, many mortgage appraisers say that they refuse to work for clients who pay low fees, demand ridiculously fast turn times or are more interested in “the number” than what we appraisers are taught is quality appraising. Said another way: None of the appraisers talking will work for shoddy clients. So it must be the fly-by-nights are mute, but then it just might be that denial is a fundamental ingredient of appraiser independence. Let me hasten to say, there are mortgage appraisers in this block who struggle to remain true to themselves and have defined their job as one that satisfies underwriting standards.
Your comments also recognize that a significant block of the appraisal indjustry is dependent on the mortgage industry for its very existence. Given that dynamic with nothing more, my bet is that the hand that feeds absolutely won’t tolerate being bitten. Mortgage appraiser independence in this circumstance has not yet been defined, but it seems to me there is an analogy to caged zoo animals. The area of independence is strictly defined and the appraisers, like the lions, have learned to accept the cage bars planted by the mortgage industry to ensure their profits as the actual edge of the world.
Maybe when the mortgage industry rises from these ashes the ASB will admit that the scope of work in mortgage appraising must ensure that the loan closes. That is the unspoken supplemental standard mortgage clients insist upon. Compared to saving the deal, anything USPAP includes is meaningless, except perhaps as an obstruction, to mortgage clients and consequently many mortgage appraisers.
Aaron, I believe the more stringent licensing requirements were on everyone’s radar screen well before the current housing and credit crash. Respectfully, I cannot agree with the premise that there is this regulatory ebb and flow dependent on the up/down nature of the market cycle, with the regulators at the controls. This regulatory initiative has been headed in one direction for a while now and there will be no looking back. And unlike the electricians union for example, making sure there are enough appraisers is not even close to being one of the regulator’s primary mandates at present. Again it’s primarily promoting credibility, accountability, professional standards and public trust in the profession. As it has in the past, market forces will dictate the ranks of available appraisers. Unfortunately, we are not yet of the level of national importance of air traffic controllers!
My only response to the whole regulatory issue is this: has it made a difference to date and will it going forward? I read so much about the lack of enforcement due to insufficient resources and sense lender pressure is as pervasive as ever, it just makes me wonder. The only thing I can grasp on to is perhaps in their wisdom the regulators are looking to attract more long term and professionally minded practitioners and not so much those jumping on to the next big thing (aka the boom in appraisal services we experienced.) Perhaps they can provide statistical support indicating that’s where the weak links are to be found. Not sure.
I do agree many appraisers are leaving the profession in alarming numbers and will not likely return. And since this is not a part-time profession, many won’t return even at that level either. But this is nothing new and the CV’s and resumes of industry veterans (ie, 15-20 years?) of appraisers turned banker, re broker, home inspector, analyst, underwriter, developer, etc. indicate this pattern. But more importantly, rather than a surplus of appraisers due to the lack of work, could this lead to a shortage? I’m willing to bet the licensing boards and professional memberships orgs have some strong opinions on this possibility.
As appraisers we need to see two things happen:
First, I firmly believe the bulk of the problems we experience as appraisers do not stem from the regulators but from the lending community, up and down the line. And until the day comes that every person who has an hand in originating a federally regulated mortgage is required to attend and be certified with the same 15 hours of USPAP (along with 7 hours each year thereafter) nothing will change. That would be a critical first step. No doubt for us USPAP is very much at the core of what we do as professional appraisers. Sadly for everyone, to the lenders it’s a joke or a fire they do not have to worry about having their feet held. As Edd points out, to them USPAP is an “obstruction”. It has to get to the point where they cannot claim ignorance of USPAP and engage in any form of “aiding and abetting” or pressure. Residential and commercial.
Second, before we only play the blame game full on, we as appraisers need to also take every opportunity to educate the lender community and general public on the importance of what we do and the regulations we MUST operate under. It seems that message has been forgotten particularly among lenders. If we don’t, who will? Remember one thing – in the valuation and professional appraisal arena we are still the only true experts and best suited to make a case in this regard. Merely not accepting work from “a shoddy” client or telling them to “shove it” isn’t the right way to go. It’s not a solution. Instead we need to take every opportunity to re-educate and build (and reinforce) the right kind of awareness. As appraisers we have some work to do as well notwithstanding the housing and credit crisis. And it could not be a better time
Good ideas Jose. Proactive and they might work, but why isn’t every person who has a hand in a federally regulated mortgages already being required to take these courses? And if they are going to be required to do so, who is it that will require it? And how come appraisers haven’t made any headway getting the same people to understand the importance of appraisals?
Do you think if they are educated they will slow down turn times and willingly pay a decent fee while accepting the expert’s opinion?
I agree that it is the responsibility of the appraisers to take this thing in hand, how can we get them to do it?
However, Aaron might have a point about regulation. There wasn’t any until somebody named the preliminary signs of the credit freeze “appraisal and mortgage fraud.” I recall that it was ironically the lenders who called it that. I am convinced that is the kind of respect appraisers can expect, since it appears the game will be played by their rules not ours and money talks.
Good reply Edd. As for the USPAP issue I’m just as perplexed as you. It seems like a no brainer that the lending community that are subject to federal regulation, should be required to be certified in USPAP as well. I think the perhaps the OCC or FDIC should include it as an etxension of thier oversight. After all, they are the ones (on behalf of you and me as taxpayers) that have to do the financial mop up when the institutions they regulate hit the skids because of an institution’s ignorance, neglience or willfull noncompliance. But for the meantime the good news is that you and I are talking about and bringing that very issue to the forefront. It’s a start Edd.
As for appraiser respect, I am optimistic that the tide will once again shift and respect for what we do and what we must go through as we do it will return, possibly to a level seen in the past. We are in the brink of a shift I can just feel it coming Edd. And with $700 Billions of taxpayer dollars on the line it will shift sooner than later for the better for all. After all one thing is for certain: the status quo doesn’t work and impropriety will no longer be tolerated in any step along the process. And in among it all who among all the players will once again be called upon to be the trusted and objective participant? (I think we both know who it won’t be…Wow, talk about a loss of public trust!) And because it’s largely an international housing crisis it is very possible the shift in thinking could be worldwide – Europe, Asia, Australia, etc. Sound valuation practices is a common thread in any time zone and it may just reach that level as the facts unwind.
So how can we get appraisers to take hold and effect some change? Basically by speaking up collectively and individually intelligently and persuasively at every opportunity. Maybe even exposing or counseling fellow appraisers who do not often and early enough. And by remembering exactly who we are and placing a higher value on the very specialized licenses, certifications and designations we work so very hard to attain and maintain. (I think we an learn a thing or two from other professions such as MD’s in that regard. A topic for another day…) That’s what it will take and I think we can do it. We are only as hemmed in as we allow ourselves to be.
Interesting dialogue here. My interpretation of why the lenders aren’t required to be licensed is simple: the American Bankers Association resists anything it regards as a threat to free enterprise and its members, and they have a sea of lobbyists with big wallets working Capitol Hill.
I’m not personally optimistic about change, but it’s possible.
We could argue about the meaning of “free enterprise” and perhaps whether that is what the banking industry wants to protect from transparency. But, I do think you have correctly identified the source of the problems.
While I don’t fully agree with Aaron’s somewhat fatalistic conclusion that appraiser’s are robots controlled by the whims of the lending industry, I do believe appraisers have allowed too much that to happen, maybe even enabled it.
I am encouraged by the current efforts to make sense of appraiser regulatory oversight. Regardless of the dedication of the lending industry to avoiding “transparency”, I think beefing up the educational requirements and requiring more accountability from appraisers will strengthen the profession to the point that its members will have the understanding, pride and desire to remain independent of the gyrations of the lenders.
My view is that the lenders never want an obstacle, no matter how laudable, to doing whatever it is they want to do. Lenders are clearly dedicated to one thing; MAKING MONEY, period. Building a strong economy or helping people succeed is only a part of advertising. They certainly never wanted an appraiser telling them that the collateral they were considering was inadequate to support a loan unless they were looking for an excuse not to make the loan. And we know that the bar to being an appraiser was set ridiculously low based on some flimsy idea that there wouldn’t be enough appraisers to get the job done. Well the way it worked was that the flood gates of entry into the appraisers profession were opened wide and the job, as it was defined for the public, didn’t get done. Now the profession is faced with clean up of that mistake, but we learned from it. Please note the lenders are making no effort to clean up the appraisal profession. Notwithstanding FIRREA, the lenders don’t want us to be the cops. (Frankly I don’t think we should be either).
Since money is at least a part of the objective of working, we must protect the right of a good appraiser to make a good living. And, at the same time, we must make it difficult to impossible for appraiser wannabes to infiltrate and remain in the ranks of the profession.
I am persuaded that the profession is aimed at making appraisers certain about what their proper role is, confident in the skills they have, creating pride in what they do and building respect for the profession, its practitioners and one another. I believe we are past the peak of mediocrity in appraising and the hard work of making an honorable profession of ourselves is now our task.
And it will be a difficult and lengthy task and there is little doubt in my mind that there will be opponents and detractors and disagreement among ourselves, but it must happen or the profession will remain as irrelevant as it has allowed itself to become.
Amen Edd! Especially as to appraiser relevancy, which is at the heart of it all. How? As Jonathan and I have discussed, one way to start is to create an “appraiser sentiment index” which gives our view point on the market, buyers/sellers and yes, even the lenders we deal with daily. Home builders, purchasing agents, manufacturers, Realtors, bankers, automobile dealers, etc. develop their own indexes and get good PR, why not having a venue where we as appraisers weigh in too? And build our voice and clout from there, grass roots style.
Not long ago I sent Johnathan a suggestion that we do something along the lines of an “appraiser sentiment index.” I, however, am thinking we need to start by cleaning our own house and showing off only the best we have to offer. I was thinking about making a big deal over our peers who demonstrate exemplary work may be a good thing to do, but we need much more than that.
How, as you ask, is the problem. I have seriously wondered what it is that the appraisers working in the single family mortgage market, and maybe any mortgage market for that matter, have to offer the clients and intended users. I ask appraisers the question, “Why should a client hire you?”. More often than not, say 90% or more, the answer bottoms out on cheap fees and fast turn times.
A large segment of the profession have allowed themselves to be Wal-martized. And that has got to be overcome. If appraisers are going to be relevant, then it is up to the profession to make itself so.
So the question remains. How?
I think the Foundation is babbling its way along and making some progress. I think my State regulatory mechanism is actually beginning to function and weed out some of the worst actors. And I think the AI is raising the quality and relevance of appraiser education, and that is not to say others are not contributing. I am just aware of these things. And then there are the exemplary contributions Jonathan makes to Matrix.
I suggest that appraising may be analogized to fly fishing for trout. If you fly fish, you are well advised to understand and constantly study entomology. If you appraise, you must understand and constantly study the markets. Almost any appraiser worth his or her salt saw a mess coming in their own markets, but most of the others, the majority, did not and could have cared less.
Can we start by emphasizing within the profession how critical market study and in-depth analysis is (way too many appraisals I see simply inventory secondary market information without giving it meaning through analysis)?
Is it too much to ask that appraisers be supervised by a local peer group (my local peer group knows more about me than the State does) and that those be actively and continuously involved in in-depth market research, analysis and dissemination? Perhaps that is a goal for some, but it looks more to me like a place to begin forming a respected profession of this business mess.
This stuff of reporting appraisal conclusions faster and cheaper than any other appraiser and on a fill in the blank Fannie form to boot should be relegated immediately to the past. Immediately! Once in a blue moon the scope of work may justify the attentuated analysis called for by Fannie, but not usually in my experience. Until the mortgage appraisers take those back we will make little progress toward professionalism or respect.
If we go the route of some sort of an index, we have got to make sure it does not tumble into the disarray of many of the appraiser blogs that out there.
I think the only way to avoid, as you say, being Wal-Martized, is to put the brakes on the Wal-Marts of the industry. The portion of the market they control is immense and the same way Wal-Mart set the bar for control of one stop shopping (I am guilty) these mortgage giants control the behavior of the appraisers they employ. Maybe not in areas of value expectations but certainly in very subtle ways regarding quality vs. quantity. No surprise, quantity always wins. Another area I have never seen addressed is the actual business of educating appraisers. There are vast numbers of organizations out there masquerading as instututions of appraiser learning that have absolutely no interest in educating their students to be professional, well informed appraisers capable of turning out a quality product. The greed factor as it trickled down from on high has infected a large part of the educational sector of the industry and is quickly conveyed to a classroom full of eager students. I have personally been lied to regarding several issues by the owner of one of these so called “Institutes” whose only concern was how fast my check would clear. Quite accidentally, I also discovered he was circulating misinformation regarding the appraisal exam which then gave him the opportunity to offer a discount on all 4 courses if they were re-taken. Obviously, I do not attend classes there any longer but the business still seems to be flourishing. However, any time the subject of quality appraiser education comes up, everyone I’ve spoken to immediately recognizes the name (or offers it first) as the poster child for shoddy, unprofessional and downright poor appraiser education. Unfortunately for some of us, the schedules of the classes we needed did not coincide with our license renewal dates and we had no choice but to attend one of these “institutes”. Not everyone is lucky enough to live near the really well respected sources of education. The advent of on line learning has at least somewhat standardized the courses and has removed many of the undesired personal components from the process. There are still thoses of us who actually prefer face to face learning but don’t want to listen to the instructors personal opinions. Much of the solution as a whole has to start at the very bottom and if this isn’t an industry begging for some type of regulation, I don’t know where you would find one.
As to being Wal-Martized, appraisers should now be aware that there is at least a possibility that their mortgage connected clients are doing business to make as much money as they possibly can with as little accountability as they can get away with. Now, I am not saying that everyone in the chain is aware of what is going on, but bottom line, the lending industry as a whole could care less about the country or their customers. So while you can find individuals in the mortgage lending industry with integrity, as an institution it is corrupted. Please note the dearth of lending now that everyone is watching. Ostensibly, the obscenely large bailout was to prime the lending pump, but it isn’t happening because everybody is watching. When we are once again willing to look the other way my bet is the pump will Begin to operate.
As you can see, I believe there is a strong connection between the effort to Wal-Martize appraisers and a lending industry with a guiding principle of unfettered greed. Free market my foot.
How can a mortgage appraiser detect which client will employ fraud and deceit (assuming of course the appraiser cares)? If the client’s scope of work routinely emphasizes a fee and turn time that results in a Chinese assembly line appraisal you got a problem.
If the appraiser has allowed themselves to be Wal-Martized (mea culpa, no more) and continues to do so then they are enabling the fraud. Somehow FIRREA appointed USPAP independent appraisers to be one of the door keepers for an unprincipled industry. But the mortgage industry figured out cheap and fast would undermine the intent of the law and that appraisers would fall all over themselves to fill out Fannie forms overnight for as pittance.
So much for Wal-Mart except to say, perhaps our regulators should closely scrutinize appraisers that accept Wal-Mart assignments.
Good comments about education. Here in CO, only AQB certified courses are approved for credit. The problem you have cited regarding incompetent teachers remains. Longevity in the profession seems to be the primary credential as far as I can see. No doubt that appraisers with experience have much to offer, but whether experience alone qualifies one to teach a class is debatable. I know that being selected to teach AI courses is a plum and the appointment is political.
The competition in appraiser education seems to require that a significant number of appraisers pass the test. Otherwise why alert the students to what will be on the exam? I have never seen that done anywhere else. Why can’t that be outlawed?
Most of the classes I have taken or attended extend the opportunity to the students to comment on the content and instructor. In most of those I have commented favorably, but I’ve wondered if anyone reads them or cares. I attended an absolutely worthless, but credited class put on by FHA several years ago. My comments were ruthless, or so I am told. I thought they were right on. I was so convinced that the FHA had dropped the ball and that something should be done about it that I wrote a memo that was circulated through FHA. Now that was read! Someone close to the head of the Denver office (she had a title, but I have forgotten what it was) called to straighten me out. The person chewing me up one side and down the other did, subsequent to my memo, take the trouble of looking up my comments. She was able to match my anonymous comments with my memo and find my unlisted home phone number. Now I don’t know if anything has changed since only defensiveness was expressed. Absolutely no interest in changing the course or the way it was taught. At this point I don’t think I will be invited to attend another session nor do I plan to, but hopefully changes have been made to make the course more relevant for appraisers who go in the future.
Maybe the moral is to complain about this crappy education where it matters and demand action. I don’t see anything happening unless we do that individually and often. We have got to demand better, and eventually it will be supplied. I don’t think we can get rid of these guys any other way except for waiting for them to die off.
Practicing appraisers alone are responsible for the cure. No more Wal-Mart appraisals, no more wasted time in continuing education.
At any rate, I am inspired. I will call the State and see if I can get some Colorado answers to these concerns.