There is an understanding amongst many appraisers and users of appraisal services that demand has exceeded supply pertaining to valuation. The demand curve has changed in recent years as regulators have emphasized portfolio monitoring and encouraged lenders to work with borrowers in workouts and subsequent transactions. Appraisal Institute (AI) Government/External Relations Director Bill Garber says there are so many valuation needs in the marketplace with a whole variety of valuation-related questions in the market right now.

“There simply are not enough appraisers to answers all of those questions by users of appraisal services,” Garber told us. “We see that a lot of the time in subsequent transaction and portfolio monitoring. Sometimes, users want to know whether the property value has changed at all since the loan was made – is it worth ‘at least’ x amount. That’s the validation world today which is usually answered by evaluations. It could be completed by appraisers as well with some retooling and the right questions being asked.

“The area of subsequent transactions (refis, renewals) and portfolio monitoring is included,” Garber added. “A variety of valuation services can be utilized here depending on the situation.”

Regarding Garber said it seems as if commercial appraisers are potentially more adept at developing scopes of work to address client needs, and this may be because it is less dominated or reliant upon standardized form appraisals.

Some of these areas, he said, like portfolio monitoring, simply aren’t tailored to the URAR form or that kind of service. That kind of work really requires more conversation with the client and some tailoring of the scope of work by the appraisers.

Garber’s broad recommendation to the residential appraisal community is to engage more directly with the end users of their services to understand exactly what questions they have.

But what about the significances of non-appraisal valuation services, and what opportunities await the appraisal profession in these areas?

“The entire appraisal regulatory structure is built around appraisals and it largely leaves out of it this entire world of alternative valuation services,” Garber said. “In order for appraisers to effectively compete with non-appraisal valuation services, appraisers need more flexibility or at least some recognition that the analysis or reporting may be different than traditional appraisal services. The regulatory system ought not to restrain appraisers from competing in these spaces.

“The Interagency Appraisal and Evaluation Guidelines contain an entire section on evaluation development and reporting. These are the most commonly referred guidelines for evaluations in the subsequent transaction space,” Garber added.

There were record numbers this past year regarding refinancing but also some risks as it pertains to loans. Garber addressed the refi numbers and what risks are involved that appraisers might face.

“Some people look at the appraisal waiver figures and cringe at the high percentages reported. But this does not take into account that many of these waivers involve loan term and interest rate reductions where appraisal information provides much less value to the lenders,” he said. “A rate or term reduction actually reduces the risk of the loan, and this is where most of the appraisal waivers are coming from.

“At most, we might be able to say that some of this might have involved appraisals in the past, but that could be argued to have been overkill on the part of the lender,” Garber added. “This is less the case when the refi involves cash out, or the transaction is new to the books of the lender and the risks are not understood. Appraisals are still important there, just as they are in purchase transactions.”

Garber discussed what COVID impacts are still prevalent and how are appraisers handling those. He also shared his concerns about the next generation of appraisers as it pertains to hybrid and bifurcated assignments.

“We are not hearing much in the way of COVID risks right now, other than the market is still strong because of material changes in the real estate market that may have been caused or perpetuated by COVID,” he said. “The biggest issue with bifurcated processes is the disconnect to the next generation of appraisers. Creating whole inspection industries that are outside of the appraisal profession may actually cut off the pipeline of new appraisers.

“That can be easily addressed if the end users allowed appraisers to utilize appraiser trainees for inspections,” Garber added. “That’s the irony in all of the discussion about hybrids – it’s as if the mortgage industry is force-feeding the creation of a new industry, when one already exists but is being precluded from taking on that part of the assignment.”