At the 2023 National Association of Appraisers/Appraiser’s Conference & Trade Show in Sacramento, Calif., the session “Don’t Panic: Adapting to a Changing Appraisal World-Fresh Ideas,” revealed many points of view from a veteran panel looking at valuation challenges from the appraiser, lender and AMC vantage points. 

Veteran appraiser Marty Wagar, of Wagar & Associates; James Baumberger, with over 33 years in the industry and former managing partner of cost-plus First Choice AMC, and Laurie Egan, compliance manager of Pacific Residential Mortgage, told the audience that while there might be some unsettled nerves amongst appraisers, there are numerous reasons to not push the proverbial “panic button.”

“Panic is a strong word, but I think what is causing the greatest concern is low appraisal volume,” Egan shared. “Many assume the low volume is due to an increased number of waivers being granted, which is simply not the case. Waivers are only allowed in very limited, specific situations with low loan-to-value ratios, low debt-to-income ratios, high credit scores and ample financial reserves.

“Often the GSEs also already have a recent appraisal on file so they have confidence in the collateral,” Egan added. “In this way, there is minimal risk to the lender when accepting an appraisal waiver. If a lender has any concern about the collateral, market conditions or the loan in general, they do not have to accept the waiver.”

Egan asked the audience not counting COVID reasons, how many were currently taking on hybrid or desktop assignments? Very few hands were raised.

“Marty (Wagar) and I estimated only about 10 percent of the audience raised their hands when asked if they had completed (non-Covid) hybrid or desktop assignments,” Egan told Valuation Review. “Personally, I was not surprised because I know very few appraisers who are completing this type of assignment and I knew even fewer lenders who are ordering them. I think the average appraiser believes they are far more prevalent than they really are, which was my point in asking the question.”

Like Wagar, Egan doesn’t think waivers or hybrids are connected to the current drop in appraisals.

“The reduction in the number of appraisals ordered simply has to do with the reduction in the number of loans being made,” she said. “The percentage of waivers being offered is lower than it’s been in many years.”

In a conversation with Valuation Review, Wagar expanded on his comment during the presentation that between ANSI standards, bias and modernization, it’s the “perfect storm” for appraisers. He also reflected on what appraisers may be “panicking” over.

“The appraisal profession has been challenged over the years but typically from one or two fronts and usually technical in nature,” Wagar said. “The combination of ANSI-modernization combined with the bias issues is a challenge that includes both technical and philosophical issues that go to the very core of what we do. The appraisal profession has not been challenged in this fashion in my 40-plus years.

“Appraisers spend their careers worrying either where the work is or getting appraisals out on time,” he added. “When the work slows to the current low level, panic seems a common emotion. Panic causes bad business decisions. The ‘Don’t Panic’ theme was intended to let those know who have not seen this business climate, that it has happened before, to assure them that equilibrium will return.”

Baumberger addressed the reaction by appraisers to Fannie Mae’s Selling Guide announcement made on March 1 saying appraisers’ generally negative reactions could have been predicted because the announcement was written for an audience of lenders with some tone-deafness towards the appraisers who would also read it with keen interest. Some large portion of the appraisal community, he noted, translated the announcement as the memo signifying the end of the appraisal profession for residential mortgage lending.

“It seems clear now that Fannie Mae was trying to convey their continuation of a journey, which they began years ago to expand their collateral risk mitigation tools to include a variety of AVMs, desktops, evaluations, and traditional appraisals,” Baumberger said. “However, they created some unnecessary panic among appraisers due to their high-IQ, low-EQ messaging, along with a particularly alarming sentence, ‘We are moving away from implying that an appraisal is a default requirement.’ Fannie Mae could have added a concluding phrase or a second sentence clarifying ‘although appraisals will still be used for many transactions,’ that might have avoided much of the ensuing controversy.

It is Wagar’s observation of his colleagues and students that their overall reluctance to adapt to change is, in some cases, justified.

Wagar suggested that adapting to healthy changes remains challenging. That said, adapting to changes that, in his opinion, weaken the appraisal process is difficult at best, which prompted his comment to the audience that “progress is not always forward.”

He cited many examples of his statement.

“The decision by FNMA (Federal National Mortgage Association) and our prevailing government in the mid-2000s to ‘loosen’ credit scoring with changes like no verification of employment, income, sub-prime mortgages, etc., were made by those wanting to increase the homeownership percentage above the mid-65 percent range. It was believed to be progress. The year 2007-08 proved otherwise.

“In the early 1900s, in the wake of Upton Sinclair’s expose on the working conditions and practices in the meat packing industry, the federal government initiated a method coined ‘poke and sniff’,” he added. “All well intentioned and certainly seen as progress, it created cross contamination and traded one dangerous condition for another.

“My comment was meant to demonstrate to the audience that these types of decisions are made every day, particularly by our federal government, and portrayed as progress. Many times, they are interim mistakes that may lead to progress. My comments were made for the appraisers to understand that we may get caught up in the switches of a well-intentioned appraisal modernization effort. We need to adapt as best we can while the experiment takes place, proving itself as progress, or a mistake.”

As to what Baumberger sees happening for appraisers regarding updates from the GSEs, he pointed out that Fannie Mae has prompted much greater attention from a broader segment of the appraiser community, who will be reading future Selling Guide announcements with keen interest. Considered cumulatively, the announcements are all broadcasting the news that appraisers will be called to adopt, leverage and master big data, computer analytics and technology tools, including 2-dD LIDAR scanning, computer analytics, remote inspection apps and third-party inspections, in a modern reengineering of the appraisal process.

How can appraisers, though, be better market analysts with better technology tools?   

“Appraisal form-filling software already has some computer analytics incorporated to assist appraisers in extracting market-supported adjustments based on buyer-seller patterns and trends that a human analyst cannot identify in small data sets,” Baumberger said. “There are additional add-on software programs that appraisers can also use to extract adjustments from larger datasets. In addition, many appraisers use software to load MLS data, avoiding typographical errors and saving time, including applications to develop adjustments for changing market conditions over time based on actual data in the subject’s market rather than relying upon broad-based trends that do not translate accurately to every individual neighborhood or specific property type.”

Wagar summed everything up with regards to the future and the embracing of technology by saying only a part of what the appraiser does is aided by technology.

“It is a misunderstanding by those who champion the AI philosophy and some of the modernization techniques that the appraisal is all science,” he said. “A large part of what an appraiser does is art, reading the wants and needs of buyers and sellers; the selection of ‘comparables’ remains at the core of what we do and is an art. Even the best AVMs only profess to be 75 percent accurate. I personally champion all new technology including the most recent floor plan and measuring tools. But they remain tools, not substitutes for the use of gray matter.”

Baumberger also told the conference audience that “volume cures all ills.” He elaborated on that statement.   

“Preceding that comment, I shared how a somewhat insensitive announcement during a time when lending volume has been down roughly 70 percent for too many months was bound to trigger anger, confusion and some panic among many appraisers, who already feel pain and worry deep in the marrow of their bones over their potential inability to care for and feed their families,” he said. “So, if the Fannie Mae Selling Guide announcement had come out in a high-volume lending environment when appraisers were working 6-7 days a week and forgoing vacations, the announcement would not have generated the enormous negative attention it did. Conversely, when lending volume returns to typical levels, this announcement will seem far less controversial than it does now. High lending volume calms a lot of concerns across all related industries, in my experience.

“Meanwhile, in my opinion, appraisers need to focus on what we can control, which is our own professional development actions to get better while there is time for coursework, innovation, and learning,” Baumberger added. “We appraisers, as a group, could also become better at customer service, cordial collaboration, and industry relations with our lending clients, their AMC agents, and real estate brokers. I believe, when lending volume returns to typical levels and appraisal orders start flowing again across America, appraisers who leverage advanced technologies will remain highly relevant and well regarded.”