Regulations: The costly outlier impacting appraisal firms
Many home appraisal firms survived the 2008-2009 housing meltdown in tact, but don’t take their silence in today’s market as a sign of surrender or stability.
Home valuation professionals continue to fight a silent battle as appraisal management firms, like Nationwide Appraisal Network, track all of the regulatory changes that are whipsawing their way through the industry as we speak. Most are already in play, and they’re clearly changing the appraisal landscape. Whether for better or worse, that’s a matter up for debate.
HousingWire caught up with Joni Pilgrim, co-founder of the women-owned Nationwide Appraisal Network. Running an appraisal management firm, she admits, the industry is fine, but always under the gun and facing an uphill battle against the cost of compliance.
"I would say the individual state registration requirements have been very impactful on our businesses," Pilgrim told HousingWire. "Each state has a different set of requirements for becoming a registered business."
And appraisal firms cannot escape those requirements, making it hard to ‘touch go’ when expanding a company.
So if you count all 50 states and factor in that each has their own rules, the cost of compliance simply adds up, Pilgrim points out.
"If you are a company with a national presence it can be a bit overwhelming, especially if it changes year-after-year," Pilgrim said when discussing the state appraisal rules.
The laundry list of requirements and rules seems intimidating at first, but Pilgrim gave no indication that the industry is unable to keep up with the growing demands.
Although she does admit, some consolidation and strategic partnerships are occurring to allow smaller players to compete if they are unable to obtain the necessary compliance systems on their own.
In January, federal regulators unleashed a standard appraisal requirement for higher-priced loans.
Then, the market has the appraisal independence requirements to contend with on a day-to-day basis. Pilgrim sees a definite shift, which takes time and money.
Lenders working with appraisers “want to see you are questioning your system,” she said. Key areas of concern – quality control, the independence of the appraisal and the vetting process used for even selecting an appraisal management company.
Not all of the regulations are always clear, Pilgrim said.
"Some of the regulations are kind of in this gray area, and it is left up to the interpretation of a lot of different people.” Still, she says, the marketplace is working hard to comply with every standard.
After years of change, it seems even more change is coming, Pilgrim added.
"Rates are up a little bit, so people are not refinancing as much," she said. “It’s turning into a purchase world now.” Since her clients are lenders, banks and credit unions, Pilgrim sees more and more appraisal orders for purchases when compared to recent refi volumes.
But either way, all the new rules apply, and appraisal firms are still having to trek through unfamiliar territory to ensure they remain compliant in today’s regulatory landscape.