Some of the hottest housing markets hit double digit growths last year while at the same time fees and delays related to the appraiser shortage continue to rise, throwing a wrench into an otherwise smoothly running mortgage machine. How will this impact 2017 as new loan programs look to expand the credit box?
According to Appraisal Institute data from June 2016, the number of appraisers has dropped 22% since 2007, and the average age of appraisers is now 53, with few younger workers entering the field. The decline is partly due to a mismatch of regulations and licensing requirements, which demand 2,500 hours of appraisal experience on one hand, but bar apprentices from performing full appraisals on the other.
Without a change in those regulations, appraisers have no incentive to bring on apprentices, and, with no clear path to employment, the number of appraisers will continue to dwindle. The Appraisal Institute predicts that the number could drop as much as 30% in the next 10 years.
Collateral valuations are a critical part of any loan, so the shortage of qualified appraisers puts up a serious roadblock in the mortgage process, especially for lenders who rely fully on appraisals for all transactions. Lenders in a 2016 Stratmor survey reported that appraisal turn times had increased 70% for purchase loans and 81% for refinance loans.
In hot markets, the appraiser shortage is especially disruptive. According to The Seattle Times, about three fourths of the homes listed in that city spark bidding wars, resulting in multiple inspections and appraisals on the same property. CNBC reported in September that it was taking up to seven weeks to get a traditional appraisal in some areas.
For lenders, waiting for these types of durations on an appraisal puts the entire loan process in jeopardy as rate locks expire and borrowers are unable to afford higher payments. Now that the market is in a new, higher rate environment, closing delays can ruin a homeowner’s chances to get their preferred home and negatively affect the lender’s bottom line. The Denver Post reported that closing times had climbed to 43 days in September, versus 39 days a year earlier. The chairman of the Denver Metro Association of Realtors said the closing delays were a direct result of an appraiser shortage.
Quality could also suffer in the midst of this shortage. Appraisers called in from outside a community — sometimes as far away as another state — may not be qualified to accurately assess a property’s true value. And under an increased workload, appraisers may have less time for due diligence. In the Denver area, buyers are paying surcharges to move up the waiting list, pressuring appraisers to perform more appraisals per day than in the past.
With no end in sight to this shortage, when is it time to bring appraisal alternatives to the forefront?