Appraising scarcity

There’s trouble brewing in appraiserville — and it’s beginning to cost some unsuspecting homebuyers money. Those hoping to close in the coming months should be aware.

The problem is part work overload, part resentment over fees. In many markets, diminishing numbers of experienced appraisers are available — or willing — to handle requests for their work on tight timetables and at lower fees than they used to earn.

The net result: The system is getting gummed up. Scheduled home sale settlements are being delayed because banks and appraisal management companies can’t find appraisers who’ll do valuations on timetables needed for closing dates in realty contracts. A recent survey of agents by the National Association of Realtors found that appraisal problems were connected with 27 percent of delayed home sale closings, up from 16 percent earlier this year.

In some cases, panicked lenders and management companies are offering appraisers fat bonuses and “rush fees” to complete valuations and meet deadlines. The extra charges can range anywhere from $200 to $1,000 or more, turning $500 appraisals into $1,200 or $1,500 expenses that typically get paid by homebuyers.

Seattle-area mortgage broker Matt Culp, who owns Bainbridge Lending Group LLC, spoke of a recent example involving clients who urgently needed to close on a newly built house — and to move out of their rented dwelling — who were squeezed into paying $2,000 for an appraisal that normally would cost $625.

An appraisal management company had said that the quickest the valuation could be delivered was weeks after their hoped-for closing date. Waiting that long, however, would have cost the borrowers their favorable rate lock and forced them to pay another month’s rent. But when Culp inquired about a rush fee, the appraiser agreed to a $2,000 total fee — $1,375 more than the earlier quote. For the extra money, the appraiser would put Culp’s clients at the top of the to-do list. The buyers agreed. The extra $1,375, charged to the borrowers’ credit card in advance of any work performed, was “extortion,” Culp said. But it was less expensive than the alternatives.

Even at elevated rates, it can be difficult to find an appraiser. Brian C. Coester, CEO of Coester Valuation Management Services in Rockville, Maryland, said a lender in Nashville recently was willing to pay appraisers $1,100 for work that normally would have cost less than half of that, but still had difficulty finding takers. Coester’s firm, like other management companies, helps lenders link up with appraisers around the country. For its services, it takes a piece of the appraisal fee.

Appraisers have complained for several years that management companies are themselves a big part of the problem because they pay low fees to the appraiser and pocket 25 percent to 30 percent or more of what homebuyers are charged. Plus they have unreasonable expectations about how quickly appraisers can churn out reports. Management company executives like Coester deny they underpay appraisers, and instead suggest that there is an underlying “shortage” of appraisers caused by the aging of members of the profession, tougher qualifications and regulations, and fewer new recruits coming in to replace them.

The Appraisal Institute, the profession’s largest trade group, confirms that there are fewer appraisers active today than in previous years — the ranks are down by 22 percent since 2007, to a total of 76,800 as of last December 31. But Scott Robinson, president of the group, told me one of the key reasons for the dwindling numbers is that management companies and lenders aren’t paying adequate fees to retain experienced appraisers or attract newcomers.

Jonathan Miller [TRDataCustom], a prominent New York-based appraiser, wrote in a recent blog that “there is no shortage of appraisers. There is a shortage of appraisers willing to work for half the market rate” — what he believes many appraisers get when they work for management companies as opposed to directly dealing with banks.

Whatever the causes — whether there is a true “shortage” or simply fewer appraisers willing to work for low net compensation  — appraisal delays, combined with requests for “rush fees,” are realities in the marketplace. When setting contract deadlines for a closing, buyers should ask their real estate agent about conditions in the area. The more realistic the settlement date, the lower the likelihood they’ll be charged extra to get the work done.

Kenneth Harney is a syndicated columnist.