Don’t Waste a Good Crisis
Some contend the residential real estate appraisal business is in crisis. Others teach never to waste a good crisis. Assuming the former is true, let’s take advantage of it.
Traditionally, many appraisers worked for lenders as well as their agent-AMCs. This ethical and legitimate work falls well within the purview of an appraiser’s expertise. However, it has tended to limit appraisers to this type of work. Therefore, it has not been necessary for the typical residential real estate appraiser to go outside of this arena. Nevertheless, the crisis is that this work may be drying up, especially in light of the desire of the mortgage lending industry to remove the appraiser from the mortgage-lending continuum. Because of this, the residential real estate appraiser should look elsewhere, too for appraisal assignments.
Appraisers have traditionally overlooked the work that can come from the typical consumer. Traditionally, the appraiser has worked for the benefit of the lender-client. Even though the borrowers will get a copy of the appraisal report, that report is not for the borrower’s benefit. When the lender is the client, our concern is not the borrower. Therefore, the typical borrower is in a highly asymmetrical (i.e., disadvantageous) position. The lender, the seller, and the real estate broker(s) usually know more about the details of a transaction than does the borrower. Further, in a typical appraisal for the lender, the appraiser went to a great deal of time and effort to make it clear that the borrower was not the appraiser’s client thus, despite certification #23, owed the borrower nothing. Appraisers are now in the position to help borrowers overcome this asymmetry.
The lender, the seller, and the real estate broker(s) usually know more about the details of a transaction than does the borrower.
It makes sense for a borrower (i.e., the consumer) to hire an appraiser to conclude the market value of any particular property. Armed with this information, the borrower goes into the transaction in a much more symmetrical position. That borrower no longer needs to depend on the broker (who is generally the seller’s client, or is paid by the seller) for an accurate indication of the property’s market value. Further, knowing what percentage of the purchase price a lender is willing to lend, this can aid the borrower to determine just how much of his/her monthly income is available to spend on principal and debt service. Such knowledge may help to forestall foreclosure by helping the borrower not to overpay or over-borrow.
Appraisers and Consumers
Appraisers help consumers by simply by letting them know that we are available to work for parties other than the lender. Appraisers do not advocate for any party in the transaction. If the borrower engages the appraiser to conclude a property’s value, the consumer benefits from the appraiser’s competency, independence, impartiality, and objectivity. Further, the appraiser’s efforts arm the consumer against overpaying for the property (which, if they do overpay, is to the lender’s and brokers’ benefit, but not the consumer’s).
Further, because the consumer is not in the position to order scores of appraisals from any specific appraiser, the typical consumer is likely much more comfortable paying full retail, rather than expecting a discount for multiple orders annually. This is a benefit to the appraiser for obvious reasons. It benefits the consumer since, by paying full retail, the consumer has the right to expect the appraiser’s best and most timely efforts.
A Good Working Relationship
Expanding out of the residential first mortgage real estate appraisal space and into the consumer space benefits the appraiser as well as the consumer. By benefiting the appraiser, it also helps us to take advantage of the crisis facing the residential real estate appraisal industry, as its traditional audience moves toward automation. It helps the consumer to remove the asymmetry in which the typical real estate purchaser finds himself or herself. That consumer can now work with assistance from a disinterested, competent, independent, impartial, and objective real estate appraiser.
If, indeed, the residential real estate appraisal industry is undergoing a crisis, by providing more services to the consumer, appraisers can help ameliorate that. In so doing, we are more the “good guy”, rather than an extension of the “bad guy” in the mortgage-lending continuum.
Tim is a Certified General Real Estate Appraiser, USPAP Reviewer, Appraisal Instructor and Public Speaker. He has been appraising real estate since the previous millennium and now limits his practice to consulting on standards, practices, and USPAP with his fellow appraisers.