Lending A Hand To Appraiser Trainees

Hogan said becoming an appraiser was much easier before the Dodd-Frank Act was put in place 13 years ago. Before there were licensing requirements or the separation between lenders and appraisers, trainees would go through programs at savings and loan institutions. Hogan was referred by an appraiser to a training program at a savings and loan in Southern California.

“That was good and bad. I mean, it did eliminate the appearance of undue influence,” Hogan said. “Pretty much everybody was either going solo or working with what they call AMCs, which are appraisal management companies. … At that point it kind of solidified because the only way somebody would even find out about it or get a job is if they knew someone.”

Hogan is not against the Dodd-Frank Act, but points out some of the challenges that arise from it, such as the complicated journey to becoming a certified appraiser. However, the GSE’s and some individual companies, such as Veros, are trying to rectify these challenges.

Shortage Or Partial Clog?

The so-called shortage of appraisers began before the 2020 homebuying frenzy, and is detailed in The Appraisal Institutes first quarter 2019 report. In it, graphics illustrate that the number of certified appraisers has been steadily declining since at least 2014. More recent reports show the shortage worsened over the course of the pandemic, when purchases and refinances were abundant. Since 2013, roughly 10,000, or 13%, of appraisers have left the industry, according to the Appraisal Institute, but that’s just the beginning. Since about 60% of residential appraisers are aged 50 and above, a huge retirement wave is coming, and there may not be enough recruits to replace them.

But upon closer inspection, the term shortage may not be telling the whole story. From Hogan’s own observations, it’s the appraisal training and education process that’s preventing trainees from becoming certified. Essentially, this isn’t a shortage, but a partial clog.

“There's no shortage of training candidates,” Hogan said. “There's so many that are qualified and ready to go that have taken the classes that are sharp and want to do this.”

One of the last steps in the appraisal training process is completing the 1,500 hours of work experience under a certified appraiser. Then both trainee and supervisor will record all completed work for eventual submission and review by the state when the trainee applies for the next level in licensure, which is passing the SLREA or NULC exam.

However, hardly any certified appraisers are willing to supervise trainees for a myriad of reasons. The first being, appraisers don’t want to train their competition.

“That was one of the statements that we’d hear a lot,” Hogan said. “‘If I train this person, they're gonna go across the street, open up their own shop, and put me outta business or undercut me.’”

Appraisers need to go through a lot of red tape to become supervisors. They’ll need to figure out whether this trainee is on contract or if they’re an employee. Will the supervisors have to do their taxes? Will they have to do their unemployment? Will they have to give them vacation time?

“It's a lot of red tape, and as an appraiser, I don't know if I'd want to take that headache on, even though I'm all for diversity,” Hogan said.

The supervisor also doesn’t get paid for taking on a trainee, and many of them split or give a portion of their compensation to the trainee if they helped in doing a valuation. So the supervisor is losing money, disincentivizing them from becoming mentors.

Plus, it’s a headache for trainees because they’re hardly getting any money for their work, and it’s difficult for them to get clients in the first place. Some clients require a minimum of five years certified residential experience and do not allow for trainees to complete the assignment.

So perhaps plenty of younger people want to become appraisers, but get discouraged when it comes to the apprenticeship phase and can’t find a supervisor willing to take them on. After taking all those classes needed to get licensed, trainees are stuck, given the fact they hardly get paid, they struggle to find clients, and they are a burden to their supervisor or can’t find one.

If the education and training process is this grueling and awful, then why should anyone expect them to stick around?

The Modernization Conflict

The recent updates from the Fannie Mae selling guide has caused a stir amongst the appraiser community. Especially, the clause accepting property data collection from third parties, including realtors and inspectors.

According to some industry experts, this undermines all of the training certified appraisers went through in order to be trusted with appraisals.

Furthermore, it doesn’t make sense to bar trainees who have more education on this topic, while third parties go through minimal training and can conduct the appraisal without a supervisor.

Hogan said he was leery of this particular guideline from Fanne Mae.

“I believe those inspections should be appraisers or they could be trainees. That's a perfect opportunity for a trainee to do that, right?” Hogan said. “Instead of having a realtor or even a non-realtors, there's cases out there where the person wasn't even a realtor, they just were an inspector.”

The Appraisal Institute also shared its concerns about appraisal waivers and property data collection programs in a letter sent to the FHFA.

“Of particular concern is the encouraged development of an alternative workforce of property data collectors that may negatively impact aspiring appraisers’ ability to enter the appraisal profession,” the letter stated. “Appraisal observations and inspections are eligible for experience credit by appraiser trainees. However, when this work is completed outside of the supervisory appraiser-trainee relationship, it is not currently allowed because it is not able to be logged or tracked by state regulatory officials.”

But, Matthew Stepanovich, vice president of national sales, hybrid valuations and quality control for SingleSource Property Solutions, says appraisers shouldn’t worry too much about these third-party realtors or inspectors taking their jobs. This should actually be helpful in rural areas where there aren’t many appraisers.

“If we can get somebody else out there to take away the drive time, the scheduling, the time spent at appointments and all of that …  [then] we can have them doing the real job of sitting at their desks and doing the deep dive into the valuation, so that number is correct,” Stepanovich said.

These third-party substitutes for appraisers will go through a customized training program provided by companies such as SingleSource Property Solutions, which provides mortgage services and property management solutions to lenders. They will be required to pass a test and undergo annual background checks, Stepanovich said. The training and education requirements are created and customized by each company that chooses to provide this service. Currently, there are no official training or education requirements for third parties earning this certification.

“We need help seeing more of these properties,” Stepanovich said. “Some appraisers might be aging out, and unable to go and see this many properties in the wintertime or during certain seasons.”

The success of value acceptance and third-party data collection highly depends on the market. In rural areas, where not enough appraisers are available to see homes, this could be very helpful. In other markets, many appraisers already are  in competition with one another.

“In my opinion, I don't think it's gonna take off and replace appraisers because there are skills that appraisers bring to the table that these data collectors and realtors don't have,” Hogan said.

AI PAREA / VATP: The Solution

Luckily two programs offer possible  solutions to these problems, and each one addresses challenges within the training and education process. One, however, requires the cooperation of lenders to help out trainees.

All trainees in the Valligent program need to complete their education. Then, over the course of nine to 12 months, they are supervised by experienced, certified appraisers who will ensure their trainees have access to the most recent technology tools and resources in order to successfully complete all state requirements and reach certification.

Valligent will ensure plenty of supervisors are available to take on trainees, because they have hired certified appraisers as full-time employees solely for this reason. This way, supervisors can be fairly compensated for their time and generosity. Valligent will also be hiring trainees and providing them a full-time salary as well as the latest technology and tools needed to conduct hybrid appraisals.

But lenders need to be willing to have trainees, under the supervision of their mentor, conduct appraisals for their borrowers.

“Lenders are all kind of under scrutiny about how they do what they do. So this is a way for them to partner with us and sponsor a trainee without having to pay money. Because a lot of lenders right now are hurting as well,” Hogan said. “They don't have a ton of money to put thousands or hundreds of thousands to bring on somebody and train them.”

To address supervisor’s concerns over training their competition, Valligent says it has a solution for that as well.

“The work that they're getting for this trainee is not coming from their client's base,” Hogan said.  “It's coming from a separate client base that we, Valligent, have set up in the contract with this lender. So that's not work that's coming out of their current pool of clients.”

This allows supervisors to take on more of a consulting role without the fear of them taking their business or the burden of having to employ their trainees.

Valligent is also reaching out to more communities of color and asking them if they want to get involved as supervisors or trainees, or if a lender that strongly promotes diversity would be willing to partner with them.

Hogan said about 20 to 30 trainees have signed up in the past year, and  six or more supervisors are on board and ready to go.

At the same time, the Appraisal Institute (AI) is making major headways in providing a virtual option for trainees to complete their apprenticeships. As of mid-May, AI was awarded the full grant amount of $500,000 to build its Practical Applications of Real Estate Appraisal program (PAREA) in collaboration with its partners, while AI has committed more than $2 million toward AI PAREA.

AI PAREA is an online program that allows trainees to get the experience they need through 10 simulated appraisal assignments. Meanwhile, mentor AI PAREA participants will provide tips and feedback through email, discussion boards, and more. They can also have conversations with trainees through the phone, live online tools, Zoom, and Microsoft Teams platforms.

AI PAREA is expected to roll out sometime this year and is currently accepted in 43 states. A spokesman for AI said that number is likely to increase as more states adopt this alternative pathway.