Accept the challenge!

David Braun , Research Fellow

Editor's note: This is a Web excerpt of a much longer and more comprehensive article by David Braun. Download or view the full version as a PDF by clicking here.

Anxiety has reached an epidemic level in the appraisal industry. It all started with rumors of a Monstrous Computer System that was quietly being built in the basement of such mortgage giants as Fannie Mae and Freddie Mac. Have these entities, who were once our friends, turned against us? We have been told the creature will have the strength of ten thousand appraisers, and having read Shelly's novel Frankenstein, we townspeople are not happy about it!

Many appraisers seem to be frozen like a deer staring into the lights of an oncoming car. Has anyone had dealings with a disgruntled borrower who felt that the appraiser knew too much about their property and neighborhood? On the other hand, computers can do some pretty amazing things and borrowers want to keep closing costs down. Further, the appraisal industry has just experienced a six month slow down, maybe an indication of things to come. So, where does this leave us? Most of us are trying to come up with short and long term plans of action. In order to do so, we must have an accurate view of the environment we are working in. Appraisers are basing future plans much more on gossip and speculation than factual information and common sense. This type of analysis is very similar to a witch hunt, and just about as productive. After all, someone once said, don't worry about what you can't change. So, let's talk about what you can and should be doing.

You should be discarding any doubts you have about the appraisal industry and yourself. Our industry anxiously met, and I believe exceeded, all regulatory demands on education, training, and experience that resulted from FIRREA. During the recent unprecedented mortgage lending brought on by the lowest interest rates in fifteen years, most appraisers worked night after night and weekend after weekend. Yes, our earnings increased, but for most the primary motivation of working extra hours was to serve the needs of our communities and friends. You may be concerned that you are not as computer literate as you should be. Keep in mind, that the technology required to make a real difference is only now becoming available. So, if you are the typical appraiser you are well educated and trained, work hard, and are not afraid of a challenge. You have contributed as much as anyone to making the American dream of owning a home a reality. If another appraisal is never ordered, you can hold your head high!

But don't retire quite yet. We are still needed. Perhaps our industry leaders could have been more flexible and demand driven, but I assure you they could not have worked any harder or sacrificed more. In fact, we could not be in a much better position to face this Monster. Sometimes it is difficult to see the forest for the trees. We have been estimating market value for so long that maybe we have forgotten why. We do this to help lenders manage the risk side of their loan portfolio. Remember that there are many types of risk. We deal in that group of risks that are associated with real estate markets. Usually, aspects of these risks are analyzed, or at least touched on, in a property appraisal where market value is estimated. The question is, are the benefits (dollars saved) greater than the cost (time and money) of the appraisal service? The problem, or more appropriately the challenge, is to provide services where the benefits outweigh the costs.

The appraisal industry has recently undergone extensive restructuring. The biggest change is the focus on the "Scope of Work" by the ASB. We have a solid understanding of the theory of valuation and offer a wider range of services than ever before. Computer technology has vastly improved our ability to perform appraisals and their content and reliability. Furthermore, we can continue to evolve by improving existing appraisal techniques and by finding new ways to help keep the risk, and therefore mortgage interest rates low enough to perpetuate the American dream of home ownership.

We can do this by improving the tried and true market value estimate and seeking other risk management tools that we are uniquely qualified to provide. Today's appraiser can improve performance in terms of turn–around–time and accuracy by use of computer integration and automation. Computer assisted appraisals have fewer mistakes and allow the appraiser more time to better research sales information. Modern techniques such as modeling (something most of us have been doing all along, but didn't know it) are leading to the acceptance of new valuation theories and techniques. We already provide information to the underwriters to aid in risk management. I am just wondering if we could provide more.

Yes, monsters do exist! There are two types; imaginary and real. Both are created by human beings. Perhaps Huxley said it best, "One of the many reasons for the bewildering and tragic character of human existence is the fact that social organization is at once necessary and fatal. Men are forever creating such organizations for their own convenience and forever finding themselves the victims of their home–made monsters." There may come a time when appraisers are replaced by AVMs. However, this is not the time. Both the appraiser without automation and the automation without an appraiser are inadequate. Many of today's "Appraiser Assisted" systems have the right idea, but the computer tries to do too much for the appraiser.

There are a number of real challenges facing us at this time. The general public deserves for all valuation services to be performed by state licensed and certified appraisers. Many of these services are being performed by individuals with less training and experience even though most appraisal offices are operating below their normal capacities. Perhaps, the most important thing we can do is get involved with the entities that control how we provide services to our clients. This includes the Appraisal Foundation, state agencies and commissions, and professional appraisal organizations. We will have to change our day–to–day business operations to adapt to this new environment.