Sounding Bored is my semi-regular column on the state of the appraisal profession. Its been a while since I ranted about the stucture of the appraisal industry but this time it affects the accuracy of the OFHEO data which is the standard housing market stat.
One of the problems in the lending industry today is the lack of protection for the appraiser from pressure. A recent attempt at this last year fell short as one of the sponsors of the bill was indicted.
The structure in the lending environment overwhelmingly favors form-fillers. These are the appraisers who crank out high volume, low research reports that make the number so everyone is happy. Do the report fast and make the number so you can continue to get more work. This is not just a problem with mortgage brokers, but national lending institutions are among the worst abusers of the appraisal profession. Its systematic to the point that their employees on the front lines don’t see it happening. Its weeded out many of the good appraisers and replaced them with form-fillers.
The appraisal industry gets a black eye because those form-fillers actually get called appraisers. An appraiser I am familiar with proudly markets himself as personally performing 20,000 appraisals over the past 15 years. Its supposed to infer experience and success. Its amazing to me because it infers just the opposite. Allowing for 2 weeks of vacation, thats 5.3 appraisals start to finish every day completed by one person. That includes research, making appointments, inspection, travel time, speaking with clients, billing and a host of other clerical issues. How reliable can the report be for collateral assessment?
The answer: not at all.
With all these cowboys (no offense to real cowboys) running around cranking out reports, they tend to miss the mark on value. The OFHEO data, which includes appraiser market value estimates on refi’s (incredible) shows how the appraiser’s have missed the mark in the past few years )hat tip to Calculated Risk).