A recent survey was sent to more than 300 review appraisers and underwriters in financial institutions across the country, including the Top 10 banks and small community banks after it was completed by their customers. NAIFA received a statistically significant 39 percent response rate.

“The responses to each question were analyzed with consideration to the respondent’s specialty (commercial or residential review or underwriting),” Foley said. “For example, review appraisers who review commercial appraisals exclusively did not answer the questions relative to residential appraisals. The identity of the respondents has been kept confidential.”

Through other eyes

The report offers a revealing look at how financial institutions view appraisers and what they are looking for from a valuation professional. Kern said the information will be used to structure NAIFA so the trade group is providing as much information as it can to help its members be better appraisers and better professionals.

“We are also going to use this information in our long-range planning with regard to educational offerings,” she said. Kern said options include developing courses to help appraisers improve their communication skills. Courses also could be used to help other mortgage professionals understand appraisals.

The survey contains some telling responses, including what lenders are looking for when considering appraisers for their approved lists. Foley noted financial institutions typically look at resume/qualifications, sample appraisal reports, copy of state license and E&O insurance. According to the report, 34 percent of the respondents indicated that they also interview other review appraisers (references), and 40 percent stated that they consider designations or membership in professional organizations.

“Interestingly, 46 percent indicated that they do not necessarily receive a better quality product from designated individuals,” according to Foley. “Fifty-four percent of the respondents indicate they do generally receive better quality products.” Foley pointed out that a frequent comment from respondents is that appraisers who hold professional designations have demonstrated a commitment to education. Several indicated that they would first seek designated appraisers in markets where they was not already an established appraiser list. According to the survey, 35 percent of the respondents had responsibility for dealing exclusively with residential appraisals.

The report card says…

“Not one of those responders gave residential appraisers a grade higher than ‘C,’” Foley reported. “The most common complaint was that residential appraisers do not go beyond simply filling out the form.” When it comes to the “C” grade, Foley said review appraisers likely are stating clearly that too many residential appraisers are simply filling in a form and are not providing valuable analysis.

“Land value is too often simply based on ‘file data; or tax assessment, and the reviewer has no idea whether or not it’s reliable,” he said. “Adjustments rarely are supported by market data that is discussed in the report. Too often, there is no evidence that the appraiser is actually analyzing and reporting on the current market.” Foley pointed out reviewers of residential appraisals consistently stated that they would like to see more narrative addenda that gives them the confidence that an investigation of the market has actually occurred.

What they say

“As I read through the responses from those who review residential appraisals, it is my opinion that residential appraisers are seen as not adding substance to the loan decision making process,” he said. A general theme from reviewers of residential appraisals was there is insufficient analysis or commentary to support adjustments and conclusions.

“Residential appraisers consistently received a grade of ‘C’ for the quality of the service they provide to their customers,” Foley noted. Commercial appraisers fared somewhat better than their residential counterparts, according to Foley, who noted 60 percent of respondents stated the quality of the reports they receive from commercial appraisers gets a grade of “B” or better. Just 27 percent of the respondents with the responsibility of reviewing commercial appraisal reports gave commercial appraisers a grade of “C” for the quality of their work.

To raise that grade, Kern said appraisers could probably be more thorough in completing their reports. “They could be more thorough in their explanations and try not to make things so brief so they can get the assignment out the door,” she said. Foley pointed out that many commercial reviewers said if their approved appraisers don’t maintain a quality rating of “B” or better, they would no longer receive work. Just 6 percent of the respondents said they look for professional designations to show an attempt to be “above average,” bust stated that the majority of their fee panel is “very average.”

Service with a smile

When it comes to customer service, 56 percent give their commercial appraisers a grade of “B,” while 27 percent offer a grade of “C.” According to Foley, 70 percent of the respondents stated that “on time” delivery was a major issue with all of their appraisers. “These same reviewers also made a point of urging appraisers to communicate with their clients, especially if issues arise during the appraisal process, and to proactively participate in the review process,” Foley said.

According to the survey, 67 percent of the financial institutions surveyed have published appraiser guidelines that are available to appraisers online or are included in the engagement letter. Forty percent stated that their financial institution requires the cost approach be completed, or at least that a land value be provided and supported.

The NAIFA survey also found that 60 percent of the financial institutions surveyed don’t believe that appraisers do not fully understand the Scope of Work and 67 percent don’t believe that appraisers fully understand the requirements of USPAP. Among that group, 40 percent said appraisers rarely analyze or discuss an existing contract and 13 percent said that appraisers do not understand that reports cannot be readdressed. When it comes to declining markets, the numbers are more alarming. According to Foley, 60 percent of the respondents believe that appraisers don’t adequately address/support increasing or declining markets.

“Most indicated that appraisers ‘tend to paint a rosy picture’ and suggest that less than 10 percent of appraisers in declining markets even recognize it,” he noted. “A general theme of the respondents is that they want to see honest market analysis that assists them in making intelligent underwriting decisions.” According to Foley’s report, 67 percent of the respondents consider a market-supported land value estimate to be an important component of an appraisal. “Most of these indicated that commercial appraisers generally provide adequate substantiation for land value, but that residential appraisers do not,” he pointed out. “Several stated the typical ‘support’ in a residential appraisal references tax assessment or some sort of ‘file data.’”

A little advice

The survey also asked review appraisers and underwriters what advice they would give an appraiser who is genuinely attempting to build a relationship with their institution. The survey also asked what types of things are most likely to cause the removal of an appraiser from an institutions approved list.

The general theme of the responses were:

> Non-responsive or chronically late;

> Not providing adequate market support for conclusions;

> Careless mistakes (several references to adjustments in the “wrong” direction);

> Lack of cooperation in the review process;

> Unsatisfactory quality; and

> Unwillingness to consider additional information.

Foley said the survey indicates that as a profession, the appraisal industry has plenty of room for improvement. “Residential appraisers are receiving quality and customer service grades of ‘C,” while commercial appraisers are perceived as providing somewhat better quality and service,” he noted. “In general, appraisers’ institutional customers do not see the profession as having excellence in any category.”

Designation debate

In recent years, the debate over the importance of membership in any of the national trade organizations has heated up. Foley pointed out that there is a perception that the usefulness of professional designations has diminished with state licensing and certification requirements. A majority of respondents did indicate they at least consider professional membership, where some may even recommend appraisers pursue a designation.

“I see this as a call to honestly continue the learning process, not simply meet a state’s minimum criteria for license renewal,” Foley noted. Another component of the survey was its call for comments and more than a few of the respondents took advantage of the opportunity to comment on the appraisal industry. “I believe mortgage lending institutions are a big reason for poorly conducted appraisals,” one respondent wrote. “Turnaround time, low fees and the disdain for the appraisal process are ingrained in the mortgage community.” Foley questioned how the appraisal profession can combat such a perception.

“We read comments form many residential appraisers who indicate they are regularly receiving requests from mortgage brokers/lenders for services that seem to be in violation of at least the spirit of federal regulations,” he noted. Ohio made it illegal for mortgage brokers to attempt to influence the appraisal process and Foley said he wondered whether other states or the federal government would follow suit. A number of respondents confirmed that major appraisal clients want to engage appraisers whose work product will make their jobs easier.

According to Foley, a number of respondents to the survey offered advice for those on the review or engaging side of the process. They urge financial institutions to consistently provide appropriate information to the appraiser, including specifications, guidelines and expectations and to be a part of the “scoping” process. Another warned that financial institutions should not “expect a thoroughly documented report” if they “badger down the fee.” When presenting credentials to a prospective client, Foley said appraisers should include recent, meaningful education and adequate references.

Many reviewers will ask these questions about an appraiser:

> Do you openly and honestly communicate with your customers?

> Do you consistently deliver a quality product that does not require e-mails and/or telephone calls from a reviewer or underwriter?

> Do you deliver on time?

>When questions arise, do you proactively participate in the review process?

> Do you strive for excellence?

The survey, according to Foley, indicates that financial institutions seek appraisers who will provide significant contribution to the underwriting and collateral valuation process.

“Lenders want to understand the markets where they’re making loans,” he noted, “They want honest analysis and appraisers who will corroborate their value conclusions with convincing market data.” The results are only an impression of the appraisal industry. They are not cast in stone and certainly could become a catalyst for change. “Certainly I would hope that appraisers would see these results as a call to change,” he said. “Those who use the services of residential appraisers are generally seeing ‘average quality’ in both product and service.” If real estate appraisers are to be seen as professionals, then their work product and their customer service must improve significantly, according to Foley.

Foley said appraisers need to be willing to stand up and demand quality from their education providers. “Unfortunately, some states pander to mediocrity with the way the continuing education requirements are administered,” he said. ” Many states mandate 28 to 30 hours of continuing education in every two-year cycle; some states require 14 hours of continuing education every year. If every state were on a two-year education cycle, then appraisers may be more inclined to take two-day, three-day, or even five-day courses that would expand their knowledge and challenge their status quo.”

Too many continuing education courses amount to little more than an “exchange of war stories” for 7 hours and appraisers do not leave that classroom with the knowledge of ways to be better appraisers and provide a more valuable product.

“Worse yet, many appraisers are satisfying their continuing education requirements online and are failing to interface with their peers and benefit from that interaction,” Foley said.

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