Dean Kelker of SingleSource Property Solutions: Appraisal Modernization and Obstacles to the Profession

Dean Kelker is senior vice president and chief risk officer with SingleSource Property Solutions, Canonsburg, Pa., responsible for managing regulatory, compliance and financial risks. He has more than 30 years of real estate finance experience managing collateral, credit and compliance risks for lenders, credit risks for a mortgage insurer and mortgage default investigations for a due diligence firm. He can be reached at dkelker@singlesourceproperty.com.

MBA NEWSLINK: What are some of the issues being addressed by the appraisal modernization initiative?

DEAN KELKER, SingleSource: One of the biggest issues driving the appraisal modernization effort has been capacity. Frankly, there aren’t enough existing appraisers, nor are there enough new appraisers entering the industry. When rates were at historical lows last year, many transactions were delayed simply because appraisers were too busy. The focus of appraisal modernization has been making the appraisal process more efficient and faster by matching the valuation product to the relative risk of the transaction which may include utilizing alternative valuation methods or perhaps using no appraisal at all.

NEWSLINK: Are appraisal reports not required on all home loans?

KELKER: No, they aren’t. In fact, there was no appraisal done on more than half of recent rate-term refinance transactions in which no cash was taken out.

NEWSLINK: Why would an appraisal be waived on a real estate transaction?

KELKER: There are any number of reasons why an appraisal could be waived. On a rate and term refinance, for instance, the risk is typically far lower than for a purchase or cash-out transaction, as the borrower and the property have already been previously approved, and the loan has been paid as agreed. Appraisals can also be waived for similar transactions in which there is sufficient data available to support the home’s value. Obviously, being able to waive the appraisal helps lenders keep costs down and saves the borrower time and money as well.

NEWSLINK: Are there times when appraisal waivers are granted on purchase transactions?

KELKER: In some cases, yes. The GSEs recently began granting appraisal waivers under certain conditions such as down payment amount, loan to value limitations, and minimum credit scores. Appraisal waivers for purchase loans increased during the COVID pandemic as well. We estimate that appraisal waivers are currently granted in approximately 15 percent of purchase transactions.

NEWSLINK: Why would an appraisal be waived on a purchase transaction?

KELKER: In a nutshell, appraisal waivers allow lenders to originate loans faster and effectively manage collateral risk, However, it all comes down to the overall risk of the transaction. If you have a borrower with a high credit score, good income, and strong reserves, then the agencies may allow the appraisal to be waived if there is sufficient data to support the value of the property. A waiver may be granted if the home was recently appraised, and the agency has that information in their database.

NEWSLINK: What are some of the more significant components of the appraisal modernization initiative?

KELKER: The collection of home valuation data from millions of transactions is quite significant, considering the massive volume of that data. Fannie Mae, for example, uses a database that contains tens of millions appraisal reports to issue its appraisal waiver offers.

Another important component is the recent move to allow hybrid reports, where the appraiser does the analysis, and a trained inspector inspects the property. Keep in mind that the on-site property inspection is a time-consuming task and not the highest and best use of the appraiser’s time. Since inspectors are more abundant than appraisers, using them instead is intended to create greater productivity for the appraiser.

NEWSLINK: What are some of the costs involved in becoming an appraiser?

KELKER: Most people outside the industry have little idea how much time and money people spend becoming an appraiser. The hard costs involve taking the necessary classes and completing the licensing process, while the soft costs are the more than 1,000 hours appraiser candidates invest in learning the profession through hands-on experience.

If you want to become an appraiser, however, the biggest impediment is finding an active professional appraiser to mentor you. Many appraisal shops are relatively small or one-person operations, and they can’t afford to give up the time because they are already too busy. Plus, there’s the likelihood that a trainee will go after their mentor’s clients after their apprenticeship is done. Most existing appraisers feel like, “why should I train my competition?” Even if they do find a mentor, an appraiser apprentice often doesn’t get paid during some of the apprenticeship.

NEWSLINK: How long does the apprentice go without income?

KELKER: The training period usually takes between one and two years, so an apprentice can spend a significant amount of time learning the business without making very much money.

NEWSLINK: Is the trainee allowed to earn income from other sources during this period?

KELKER: To the extent that time allows, yes. As the trainee begins to provide some useful help and contributes to the appraisal process, he or she might receive a portion of the appraisal fee. But the bottom line is that the barriers to becoming an appraiser are impacting the entire industry, which is the primary motivation behind appraisal modernization. Hopefully, the current initiatives will result in substantial relief for both lenders and people trying to break into the appraisal industry.

(Views expressed in this article do not necessarily reflect policy of the Mortgage Bankers Association, nor do they connote an MBA endorsement of a specific company, product or service. MBA NewsLink welcomes your submissions. Inquiries can be sent to Mike Sorohan, editor, at msorohan@mba.org; or Michael Tucker, editorial manager, at mtucker@mba.org.)