With Respect To Low-Cost Appraisals

The niche for low-cost Fannie/Freddie residential appraisers will likely continue for years – at least as long as we have a rebound in the housing market from time to time.

Hybrid appraisals are here to stay. The mortgage system thrives on low-cost solutions.  At the GSE/Fannie/Freddie level, accurate appraisals, while good, – are not that useful – because of all the risks in the market that make accuracy only so valuable.

So, there you have it. The typical residential appraiser’s job is safe for the foreseeable future.

However, the low-cost beast will attempt to advance whenever it sees an opportunity. Unfortunately for that beast, working appraisers need to make a decent wage.  With population changes, the expectation that manufacturing production, sales, and services will be growing rapidly in coming years. people working as appraisers will have increasingly better income opportunities as time goes on. The older appraisers will most likely stay in the game for another several years.  However, there is not much to lure young people into the profession. So, stresses will develop, and automation will be under pressure to relieve the stress if it can.  Changes will come eventually.  But it is hard to predict what they will look like.

Until the prediction of house pricing trends can be greatly improved, we can’t get beyond Market Value as a means of estimating future liquidation value. That makes Market Value for home loans only so valuable, or rather 80% of Market Value (aka LTV) – as an estimation of future liquidation value.

We could improve the current system by backing away from a fixed LTV. It should be reduced as we head into bubbles – and that would indeed reduce the likelihood of a collapse. But the citizenry of homeowners doesn’t want that – they want the price to keep getting higher as fast as possible. And the real estate agents and lenders don’t see such a policy benefitting their current paychecks. So, we may be stuck with that fixed 80% LTV. That puts stress on the usefulness of Market Value as the basis for Mortgage Lending Value. Maybe it will be overlayed by AI predictions of home prices. – Yes, I see that coming. If such systems are developed then MV may become more useful – and thus accurate appraisals. But that is years away, maybe decades.

So, it would seem that low-price GSE/Fannie/Freddie appraisers will be around for a long time, at least as long as their fees are competitive with career alternatives.

As for me. I would go off in the complete opposite direction, building a system that delivers highly accurate valuations. Such a system might also find niche applications – and appraisers willing to follow such protocols. Time will tell. But that too is years off.

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