The U.S. appraisal industry is facing a myriad of issues: a workforce shortage, rising regulatory scrutiny and new technology requirements that could reshape the profession altogether.
Jim Park, the president and CEO of Collateral Risk Network and a certified general appraiser, spoke with ЖильеПроволока about the challenges facing the industry. He spoke about the declining numbers of new appraisers, a lack of diversity in the field, the impact of artificial intelligence and automated valuation tools, and changes to licensing and supervisory требования.
Примечание редактора: Это интервью было отредактировано для обеспечения длины и ясности.
Sarah Wolak: Can you give an overview of what’s happening in the appraisal space right now?
Jim Park: Let me start with a little background on the regulatory system and a little background on me personally.
First and foremost, I was the executive director of the Appraisal Subcommittee from 2009 until the end of the year before last. I’m a certified general appraiser. From 2000 to 2003, I was on the Appraisal Foundation staff — the first appraiser to work there. I later served on their industry advisory council, chaired the council and was on the board of trustees until I joined the subcommittee. I also worked at Lehman Brothers from 2003 to 2008, seeing that whole debacle from the inside. So I’ve got quite a bit of varied experience in this area.
The appraisal regulatory system has been around since 1989. It was created by Конгресс as a result of the savings and loan crisis in the mid-1980s. Congress felt that appraisals didn’t cause the crisis, but they exacerbated it. I think we saw the same thing in the last financial crisis, where the appraisals didn’t lead to transactions failing, but the lack of accurate, credible results made it worse.
The system has three main players: the private sector, represented by the Appraisal Foundation, the states and the federal government. The foundation was given authority to establish minimum qualifications and uniform standards, known as USPAP. The states enforce these standards and their own laws.
Congress also created the Appraisal Subcommittee to oversee the states. The subcommittee does compliance reviews every two years and has limited enforcement authority, including something called nonrecognition, which could invalidate appraiser licenses in a state, effectively shutting down commercial and mortgage lending.
The subcommittee has little oversight over the foundation. Initially, we could provide grants to the foundation, which was our only mechanism for influence. Over time, that relationship degraded, and when the foundation opted out of grant funding around 2019–2020, the subcommittee’s ability to influence them became very limited.
I’m sharing this history because it leads to my significant concerns with what the Qualifications Board is proposing. When Congress created this system, they intended, as stated in a 1990 report, to establish minimum qualifications along with uniform standards, USPAP. The idea was to set clear barriers to entry for getting your license or certification. It was always based on minimum qualifications — basically, do you have the right skills to move on and become an appraiser? It’s not unlike getting a commercial or military pilot’s license, where tests determine if you’re qualified to move on.
What I’m getting to is, they have shifted from a minimum qualifications regime to one based on competency, and it’s completely different. A competency hurdle is a significantly higher bar. Competency is specific to a situation: Am I competent to appraise a single-family property? Am I competent to appraise the Empire State Building? You gain competencies as you go through your career. The reason I’m focusing on this is, we have a huge problem in the appraisal industry with a lack of people coming in.
SW: That’s interesting that the industry is making the qualifications so subjective, given that there aren’t a lot of people jumping into the space.
JP: The qualification criteria right now consist of education, an exam and experience. Congress did not intend for experience to be part of the equation. They say in one of their reports that they intended for appraisers to be credentialed like lawyers and accountants.
You take the requisite condition — education — and take the exam. If you pass the exam, you become qualified, you get your license for certification and then you get your experience. But what they have done is require this experience component. And the problem with that is there is an insufficient number of supervisors for these aspiring appraisers, right? The foundation has said they’ve got a list of 4,000 people who can’t find a supervisor and want to be appraisers. So that has led to a declining number of appraisers.
Now, I’m not going to pretend that concerns about AI aren’t also a drag on the number of people getting into the profession, but that’s not the long pole in the tent. The long pole in the tent is getting past the criteria, which are subjective.
So it’s really difficult to find supervisors, and in a lot of cases, people just give up. In other cases, they find supervisors who have no idea what they’re doing, so they get bad training. I followed in my father’s footsteps and I was lucky because I had a father to train me. And what you find out is, I bet 50% or more were trained by mom, dad, brother, uncle or some familial resource, which led to a lot of appraisers, frankly, looking like me — older white men.
A few years ago, the appraisal occupation was the least diverse of any occupation in the country. So I’m suggesting that the subcommittee provide a pathway to allow people to take the appraiser exam after they get their education, without having to get the experience.
SW: What is the alternative, given that 4,000 people are without supervisors?
JP: The experience requirement fails at every level. Just finding a supervisor is extremely difficult. There’s no way to know that if you find a supervisor, are you getting somebody who is somebody who really wants to teach you how to be a good appraiser, or somebody who wants to take advantage of you to make money?
This is really bad in rural America, and in the inner cities, it’s even worse in terms of finding a supervisor. So even if you find a supervisor, now you’re going to take those sample appraisals and you’re going to send them to the state. The state’s charges determine whether they comply with USPAP. There’s no such thing as 100% compliance, so do these appraisals that some other appraiser, who might be their competition, sit in judgment? They’re going to apply their subjective decisions right on these reports.
It’s also not uncommon for the trainee to go to the board with their sample appraisals and the board finds problems with the appraisals. When that happens, they don’t point the finger at the trainee; they point the finger at the supervisor.
SW: Being a supervisor is a risk in itself then?
JP: Supervisors get nothing.
SW: I wanted to ask about Advisory Opinion 41, which guides appraisers on the responsible use of modern technologies, including artificial intelligence, machine learning and автоматизированные модели оценки (AVMs) while ensuring compliance with USPAP.
JP: I don’t have as many concerns with this for one reason: It’s advice. But my concern with that is I think the ASB (Appraisal Standards Board) is overestimating appraisers’ ability to understand the underlying basis for some of the artificial intelligence.
Say you’re using some type of artificial intelligence to gather comparable sales or historical information on the market cap rate, to do whatever you might be using it for. Pretty much all of the algorithms are proprietary. Even if the algorithm was laid bare to the appraiser, they’re not going to understand.
So my overall concern is if the expectation of appraisers — and maybe even more importantly, that of regulators — is this fundamental understanding of the algorithm that’s driving the conclusion they’re using in their report. And what we’ll end up with is other people doing these kinds of assignments, instead of the best-qualified people, who are appraisers.
SW: Are there other risks with the new Uniform Appraisal Dataset 3.6, the revised standard that will be required for conventional loans submitted to Fannie Mae and Freddie Mac?
JP: So, depending on who you talk to in the industry, there is an expectation that between 5% and 30% of the appraisers are going to leave the business completely — or at least refuse to do work for mortgage lending that’s going to Fannie or Freddie. We’ll see how that plays out.
But given the average age of appraisers is 60-plus, it’s just a whole new world, particularly for older appraisers, and there’s a lot of concern that they’re going to bail one way or another.
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