Home appraisals are taking longer to complete and costing more, and that is vexing home buyers, mortgage borrowers, real estate agents and loan officers along the northern Front Range.
“As the Denver real estate market has roared back, we’ve been met with a shortage of appraisers to keep up with the record number of homes that are going under contract and being sold each month,” said Anthony Real, chairman of the market trends committee at the Denver Metro Association of Realtors.
Rael’s research shows that the cost to appraise a standard home in metro Denver, which ran around $350 a few years back, is now costing closer to $600 and looks headed on its way to $800. Some of that increase reflects the rush fees that already overloaded appraisers are charging to meet closing deadlines.
Closing deadlines are getting pushed back because of the appraiser shortages and complicating life for buyers and sellers alike, and in some cases causing tempers to flare, Rael said.
“It is worse than you know,” said Lou Barnes, a veteran loan officer with Premier Lending Group in Boulder. “There are simply fewer appraisers. We are running into a time-versus-price auction.”
The tightness became noticeable when the metro Denver housing market started heating up again in 2013. But the breaking point came this summer when the Brexit vote caused interest rates to plunge, setting off a surge in mortgage refinancings in the middle of the peak home selling season.
Appraisers, booked solid, charged premiums to get the work done and the level of desperation grew.
Warren Boizot III and Ned Garber both work seven days a week, 12 hours a day with their Denver firm BLG Appraisal Group, taking only two weeks off a year for vacation to recharge and a day now and then to attend courses to stay on top of their craft.
They have followed that crazy schedule, winter and summer, since 2013, motivated by memories of the housing crash where work was hard to come by.
“We are working as hard as we can,” said Garber, who is quick to add he isn’t complaining.
The appraisers said they are booked three weeks out. If someone wants to get in faster, they and other appraisers charge a fee, which irks some in the real estate industry. But if they promise a delivery date, it is as good as gold.
“It is a grind. Some day I will wish I had a Sunday off,” Boizot said.
Boizot said for every appraisal he accepts, there are about 15 to 20 that he turns away, either because the timing doesn’t work or the customer doesn’t want to pay a rush fee.
He uses the analogy of someone needing to see a dentist on short notice for a hurting tooth. Dentists book patients months ahead, but can keep the office open late on short notice at an added cost.
As with so many things wrong about today’s real estate market, the problems go back to the housing boom and bust. When the housing market came to a screeching halt, a lot of appraisers had to find other work to survive.
Regulators cracked down, trying to create distance between those requesting appraisals and those doing them and they boosted training requirements and the amount of time it took to do an appraisal.
Licensed appraisers must have an associate degree or 30 credits of college coursework and take 150 hours of appraisal-related courses. Certified appraisers, a step up, need a bachelor’s degree or equivalent.
Back in 2007, Colorado had 3,431 licensed and certified appraisers, but this year that count is running close to 2,500, said Eric Turner, education, communication and policy manager with the Colorado Division of Real Estate.
Not only are there fewer appraisers, but as a group they are getting older, with an average age nationally of 53. And hardly any new ones are coming into the fold in Colorado, even though work is plentiful.
Last year, the state issued just 52 new licenses or approved an upgrade of a licensed appraiser to certified. This year, the number of new entrants or upgrades is running around 37.
“Out of that 52, more were upgrades than new licensees,” Turner said. Contrast that with the loss of about 100 appraisers a year on average in Colorado since 2007.
So why aren’t more college-educated and underemployed millennials rushing into the field? To obtain a license, an appraiser must spend 2,000 hours in an apprenticeship over the course of a year or more with an experienced appraiser. A certified appraiser must spend 2,500 hours across two or more years.
The only way to become an appraiser is by doing appraisals, and there’s the rub.
Garber and Boizot said they are so busy, they don’t have time to train anyone. Even if they did, they don’t know of a noncompete agreement strong enough to keep an apprentice in this market from walking out the door with a year’s worth of training on their dime.
“No one wants to take an apprentice under their wings,” Garber said.
Not only are there far fewer people doing appraisals, each appraisal takes much longer to complete — about six to eight hours on average — and the penalties that come with getting it wrong are much higher.
“The way the system has changed, it is becoming more cumbersome and less profitable,” said Thomas Raff, a certified appraiser in Westminster. “The report is more comprehensive now than it has ever been. It takes much more time.”
Trying to pin down values in a rapidly moving market like Denver’s is a more complicated task than working in a flat and stable one, which in turn exposes appraisers to more risks if they get it wrong.
“The analysis of comparables is a black art and very valuable,” Barnes notes.
Buyers, after getting repeatedly outbid, can become so desperate to win that they make inflated offers above already elevated list prices, leaving appraisers to absorb their wrath when the valuation comes up short.
“My job is not to hit that contract price,” Garber said. “We are not obligated to hit that number.”
Coming in low, if anything, actually is more time-consuming, in that it requires dealing with more complaints. But appraisal objectivity is an important line of defense in protecting the financial system, he said.
Boizot said one change that could go a long way toward making the home sales process more efficient would be basing the list price on an actual appraisal, rather than an agent’s estimate.
Appraisals are one of the last pieces to fall into place, and buyers and sellers rush toward a closing. Any kind of delay further up the chain often shortens the time appraisers have to get the job done, he said.
Housing sales are already leveling off as summer moves into fall and a slowdown could become a more permanent feature. If mortgage rates rise, that too could put a dent in demand for refinancings.
Still, the more pressing problem of not enough appraisers working the craft remains.