It comes as no surprise that most of the appraisers I connect with during my workday are currently concerned about the 2023 outlook for the mortgage lending industry. It makes sense considering mortgage appraisal work has been a fairly steady occupation for professional fee appraisers like us, at least, until now.
So, it’s natural for those appraisers, who are dependent on mortgage lenders for their livelihood, to worry about whether demand for appraisal services will be enough to sustain a living income. Is the appraisal business still worth making a career out of? The answer is complicated.
As of this writing, the mortgage industry is not growing, but rather shrinking in the face of higher interest rates and other difficult economic headwinds. The hot real estate market has been cooling throughout 2022 and many appraisers are seeing their workloads fall dramatically. With more than three decades in the profession, this seasoned appraiser has experienced this before. I’ve seen downturns, not just at the very beginning of my career, but also survived sustained, multiple down cycles throughout.
So, pulling from that wisdom, I can offer this viewpoint on three potential, but not exclusive, outcomes:
- After the current pause, meaning things stay flat-ish into the first quarter of next year, demand will return to more normalized levels, though it’s notable that a true definition of normal has been elusive for nearly a decade in the mortgage industry.
- If economic conditions deteriorate further, then there will be a sustained period of low demand, and many appraisers will be faced with difficult choices on if and how to sustain their business.
- Appraisers will take advantage of the downturn to adapt their business models to service a wider range of valuation products and clients for when the market begins to return, either sooner or later.
The third option should be on everyone’s wish list. Embracing appraisal modernization is a factor for all of us to seriously consider, as investors will look for new ways to assign value to the collateral pledged for lending products, especially when those assets are facing re-evaluation. This is causing some to speculate that in the future, professional appraisers won’t be as necessary for the mortgage business.
Taken together, these factors seem to point to a mortgage business that is not growing now and may not be for quite some time, as recent events have shifted borrower motivation to consume other lending products. What does this suggest for professional fee appraisers?
While the mortgage industry grows and shrinks as the needs of the market dictate, there is no reason our profession can’t continue to grow. And there is also no reason, we can’t grow into new and exciting areas.
Separating the appraiser from the appraisal
I believe that there are many industries and other lines of business that an appraiser can serve. The mortgage origination line of business is just one of them. I’ll point to some other opportunities in a moment, but none of them will be accessible to an appraiser who feels their only purpose is to serve the mortgage origination industry.
I don’t think of our work confined to an “appraisal industry” because I consider the business of providing valuation services, including real estate appraisal reports, to be a profession. We are not limited to providing services to a single industry, but rather are free to serve a wide range of businesses and industries, provided we can demonstrate competency and professionalism in our activities, upholding the confidence and trust required of the profession.
Trust and confidence are key to appraiser success and they have to be earned. To be a member of a profession requires a person to achieve professional status by earning credentials, through structured training, including classroom instruction and practical experience under the supervision of a seasoned professional, and then securing clients or a captive audience that requires their services.
This sets people in our line of work above many other professionals because you can’t just hang out a shingle and go to work as an appraiser. Earning our place is often achieved through expansion of our skill set and developing and maintaining professional relationships.
Those who have made it this far are truly exceptional. While many appraisers primarily service the mortgage industry, our skills are transferable and can open up a wider range of opportunities than just for mortgages.
Growing as a professional appraiser
Interestingly, I believe the appraisal profession can grow even into other industries that are also shrinking.
Over the past few years, we’ve seen a number of new technologies developed to enhance the real estate experience, including the use of laser technology to provide the basic data points for floor plan creation and development. This technology has multiple uses in the real estate space and is not exclusive to appraisal. Some appraisers will shun these advancements for fear of it cutting into their role as primary data collectors. Others will embrace them.
I consider it part of our responsibility as professionals to make the best use of any new tool, whether it be laser measurement tools using light detection (Lidar), or some other, new technology in order to offer the best service to our clients. Without the appraiser’s use of new tools that bring value to the process, it will not improve the end-to-end valuation process, only one part of it.
It falls to the appraiser to adapt their existing process by integrating the latest tools and technologies. Appraisers have a long history of incorporating new technologies into their processes. It’s the only way to ensure that the service they provide is the most effective solution for their clients. That’s one opportunity for growth because those professionals that offer the most effective solutions always win more business. The other is for appraisers to look more closely at the industries they serve with an eye toward expansion.
Many appraisers today are rethinking their business model that solely relies on mortgage origination. For example, their skill set and tools apply directly to other aspects of real estate lending, including appraisal products supporting HELOCs and loan servicing including PMI removal and the loan repayment and resolution management. While some of these business lines have the flexibility to accept appraisal products that do not require a “full appraisal”, many do require a valid, reliable estimate of value prepared by a professional appraiser.
Many successful appraisers I know understand this, and have invested the time and resources to understand the needs and appraisal requirements of other business lines and industries, and have built a broad network of clients. Additionally, attorneys, financial planners and tax planners, taxing authorities and individual taxpayers are often in need of appraisal services.
Many of these alternative opportunities are directly impacted by the same forces that are driving the purchase money mortgage business. As with many things in life, when we broaden our lens of view, opportunities will present themselves. Knowledgeable and valued professionals, who provide useful appraisal services, can grow their businesses and reduce their market downside risk against the ever-changing housing market.