We have a crisis happening in the real estate market right now. No, you probably haven’t heard about it in the news, but you certainly may experience it if you are buying or selling a home in the Portland Metro area right now.
Here’s the back story. As robust as the market currently is, it was only a few years ago that we were in a mega recession. The mortgage lending industry tanked and the Federal government did a big over haul of the industry to prevent a similar catastrophe from happening again. In the fix was an effort to separate appraisers from lenders. There was a perception, and in many cases it was completely valid with both mortgage brokers and appraisers serving jail time, that a mortgage broker and an appraiser could falsify values in order to profit. To prevent this from happening appraisers were taken out of the lenders employment and control. All appraisals are now sent to Appraisal Management Companies (AMC). These are 3rd party companies who offer the appraisal request to their group of appraisers. So the lender does not know or have any communication with who will be doing the appraisal. It goes even further. A mortgage loan officer can not communicate with the appraiser at all.
Further challenging getting an appraisal done is the fact that the requirements to become an appraiser have gotten more stringent. Foremost among this is the requirement that an appraiser work as an apprentice under an experienced appraiser for 1-2 years before they are able to obtain full licensing and the ability to work independently. This is a burden for appraisers who are already swamped by their volume of work. It is hard for aspiring appraisers to find a mentor to apprentice with.
During the recession when the housing market slowed to a crawl many appraisers simply left the industry because it was hard to make a decent living.
Fast forward to today. We are in a housing boom. Portland is one of the hottest real estate markets in the entire country. The volume of houses being sold is tremendous, as is the market to refinance existing mortgages to lower interest rates. All of this means that just as the market has heated up, the appraisers needed to meet the demand simply do not exist.
I have been a realtor for almost 30 years. In all but the last year the normal turn around time for an appraisal has been 2-3 weeks. This allowed for an expected escrow period of 30-45 days. This issue with the shortage of appraisers is making the turn around time much, much longer. I think right now it is averaging 3-4 weeks. This in turn is making the escrow period 45-60 days.
This is taking away a major leveraging point for buyers competing to buy homes in this hot market. No longer can a buyer confidently say that they can do a quick close, which most sellers love. The buyer simply does not have the ability to promise a quick close. If a buyer is representing that they can, working as a seller’s agent I would be a bit dubious. I certainly would not discourage the buyer’s effort to do so. But I would counsel my seller client to be prepared mentally for the possibility of the closing being delayed by the appraisal.
A 45-60 day escrow period is actually a best case scenario. There are many, many transactions that are experiencing delays well beyond this. If the property is unusual the appraisal request may languish at an AMC with no appraiser choosing to do it. I have had a transaction where this was the case. The property was in an unusual location that was a mix of residential and commercial use. When an appraiser finally offered to take the assignment we were told it would take 2 months to complete and cost $2200!
I see a couple of things that need to be addressed. First, the shortage of appraisers will, I hope, be attractive to people who want good employment. It would be a great field to go into right now. Second, I predict that the cost of an appraisal will be going up. The old law of supply and demand should kick in. Bear in mind that the cost of an appraisal has been about $500 for decades. An increase in the cost seems likely. I just hope it is only by a few hundred dollars.
This entire issue will all settle out eventually. You can still buy or sell a house, just be aware that this issue is occurring and don’t stress about it.
I want to wish you a safe and fun holiday weekend,