Effective strategies for managing an appraiser shortage

By Beverlea Gardner

Is there an appraiser shortage? While most appraisers say no, longer turn times plus publicly available data suggest otherwise. Since peaking in 2007, fewer appraisers have been needed due to reduced demand and improved productivity through technology. However, a continued decline in the number of appraisers per data from the Federal Financial Institutions Examination Council’s Appraisal Subcommittee data indicates a potential shortage.¹And, it takes years for new entrants to meet educational and experience requirements before they can independently perform assignments that comply with the Uniform Standards of Professional Appraisal Practice.

This developmental time period creates a lag in meeting a surge in demand with a corresponding increase in appraiser capacity. The graph below shows that commercial real estate loan volume in all banks grew 6% annually over the past five years due to a combination of new construction, appreciation, and other factors.²Overlaying the graph with the Appraisal Subcommittee’s statistics reveals that the number of certified general appraisers increased by just 0.6% during the same timeframe.

The subcommittee data reflects a modest uptick in the number of certified general appraisers, with a growth of 678 individuals over the 10-year timeframe from 2015 through 2024, reaching a total of 39,935 by the end of 2024. Nevertheless, these figures overstate the true count, as many certified general appraisers hold a credential in multiple states. A more concerning trend emerges when examining the number of unique certified general appraisers, which has declined by 20% over the past five years, as illustrated in the following graph.

A deeper dive into the database finds about 91,000 credentials are held by 66,715 appraisers –– which may still overstate their level as U.S. Bureau of Labor Statistics employment data reported 59,070 as of May 2024.^3,4The industry’s outlook becomes more concerning when we factor appraisers who are not actively practicing into the scenario. One industry source estimates that 15% of all residential appraisers are not currently engaged in providing appraisal services.⁵Overall, the data corroborates that there is a declining trend in the number of property appraisers.

Effective strategies to ensure that lenders’ ability to process real estate secured transactions in a timely manner is not impacted by a scarcity of appraisers include:

Use more carrot, less stick

Pay appraisers well for delivering good-quality appraisal reports that support the value conclusion while saving your organization money due to less staff time spent on “fixing” them.
Engage appraisers for their expertise, as the valuation process can be more art than science at times, especially when little supporting information is available.
Respect reasonable turn times rather than requesting rush appraisal deliveries when they are truly not needed to maintain report quality and reduce appraiser burnout.

Order alternative value products when appraisals are not required

Use regulatory exceptions from the appraisal requirement and order alternative valuation products to originate small-dollar loans and renew credit to existing borrowers, even if new funds push the loan amount over the regulatory dollar thresholds.
Form strategic partnerships with third-party vendors who leverage technology to deliver compliant alternative valuation products in a cost-effective and efficient manner, instead of vendors who generate “low-cost, low-quality” products that may not comply with the regulations.
Create mutually beneficial relationships where lenders receive conforming evaluations and validations in shorter turn times while borrowers obtain loans with lower closing costs.

Stop policing typos, start managing risk

Setting clear thresholds (materiality tests) within the review process for both residential and commercial transactions permits reviewers to accept minor mistakes without having to contact the appraiser or vendor. This strategy enables all parties (reviewers, appraisers and vendors to focus their time on what really matters –– errors that potentially raise legal concerns or materially impact the value conclusion.

The materiality tests can provide parameters that address three primary types of significant concerns:

Legal Errors. Correct key factual mistakes in legal information, property characteristics, legal description, owner or borrower names, address, county, zoning, regulatory definitions or appraiser certification.
Bias or discrimination. Investigate allegations of appraiser bias or discrimination whether internal or external.
Mistakes in value conclusion. Establish thresholds based on the value conclusion to determine when errors are or are not material. For example, some organizations set a “3% rule” –– errors that impact the market value by 3% or less are accepted –– no revisions requested.
Disregarding minor issues can be difficult. However, typographical, grammatical and stylistic preferences that do not meet the materiality test are inconsequential. Mention them in the appraisal scorecard if necessary, but they do not warrant further pursuit.
Verifying the accuracy of the property description and ensuring all essential information is available at the onset of engaging the appraiser or vendor will minimize errors, reduce costs, and improve turnaround times.

Begin building your bench, starting three years ago

Waiting to build your bench is like waiting for avocadoes to ripen. Oops, too late!
Seek competent appraisers as well as newer entrants to the industry for your approved vendor panel. Third-party vendor management should focus on quality, not quantity.
Offer internships to potential new candidates who can train under a qualified supervisory appraiser.

Mind your manners

Treating appraisers and vendors in a professional manner throughout the process will promote a corroborative rather than an adversarial relationship.
Providing appraisers and vendors with a “scorecard” that rates their performance and product can give them constructive feedback and assist lenders in deciding whether they should be engaged for another assignment.
Developing a value conclusion involves assumptions and estimates. A market value that significantly differs from expectations may mean the lender needs to reassess the loan, not that the appraiser botched the assignment.

What does the future hold?

The data shows the financial industry is facing a potential shortage of appraisers. Whether there will be enough appraisers to complete residential or commercial real estate assignments in a timely manner in the future remains to be proven. Lenders who implement effective strategies to allocate appraiser resources based on transaction risk, apply materiality tests in their review processes, and use compliant alternative valuation products when permitted can minimize the impact of appraiser shortages and stay competitive during periods of high loan demand.

Beverlea “Suzy” Gardner is a former senior examination specialist and special assistant to the FDIC board chair. A recognized expert in real estate valuation, Gardner trains examiners, bankers and appraisers through Trusted Advisors GAP Services. She provides regulatory advice to financial institutions, individuals and firms, and Eval.com. She can be reached at (318) 265-7922 or [email protected].

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