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By G. Steven Bray
Yesterday, we started discussing why appraisal costs have soared. We identified regulations requiring that lenders order appraisals through middlemen. Let’s look at a couple other factors.
– Regulators have increased appraisal requirements. Appraisers not only have to estimate the property’s value but also have to assess the strength of the area’s housing market. FHA appraisers now have to crawl into a home’s attic or crawl space among other new requirements.
– Finally, the new integrated disclosures regulation requires lenders to quote appraisal fees exactly at loan origination. Given that little is known about the property this early in the loan process, appraisal companies that provide the quotes must consider the risk that the property has complexities. Thus, their quoted prices have risen.
– The new regulation also has virtually eliminated the market for appraisal orders. When you eliminate market competition, you get higher prices.
The added workload and lower pay pushed a number of appraisers out of business, and the inability to control appraisal fees because of appraisal company middlemen makes the profession unattractive for potential new appraisers. As a result, a number of housing industry experts is warning of a coming appraiser shortage. For homebuyers, this initially could mean delayed closings. Eventually, it probably means even higher appraisal prices as that may be what’s necessary to attract new people to the profession.