EXCERPT: Twenty-five years ago, Brian Weaver was told at a seminar that the real estate appraisal profession would be killed off by technology in five years. It didn’t happen. But he now thinks the forecast wasn’t exactly wrong—just early.
Weaver today works at the appraisal licensing board in Illinois. Appraisers size up the value of a home before a lender gives the buyer a mortgage. He says a reckoning has arrived for the industry, which employs about 73,000 mostly college-educated people in the U.S. “The future for appraisers specializing in residential mortgage work is coming to an end,” he wrote in a recent newsletter for peers. “No bang. Not even a whimper.”
That’s because the breakthroughs predicted at that seminar a quarter-century ago are finally happening. Advances in big data and computing are helping automation creep into knowledge-based professions, threatening to knock off jobs in much the same way robots have been doing at factories for decades.
In the real estate business, Zillow Group Inc. says its algorithms are learning to capture not only the crude facts about values in the surrounding neighborhood but also more sophisticated price indicators, such as whether the living room has hardwood floors or the kitchen has granite countertops. While Zillow’s software isn’t used in appraisals—its numbers are available on its website for free—lenders have long used internal and third-party computer models to help value homes.
And now mortgage financiers such as Freddie Mac are starting to get comfortable with transactions that don’t involve a human appraiser.
Appraisers were already hurting. Their trouble began with the housing bust of 2007 and the financial crisis that followed. During the boom years, real estate agents and lenders sometimes pressured appraisers to hit the value needed to close a loan. If they didn’t, the appraiser could lose future business. So when the market tanked, appraisers were blamed for not providing a check on reckless lending.
Regulators responded by making it harder to enter the profession. Appraisers in many cases are required to get a four-year college degree. That’s followed by hundreds of hours of additional training and then a two- or three-year apprenticeship. They also need to pass state exams to earn a license to operate. In the meantime, appraisal fees have stagnated. Many lenders hire appraisal management companies that work directly with appraisers. That’s meant to buffer appraisers from undue pressure, but the companies also take a chunk of the income.
At the industry’s peak in 2007, states had granted 121,407 credentials to perform residential appraisals. Last year there were 96,856, some of which were held by people working in multiple states. The pipeline of young people entering the profession is almost empty, says Jim Amorin, president of the Appraisal Institute, a national trade group. In Illinois, where Weaver works, the average age of an appraiser is 58, and almost nobody is coming in to replace retirees. In 2005 more than 1,200 people applied for traineeships. In 2016 about 100 did.
Freddie Mac, the government-sponsored company that backs many U.S. mortgages, in June started allowing automated valuations for some refinancing loans. It says it plans to extend the program to home purchase loans in the coming months, pending approval by its regulator, the Federal Housing Finance Agency (FHFA). That’s a big departure from how mortgages typically work. Freddie and its sister company, Fannie Mae, normally require on-site appraisals to make sure the buyer isn’t overpaying, which would heighten Fannie’s or Freddie’s risk of losses if the home later goes into foreclosure.