Economist Milton Friedman famously said, “Inflation is always and everywhere a monetary phenomenon.” (meaning that it is always caused by increases in the supply of money)
But, when it comes to appraisals Milton might be … wrong,** as hard as it is for me to type that. 😊
Appraisal fees have risen from as low as $250 in the early 1990s to over $1,200 now – for a standard appraisal.
Lenders everywhere are raising their fees in order to get the increasingly more limited supply of appraisers to accept their appraisal orders – and we are among them.
We simply have no choice if we want to attract skilled appraisers with fast enough turn-times to allow us to close on time.
So, the entire purpose of this blog is to warn the world that appraisal fees are far higher than what most borrowers expect right now.
We are warning borrowers up front, of course, but I am encouraging agents who read this blog to also warn their clients, as we are seeing some serious “sticker shock” right now when we disclose what we now have to pay appraisers.
WHY ARE APPRAISAL FEES SO HIGH?
- Inflation: Inflation is obviously a major reason, as $1 in 1990 is worth the same as $2.08 today, per this really cool “inflation calculator.” But, that would only explain an increase to about $600 to $700 for an appraisal fee.
- Appraisers Have Higher Fees: This of course relates to inflation, but appraisers themselves have much higher fees now too for licensing, insurance, E&O coverage, vehicle costs, software, MLS access, continuing education, and more.
- Appraiser Shortage: This is the main reason fees are so high. One of our best appraisers is in his 80s, and he just works b/c he likes to; he certainly does not have to, and that is the case for a large number of our other appraisers. They can all command the fees they want, and they have no reason to tolerate mistreatment too.
Anyway, here are some of the reasons why there is a shortage: A) Retirements. The average age of appraisers is high to put it mildly, and many are simply retiring, exacerbated by COVID; B) No New Entrants. New people are not coming into the industry b/c of the onerous licensing and training requirements; b/c they fear another mortgage industry downturn resulting in an appraiser surplus; or b/c they fear being replaced by technology; and C) Surge In Refis. The recent dip in rates fostered a surge in refinances that in turn exacerbates the appraiser shortage.
And – as mentioned above, we have to offer much higher fees to attract appraisers from this increasingly shrinking pool.
And this is why Milton was wrong – only about half of the increase in appraisal fees appears to be a “monetary phenomenon;” the other half is caused by a good old fashioned supply and demand imbalance.
HOW HIGH ARE FEES?
Most standard appraisals now cost close to $1,000!
But, for acreages, large homes (over 5,000 sf), remote locations, unique properties or areas where appraisers are in particularly short supply (like Austin, TX), fees can easily exceed $2,000.
BAD APPRAISERS TAKE ADVANTAGE
This is another warning, as there are some bad appraisers who are taking advantage of the situation and there is often little lenders can do about it. We had an appraiser last week, for example, who was ten days late with his appraisal report, severely delaying the close of our transaction. There was little we could do about it too other than kick him off of our “panel” – which we did.
Remember that lenders cannot directly “employ” appraisers and regulations preclude most of our team from even communicating with appraisers. Our only “control” aspects consist of who we can add or subtract from our panel of appraisers (who get orders on a random basis).
**WHERE MILTON WAS REALLY WRONG
This is just an interesting aside, as Milton Friedman, as renowned as he was, was also famously wrong with one particular aspect of inflation.
He did not understand how much the “velocity” of money can vary. Velocity, once again, refers to how quickly money turns over in an economy from bank lending and spending, e.g. I pay my contractor, who pays his workers, who pay their barbers, who pay their grocers, etc. – all with those same dollars).
It is the very low velocity (primarily b/c banks are not lending as much, but also b/c consumers have been saving at record levels) that has been a major reason why we are not seeing more inflation now.
Inflation requires a relatively high velocity.
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