This piece originally appeared in the April 2023 edition of MortgagePoint magazine, online now.
Dean Kelker is the SVP and Chief Risk Officer at SingleSource Property Solutions, where he is responsible for managing regulatory, compliance, and financial risks. Kelker has over 30 years of real estate finance experience managing collateral, credit, and compliance risks for lenders, credit risks for a mortgage insurer, and mortgage default investigations for a due diligence firm. He is also currently a board member for the Real Estate Valuation Advocacy Association (REVAA), having previously served as board president in 2020. Kelker has also volunteered and served as a board member for Habitat for Humanity of Greater Pittsburgh.
Q: What can you tell us about the focuses and goals of appraisal modernization?
Ultimately, appraisal modernization is about using new technologies and tools to make mortgages easier and more efficient to originate. This includes using additional technology to further speed up the appraisal process, especially at times when appraisal demand surpasses a lender’s ability to produce a new loan. It’s also an attempt to lower the cost of collateral risk management. While appraisal modernization is a hot topic right now, its roots go back at least a decade when Fannie Mae first began digitizing and standardizing appraisal data.
Q: What is one of the biggest issues facing the valuation industry?
Certainly, one of the biggest concerns is the declining number of practicing appraisers. Most appraisers are in their mid to late 50s, which means a significant number will be retiring in the near future. At the same time, it currently takes a substantial amount of time and money for someone to learn the profession, so there aren’t enough new people currently coming into the industry.
As a result, there has been a movement to change the training and experience requirements for becoming an appraiser. For instance, new types of coursework and testing methods could be used that allow people to learn appraising through a virtual classroom, as well as different types of mentoring programs that make it easier for appraiser candidates to earn while they train. Adding real estate valuation classes at the college level could be very helpful as well.
Q: How might a more streamlined education curve impact diversity, equity, and inclusion?
First, it opens more doors for potential appraisers to get into the business, which has historically not been very diverse and overwhelmingly male. Many appraisal companies were also family-owned businesses that were passed down from one generation to the next generation. If your father was an appraiser, he had the resources and time to teach you the business. But if you didn’t have that direct connection to the industry, it was much more challenging to enter the industry. Creating new on-ramps to an appraisal career broadens the opportunities to become an appraiser, which would also create a more diverse group of participants in the business.
By increasing the entry points to becoming an appraiser, a more diverse group of people will be able to join the profession. As a more diverse group of appraisers enters the marketplace, the probability of valuation bias declines as there is a broader based understanding of what drives real estate values with a greater focus on the property as opposed to who’s living in the property.
Q: How can the financial hurdles to becoming an appraiser be overcome?
For starters, people who are learning the business often function as unpaid interns during their training. Currently, appraisal candidates spend many hours in the field learning the profession under the supervision of a full-time appraiser, but they often aren’t being paid because initially they add little economic value to the process. In addition, in many cases, lenders do not allow the use of trainees for the appraisal process. If lenders were to allow the use of trainees under the direct supervision of fully licensed or certified appraisers, the trainee would begin to make his or her supervisor more productive and therefore be able to earn some economic value for their efforts.
Q: What is ahead for appraising?
On the valuation front, I think we’ll see more use of data products in residential valuations rather than a full appraisal involving complete documentation. This is already becoming the norm on rate-term refinances, and the number of appraisal waivers granted on purchase loans has grown significantly since pandemic-era lockdowns. New alternatives to traditional appraisals, at least for lower risk transactions, will also make the mortgage process much faster and less expensive. Of course, on more complex valuations and higher risk transactions, an appraisal with a physical inspection and full documentation will still be required. However, the trend has already started, and given how difficult it can be for lenders to get valuations during periods of high demand, the trend will likely continue.