Appraiser shortage becoming headache for lenders

In the B-20 era, lenders' reliance on property appraisers has skyrocketed—so much so that the latter is having trouble keeping up with demand

Appraiser shortage becoming headache for lenders

In the B-20 era, lenders’ reliance on property appraisers has skyrocketed—so much so that the latter is having trouble keeping up with demand.

“It’s like it’s an industry that’s struggling to find enough qualified and licensed appraisers,” said Veronica Love-Alexander, regional vice president for Ontario, Quebec and Atlantic Canada at Merix Financial. “There’s not always an appraiser available to get to the property, and some areas like Kitchener-Waterloo, the Cobourg area, they’re really struggling, so what happens is they’ll get an appraiser from a neighbouring community who doesn’t know the properties as well, or the market as well. It’s a big frustration for brokers.”

According to Love-Alexander, under B-20 beacon scores alone have become insufficient for A lenders, and given the care with which investors’ monies must be handled, property appraisals have become indispensable.

“They’re very crucial,” she said. “Especially with the new mortgage rule changes, I’ve noticed an uptick in the number of appraisals that are requested. The property is everything to the investor, and it has a huge bearing over whether we support the property or not.”

Automated valuation models—property appraisal technology—are a possible solution. They study historical data of similar properties in the immediate, or approximate, area and determine valuation that way.

However, according to the founder of a property appraisal company, they have limitations. One of them is that they sometimes use poor comparisons.

The other is timing: When Toronto’s real estate market peaked in April 2017, valuations dipped in a matter of months, and AVMs wouldn’t have been to register such a sudden deviation in value.

“The prices peaked in the spring and then you’d have about six-to-eight months’ worth of a lag in terms of all those deals closing and working their way through the system and data normalizing, but what was happening was you could use one of these automated valuation tools and it would kick out significantly higher value than what an appraiser who went to the property would have determined by both being at the property and looking at the current market,” said Chris Bisson of Value Connect.

“There’s a lag time for automated appraisal tools that simply doesn’t give you the accuracy that you’d get from a professional appraiser. You’d have been lending the wrong amounts of money on properties, potentially.”

Markets that don’t experience wild swings are more suitable for AVMs, but Toronto and Vancouver aren’t among them, he added.

Bisson says that AVMs cannot compensate for the expertise of a professional appraiser, but they can be excellent complementary tools.

“The process today is extremely manual and painful for appraisers. As a thought leader, I know the process has to be digitized. If you can go to the property and bring a tablet or iPhone, 70% of the report will still be built on-site.

The value also extends to lenders, who need to underwrite expeditiously. With a shortage of appraisers, that could be problematic.

“You can build a mini database,” said Bisson. “It’s beneficial for everybody along the value chain. If 80% of the deals you work on are filed with complete notice within three weeks, you’re going to fund 80% of all applications you work on, but as soon as you get past three weeks, 50% of those will drop off. The potential borrower will go somewhere else because people don’t like time delays, so it will be a significant improvement to lenders’ systems.”

Related stories: