Why one small bank wants to bring real estate appraisals in-house

Should a bank be allowed to use its own staff to value properties if it believes that there aren’t enough appraisers in its market to meet demand or that outside appraisals have become too costly?

Those are questions a committee of the Federal Financial Institutions Examination Council will take up at a hearing later this month, and its ruling could have broad implications for both banks and the real estate appraisers they rely on to determine the value of their collateral.

The hearing, scheduled for April 23, was prompted by a small Tennessee bank’s request for permission to bring some appraisal work in-house as a way to speed up the funding of commercial real estate loans.

In its request for a waiver, the $273 million-asset TriStar Bank in Dickson argued that a dearth of certified appraisers in its market has resulted in longer wait times and higher costs for appraisals. Ted Williams, its CEO, said the problem is only going to get worse as appraisers retire and fewer new people enter the profession.

“There’s something wrong when there’s this much demand and the field of appraisers is not increasing, but what they charge me is increasing and the amount of time it takes to get the appraisal is increasing,” Williams said in an interview with American Banker this week.

TriStar’s claim has outraged appraisers, who say that its request for a waiver is less about an appraiser shortage in rural Tennessee than it is an attempt by TriStar to avoid paying appraisal fees.

While they acknowledge that the appraiser population is shrinking — the number of certified appraisers in the country has declined 8% since 2013 — they say that that if Dickson County is truly facing a shortage, then TriStar could contract with out-of-state appraisers using a temporary licensing process specifically intended to help lenders in rural areas.

Lenders have long complained that a shortage of appraisers is driving up the cost and time it’s taking to approve and fund real estate loans — at a time when technology should be speeding up the process.

“Our members continue to express concerns about mounting timeframes in finding professionals and completing valuations, especially in the rural regions of the country,” Sharon Whitaker, vice president of commercial real estate finance for the American Bankers Association said in a recent letter to the FFIEC commenting on TriStar’s request.

She went on to say that whether the issue is a shortage of professionals with localized expertise or inadequate fees paid to certified appraisers, it still translates into a delay for the end client.

Ron Haynie, senior vice president of mortgage finance policy at the Independent Community Bankers of America, said in an interview that TriStar is just one of a number of rural banks struggling with appraisals.

“We believe that other lenders in that market area probably are experiencing the same problems with turnaround times on appraisals and even the rising costs. It’s not an issue isolated to that particular bank,” Haynie said. “The solution is they need more appraisers.”

The appraisal industry, for its part, disagrees with the claim that there are not enough appraisers to go around and it views TriStar’s request as a threat to the profession.

In a letter to the FFIEC objecting to TriStar’s request, the American Society of Appraisers, along with 25 other state and national trade groups, called the request “nakedly unwarranted” and said that approving it would mean that every lender in that market, not just TriStar, could opt out of using a certified appraiser for the task.

Sharon Desfor, international president of the organization, said in follow-up remarks that there is no shortage of appraisers, only a shortage of lenders willing to pay them what they’re worth.

“The saying goes you can have any two of the three: good, quick or cheap,” she said. “Seemingly, TriStar is of the opinion they should have all three, when the market is clearly saying something else.”

James Murrett, president of the Chicago-based Appraisal Institute, said that the request was “particularly disturbing” when combined with Freddie Mac’s and Fannie Mae’s expansion of appraisal waivers for certain first-time home purchases and a decision by regulators to raise the threshold for commercial estate loan appraisals from $250,000 to $500,000.

In his original request for a waiver last fall, TriStar’s Williams said that bank had reviewed its appraisal logs from 2013 to 2017 and found an 82% increase in its average wait time and a 23% increase in the average cost of commercial appraisals.

Williams suggested that his bank could work with a local Realtor or a Nashville-based appraisal management company, or delegate the task to a senior banking officer who has trained as an appraiser, but not yet apprenticed as one. He emphasized to American Banker that he’s not asking for a waiver for residential loans or government-guaranteed loans, just commercial real estate loans.

In all, the FFIEC received more than 30 comment letters, including several from appraisers saying they would be happy to work with TriStar but had never received a bid from the bank or were rebuffed or ignored when they reached out to the bank. One of those comment letters came from the Tennessee Real Estate Appraiser Commission, which said there were actually five certified general appraisers in Dickson County alone.

Williams countered that one of those appraisers already works with TriStar Bank, as well as every other lender in the area, and another is 85 years old. The others don’t bother much with Dickson County, he said.

“I don’t know what it is about the process [to train and certify appraisers] exactly, but there’s something wrong or there would be more growth there,” he said.