In Dallas-Fort Worth, a Shortage of Appraisers is Wreaking Havoc on The Market

Does the nation have a home appraiser shortage? Christian Adams, a former real estate broker and CEO at Repair Pricer, recently completed a national survey of 1,200 U.S. real estate agents to investigate. According to the results, 32 percent of agents have had a closing delayed or canceled in the last two years as a result of home appraisal issues.  

The cause? By refusing to train new home appraisers to meet licensing requirements, existing appraisers are able to control the market, Adams says, creating staggering price increases and massive issues for buyers and their agents. 

Adams said he has seen this first-hand. We were intrigued and wanted to know how this appraiser shortage is affecting the Dallas-Fort Worth real estate market so we picked Adams’ brain for a bit:

In Dallas, many agents are saying that it’s not unheard of to have a buyer waive an appraisal altogether. Do you see this as a problematic practice? 

Adams: I think there are two different scenarios we need to consider here: Buyers waiving appraisal contingencies and buyers waiving appraisals altogether. An appraisal contingency is merely a rider to the sales contract that states that no matter what the property appraises for, the buyer will proceed with the purchase. And if the buyer feels that the price they’re paying for their new home is worth it to them, especially in this market where we are seeing sales prices escalate rapidly almost month over month, then I think there is no problem with buyers doing this.

Where I think there can be potential issues, however, is the case where a property appraises significantly under the contract price, and the buyer has to bring a large amount of extra money to the table that they are not prepared for. In this situation, I think the onus is on the buyer’s agent to make sure the buyer truly understands the full impact and implications of waiving their appraisal contingency. 

Because of the fast-moving market, we are unfortunately seeing appraisers use outdated sales data to drive comps, meaning that appraisals are sometimes coming in incredibly low, forcing buyers to bring large amounts of money to the closing table purely because of a “bad” appraisal. I have experienced this myself and seen appraisals that are way off, using incredibly outdated comparable sales properties or homes that don’t even compare in any way, and unfortunately, there is often no recourse for the buyer. 

The other situation is where the buyer, through paying cash or using alternative financing methods like Orchard or Knock, are able to actually purchase the property without needing an appraisal. Personally, I would recommend that if buyers are able to and comfortable with doing away with the appraisal requirement altogether, this may be a better alternative than making themselves financially beholden to the outcome of an appraisal. 

How bad is the appraiser shortage in Dallas-Fort Worth? 

Adams: In 2013 there were 2,367 residential appraisers in the state of Texas and 288,000 homes sold. And in 2020 there are still only 2,371 residential appraisers in Texas and yet home sales topped out at 392,000. So with only an extra 4 licensed appraisers across the state, the volume of appraisals almost doubled. Currently, of the 691 licensed appraisers in Dallas County, over 95 percent of them are listed as “appraiser trainee.” This means they cannot perform their own appraisals and are simply waiting to find a sponsoring appraiser so they can complete their training and become a fully licensed residential appraiser.

What are some issues that could arise from not having a home appraised prior to closing? How does that speak to the disaster caused by the shortage of appraisers?

Adams: The main issues we’re seeing reported from agents in the field is that closings of homes are getting delayed or in some cases simply canceled. This can actually cause a massive financial and emotional burden for buyers, sellers, and agents alike. Without an approved appraisal, the loan for the home cannot move into underwriting, and the buyer is simply stuck in limbo. As contract dates come and go, buyers are having to move out of their current homes, find incredibly expensive short-term rentals, or pay month-to-month rates with their existing landlords, put possessions in storage, and simply wait on the appraiser. Loans that are locked in at a low rate have their locks expire, and buyers are now having to pay to lock in higher rates making their ownership costs increase. Sellers are not able to purchase their next homes as they are still waiting on funding from their existing homes.

We also have heard stories of appraisers asking for exorbitant “rush” fees on appraisals (think $1,500 for a $400 appraisal), and are holding buyers’ feet to the flames as they know there is no alternative — they either pay the higher fee or wait. Most recently, I paid $950 for an appraisal on a small 1,600-square-foot single-family home and had to wait 6 weeks for it to come back. I literally had to call the appraiser’s cell phone over and over to beg them to perform their work before my refinance lock expired. That’s insane and not good for anyone. 

In short, the appraisal licensing process in Texas and across the country is broken and needs fixing. I believe the Dodd-Frank act was well-intentioned, but poorly executed, and the results for the consumer and real estate industry as a whole has been disastrous.