A brief lesson in the history of World War II will point to a success story in the rebuilding of of Europe during the four year post war period. The goals of the United States were to modernize industrial Europe, rebuild a region devastated by war, remove trade barriers, and make Europe prosperous again.
First, there was a plan. Second, General Marshall executed that plan by engaging the right people to do the right job. He had a plan to remove scores of officers he considered deadweight. He demanded accountability. Without that two- pronged approach—right plan, right people the Marshall Plan could never have been the success it was.
We are in the midst of a post mortgage crisis period without a plan and without any clear leadership. I have had the privilege to work with the National Association of Homebuilders over the past twelve months as a consultant. You might think NAHB would be an unlikely ally in the battle to reform the appraisal profession. Not so. They recognize that at the very core of the housing market is a collateral valuation process that is broken.
This past summer NAHB formed an Appraisal Work Group comprised of their senior leadership and members from the Collateral Risk Network. After several meetings we developed a plan, "Blueprint for Appraisal Reform" that is still in draft form. Soon NAHB will be reaching out to other stakeholders to garner broad industry support. Then the hard work will begin to execute that plan.
In the interim what can industry leadership do within their respective institutions? Do as General Marshal did- engage the right people for the right job to do the right thing. Some lenders have adopted the strategy to outsource all things valuation. There is nothing wrong with that strategy. But lenders cannot outsource their policy, risk, liability and accountability.
So while waiting for a master plan, create one of your own. The appraisal process begins with the engagement of the right people. Know your vendors. Have the right processes and policies in place to remove any bad actors. Don't be shy about it. Be assertive and fair.
There seems to be a general hue and cry from appraisers that "a few bad apples have spoiled the whole bunch". State regulators are reluctant to destroy one's ability to earn a living. That is most unfortunate. Their role is to protect the public. They are not an appraiser advocacy group. When regulators don't perform their function the entire system breaks down. Allowing unethical or incompetent appraisers to continue to operate is grossly unfair to those professionals who routinely do the right thing.
But don't rely on the state regulators to do your job. An appraisal license is a minimum standard. It doesn't constitute due diligence. A current license does not imply or infer competence for the specific property type, geographic competence or ethics. Your vendor manager should be pulling background checks, ensuring current E&O policies are in place, requiring competency exams, verification of identity, reviewing sample appraisals and checking each appraiser's disciplinary record. The engagement of a qualified appraiser has tremendous payoffs and tragic consequences if you don't follow that simple plan. Having proper fee panel management processes, practices and procedures in place will when the market returns will allow your institution to thrive.
Good appraisers need recognition and fair pay for their services. The fire that is not quite in your living room yet is that there is a shortage of solid professionals to lead us into the next cycle. The appraiser population is graying. Identify your best appraisers and create a battle plan to allow them to train and mentor the next generation. It's reparations time.