Get ready to hurry up and wait, home buyers! Even if you’ve found your dream home, made an offer that’s been accepted, and passed that critical home inspection hurdle, there’s something major happening in the housing industry that, oh so quietly, could grind the last mile of your home-buying marathon to a screeching halt.
The culprit: a home appraiser shortage. A big one, in fact.
Odds are, you’ve never given home appraisers a second thought, assuming you even know what they do. But here’s the deal: When you go for a mortgage, this is the pro that your lender hires to check out the property, making sure it’s a good investment (because, of course, it’s their money on the line, too).
As it turns out these days, there just aren’t enough qualified home appraisers to go around, and it’s causing delays among home buyers eager to close their deals.
According to a new study by Campbell/Inside Mortgage Finance, the percentage of on-time closings has dropped over the past six months, from 77% in April to 64% today. Appraisal-related holdups jumped 50% in this time period, so it’s quite clear they’re the bottleneck.
Experts say this shortage dates to 2008. In the wake of the housing crisis, the Federal Housing Administration tightened regulations around home appraisals in an effort to protect banks and home buyers. It upgraded the talent pool, but significantly shrank it at the same time.
Before that point, licensed home appraisers could send an apprentice studying under them to head out and handle the on-site inspection of the house in question. But after 2008, the FHA said no mas—the licensed appraiser has to make the house call, too.
Home appraisers, seeing that their apprentices weren’t saving them much legwork, cut ’em loose. With fewer home appraisers-to-be in the pipeline, the number of professionals in this workforce has shrunk by 22% since 2007, according to the Appraisal Institute.
And the current batch of practicing home appraisers is aging, with over 60% past the age of 50, and creeping closer to retirement every day.
Should home buyers panic?
For home buyers, this home appraiser shortage doesn’t just try their patience. It could stress their pocketbooks, too.
Since they typically “lock in” their mortgage interest rate for a certain time period, an appraisal holdup could push them past that expiration date, forcing them to renegotiate at a higher interest rate (because yes, they are rising now).
Even worse, in hot markets where a home’s market value can change in a matter of a couple of months, an appraisal delay could mean the appraised value of a home could come in much lower (or higher) than back when the offer was first made—which could cause the whole deal to fall through completely.
Given that the stakes are so high, what’s a home buyer frothing at the mouth to close sometime this decade supposed to do?
For one, there’s less of a chance of succumbing to the home-closing equivalent of road rage if you’re braced for gridlock ahead. So ask your real estate agent and loan officer if they anticipate delays and plan accordingly.
“The Realtors® and loan officers know if their market is one that is experiencing the severe appraisal delays; not all markets are,” says Tal Frank, president of PhysicianLoans.com. But if your market has an appraisal backlog, “you should expect the appraisal to be delayed and therefore the closing to take two to four weeks longer. If there is proper communication and expectations upfront, home buyers and home sellers should not end up in a panicked state.
“Rather than closing in 30 days, it may take 60,” he adds. “Not awful if everyone knows this at the start of the transaction.”
Home buyers in affected markets should also lock in their interest rate for longer.
“Some companies offer a standard 30-day lock, but the 60-day lock is advisable in the affected markets,” Frank continues. “If the buyer is working with a lender that offers 30-day locks as standard, the buyer can either wait to lock or pay the lender a fee upfront to extend the lock period.”
But what if you’re already knee-deep in the process and can’t turn back time? Consider paying a “rush fee”—at least 20% on top of the usual cost, perhaps more depending on your market. You can also try appealing to a home appraiser directly.
“Most appraisers are self-employed, so they aren’t constrained by bureaucratic rules and procedures. This means they can bump your appraisal up their priority list if you can convince them to do so,” points out Brian Davis, a real estate investor and co-founder of SparkRental.com. “Often, a simple phone call explaining the urgency of the situation might suffice.”
Because after all, Davis points out, while they may be in short supply, “Appraisers are people, and many are willing to work an extra couple hours one evening in order to help you settle on your new home.”