The Looming Bank Work Divorce

Yellow French Quarter house balcony with closed gray shutters and hanging lights

In 2014 I worked with an MAI appraiser that had a policy of not doing any bank work for less than $2,500. This included vacant land, residential – it did not matter. This was his minimum for getting out of bed in the morning. If that same appraiser had a similar policy today, the number would be closer to $1,800 in our market. Costs have tripled over the past 10 years while appraisal fees have dropped 30%, roughly. I recognize we are in a trough right now, but appraisal fees have been fluctuating in the same range since 2014. The truth is that fees have been stagnate for much longer than 10 years. I chose a decade because I do not think capacity for production has changed greatly over this period. This will change with AI, but it will be slower to come about on the commercial side.

The problem facing many appraisal firms today is that bank work is no longer lucrative. You can be in the green doing bank work, but it is no longer lucrative unless one emits a staggering amount of volume, invariably compromising quality. The industry is OK with this, as rubber stamping loans is back in full stride, and the only drivers of selection are price and occasionally turnaround time. This new market has alienated the appraisers with options, and they are moving or have already moved to more profitable niches in the industry. Those that do not have access to the niches will eventually go to work for the national firms. Another 2008 is inevitable from what I have seen, only next time it will be more commercial than residential, but that is a post for another day.

The result will be only the rubber stamp factories staying in the new bank work industry. These firms have settled into business models at historic low fees and will prevent bank work from achieving any significant rebound. Once this reality sets in, the official divorce will happen between bank work and the rest of commercial appraisal, much in the way that it happened between residential appraisal and commercial appraisal long ago. You will have your bank work appraisers and your commercial appraisers. Firms will have a firewall between the bank work factory department and the rest of commercial, much in the same way that they currently do with residential and commercial, and there will be very few appraisers doing both, unless they take a loss on some jobs for purposes of training new appraisers. This is already the case with many appraisal firms.

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