The appraisal process: what brokers need to keep in mind

In recent weeks, the lengthy wait time for complete appraisals has been highlighted as an obstacle for mortgage professionals in the homebuying process, with one broker describing the need to warn clients against bidding with an insufficient closing timescale.

Now, a prominent representative of Canada’s appraiser community has urged mortgage brokers to take into account the importance of full and thorough property appraisals, as well as emphasizing the complications and challenges that have arisen in the profession since the onset of the COVID-19 pandemic.

Speaking with Canadian Mortgage Professional, Keith Lancastle (pictured), chief executive officer at the Appraisal Institute of Canada, said that the time taken to conduct appraisals reflected the need for due diligence and care at a crucial stage of the homebuying process.

“The reality is when you look at doing an appraisal – whether you’re going out to the site or not – by the time the appraiser does the assessment of the subject property, pulls their comparable sales and does their analysis, that doesn’t happen in a matter of just a couple of hours,” he said.

“Doing due diligence takes a bit of time. It’s not something you should expect to do inside a day. It does take time, and that’s not a bad thing.”

Lancastle said that sufficient time to complete a thorough appraisal was a “very necessary” step in prudent underwriting, with that process also having been complicated (and in many cases lengthened) by the fact that appraisers have frequently had to rely on photos supplied by a homeowner or third party throughout the pandemic.

Read more: Navigating appraisals during the pandemic

That means that even greater care is often required in studying photos that haven’t been taken by the appraiser themselves, with the crucial step of walking through the property and conducting a comprehensive live inspection no longer possible.

Lancastle said the perception that appraisers are frequently to blame for “killing deals” was an unfair one, and that appraisal professionals act with the strict interests of all parties in the mortgage process in mind.

“Our members only kill deals that should’ve been killed in the first place,” he said. “In fact, we are pulling in the interest of the homeowner, the purchaser, and the lender by making sure that we’re providing that unbiased opinion.”

The fact that the beginning of the pandemic coincided with skyrocketing activity in the housing market posed its own unique challenges for most real estate professions – and the appraisal community was no different.

While Lancastle contests the “urban legend” of a dwindling number of appraisers in Canada (the Institute’s membership numbers, he said, have remained steady over the last decade), the emergence of real estate booms in previously quiet markets proved a significant hurdle to overcome.

“Because you’ve never seen that kind of activity [in quieter markets], there aren’t as many appraisers – there’s never been a need for them,” he said. “It takes years to become a fully-qualified designated professional appraiser. It’s not something you can just go and take a weekend set of courses, and then off to the races.

Read more: What your clients need to know about appraisals

“There were some challenges in certain areas, but to suggest that there was a shortage of appraisers across the country is not really a fair assessment.”

Lancastle said that the role of the appraiser in the mortgage process had been proven more crucial than ever in recent times, particularly compared with Automated Valuation Models (AVMs) which use modelling to calculate real estate values but, he said, are often unable to analyze an unpredictable and chaotic housing market.

“The best way to determine the here and now value of the subject property is by having the appraisal completed by a qualified professional,” he said. “The appraisal is still going to be the gold standard.

“AVMs serve a purpose, absolutely, but they pick up what happened some time ago. When an appraiser goes in, he or she is looking at what’s happening in the market today. We don’t need to look any further than the pandemic to realize that if I looked at a property in March 2020, and then again in June 2020, there’s a night and day difference.”

For mortgage professionals, then, Lancastle said it was essential to realize the importance of the role played by appraisers – and that the amount of time it can take for those individuals to complete their job thoroughly and diligently shouldn’t be taken for granted.

“[Appraising] always has been, and continues to be, an important role,” he said. “It’s there to protect the lender and the consumer.

Allow it the time to do what it has to do, and recognize that as an important part, it takes time and comes at a cost. It shouldn’t be thought of just as a checkbox on an application form.”