Are Appraisals Commodities?
By Charlie Elliott

In the business world today there are so many new and unusual buzzwords and terms batted around that we sometimes wonder about their origin or roots. We hear “tech this” and “tech that,” “synergy,” “value-added,” “at the end of the day,” “paradigm,” “win-win” and the list could go on and on. Some of the phrases seem so far fetched that we oftentimes wonder if someone just made them up in an attempt to show off or to convince us that they are smarter than we are. These terms sometimes make little sense but, in all fairness, sometimes they make a whole lot of sense.

At times when I get to the point where I begin to use one of these terms myself, I begin to wonder if they impress people or if people take you for some type of weirdo. We have all heard the saying, “Figures don’t lie, but liars figure.” Could that be the case here with our fancy terms? Do some use them just to impress and do others actually need them to fulfill their communication responsibilities?

The lending and appraisal professions also have their share of terms like these. Most of us find ourselves tempted to use them once we figure out what they mean and are able to use them in a sentence. I remember going to a seminar once when I first heard the term “non-prime” loan for the first time. It seemed to be politically correct enough, if not too much that way. It was somewhat like that of “undocumented immigrant,” if you know what I mean. I had just gotten used to using the term “sub-prime,” which also had taken me a while to get adjusted to, and I suppose I thought I was ready for the next level.

Another term that I have been exposed to recently, which I had never thought of in the context for which it has become recently known is the word, “commodity.” We are not talking about soybeans or pork bellies, but products that have become so standardized in their preparation and delivery that each unit of the product is thought of as the same no matter who or what company produced and marketed it. This is somewhat like that of a generic drug that a major pharmaceutical firm no longer has a patent on, and that other drug companies produce under their own name. It still may be called “aspirin,” for example, but a lot of other companies sell it and everyone knows what it does or is suppose to do.

Most appraisal products have become standardized, thanks to Fannie Mae and Freddie Mac. In the past they have purchased the bulk of all loans on the secondary market, so they have called the shots on appraisal formats. An example on the standard complete appraisal, Fannie has developed it and has identified it as a FNMA 1004. Freddie Mac has also endorsed this same form and has identified it as the FHLMC 70. The bottom of the form, as it is reproduced by most software providers, lists the Fannie Mae designation on the left and the Freddie Mac designation on the right. While there are many other appraisal forms, this has become the most popular in the industry for single unit interior inspection appraisals. Given that so many appraisals are ordered on this form, it has in the minds of some assumed the status of a “commodity.” When appraisal clients purchase it, all they want to know is what it will cost and when it is available to them.

Like soybeans and pork bellies, one FNMA 1004 looks, feels and works like all of the others and, therefore, it has assumed the position of a commodity, right? Wrong. There are many reasons that an appraisal is not a commodity. The main reason is that the source material, the home, which is the subject of the appraisal, is always different. It is different in size, appearance, age, design and condition, not to mention the location. It is different in that all homes require different amounts of time to appraise. They are all appraised by different appraisers with different levels of expertise and by different professional objectives.

Even after all of the above discussion, there will be the appraisal purchaser, who thinks that all appraisals should be prepared in the same time period, that they all should cost the same and that all appraisers have the same expertise.

The appraisal profession is just that, a profession. Do all doctors, lawyers and accountants charge the same prices and deliver the same product in the same period of time? Most do not, and I suggest that the appraiser does not and should not be expected to. We have a broad cross section of appraisers in this country, and most are good at what they do. Some specialize in appraising houses only in a certain county, some cover large numbers of counties, some do only commercial appraisals and others have clients that send them a lot of foreclosure work and, therefore, they tend to lean toward foreclosures. Some appraisers tend to do their best work on higher-priced, upper-end, custom homes, while others prefer to appraise homes in the cookie-cutter neighborhoods.

Occasionally, I get the questions like, “We have a need for appraisals nationwide; what does your company charge for appraising a house?”

If it were that simple we could consider the appraisal a commodity. Obviously it is not. Our company has a variety of appraisers available nationwide. In order to survive we must charge different fees, offer different turn times and provide different types of reports for different properties. Each property is different and each lender has different needs, so each appraisal is different. Those of us who offer the best service do a custom job for each order. While it is our job to attempt to offer as much consistency to the process as possible, appraisals are not commodities and should not be viewed as such.