A key goal of the financial reforms after the housing bust was to prevent banks and other interested parties from pressuring real-estate appraisers to inflate valuations.
One remedy that was folded into the Dodd-Frank Act led the industry to rely on appraisal-management companies (AMCs) as a buffer between appraisers and lenders. Since AMCs keep as much as half the appraisal fee paid by the borrower, today’s appraisers are effectively paying for banks to comply with appraisal regulations. Although this led many veteran appraisers to leave the industry, newcomers with less experience and market knowledge continue to enter. Research has shown this has contributed to a decline in appraisal quality.
But other forces are at work. Since the housing boom ended, mortgage volume has dropped by two-thirds and home sales are still about 30 percent below the 2005 peak.