The implementation of the Home Valuation Code of Conduct (HVCC) in 2008, followed by the enactment of Dodd-Frank two years later, resulted in a massive change in the business models of lenders, residential appraisers, appraisal management companies (AMCs), and other stakeholders in the real estate industry. Business relationships between appraisers and local lenders, built on years of trust and experience, became meaningless with the stroke of the federal legislative pen. Just a few short years ago, appraisal assignments were handled by local lenders familiar with their local market area, as well as the experience and qualifications of their local appraisers. Today, an estimated 85% of all residential appraisals in Louisiana are administered by regional or national AMCs with no such local expertise.
It is ironic that the HVCC resulted from litigation by the Attorney General of New York against eAppraisalIT, an AMC, for inflating values on behalf of Washington Mutual. The federal solution was not to curb the market power of AMCs, but to essentially establish an oligarchy with AMCs in the driver’s seat. To be sure, appraisal management companies have played a valuable role in the real estate industry long before HVCC or Dodd-Frank, and continue to do so. However, it became apparent to the Louisiana Real Estate Appraisers Board, as full implementation of Dodd-Frank drew near, that our regulatory focus needed to change to meet the changing appraisal landscape.
Faced with the challenge of navigating the troubled waters of impending change, the Board restated their mission to “protect consumers in all real estate appraisal-related activities”. Our belief is that an accurate appraisal provided at a reasonable fee and turn time remains the bedrock of our Louisiana real estate industry. A two pronged strategy to meet Board objectives was set in motion:
- Improve the quality of residential appraisals through better education of our licensees, while stepping up compliance and enforcement efforts for all fee appraisers.
- Immediately enact a regulatory framework to establish a fair and level playing field for appraisal management companies doing business in Louisiana.
The Board’s efforts to provide improved educational opportunities for our fee appraisers coupled with enhanced compliance and enforcement actions against substandard appraiser performance has been embraced by appraisers, lenders, real estate licensees, and other stakeholders. Our second objective to establish a fair and level playing field for all AMCs remains a work in progress.
In 2010, Louisiana became one of the first states to legislatively enact an AMC registration and licensing law which enabled the Board, to at least, identify the AMCs doing business in the state. The Board has been successful in subsequent years in amending our law to provide funding through annual license fees, as well as allow the Board to regulate AMC activity, including the controversial issue of payment of customary and reasonable fees. Despite strong opposition from AMC lobbyists and large out of state AMCs, Louisiana rules requiring the payment of customary and reasonable fees became effective in November of 2013.
As a courtesy to all industry stakeholders, the Board then sponsored an independent appraisal fee study conducted by the Business Research Center at Southeastern Louisiana University which has been updated annually. This third party study compiled results from lenders and fee appraisers throughout our 64 parishes (counties). AMCs choosing to utilize the results of this study enjoy a presumption of compliance. AMCs choosing not to utilize this study must evaluate six different factors relative to the experience and qualifications of the appraiser and the scope, location, and type of assignment in establishing their customary and reasonable fees.
Primary opposition from the AMC lobby to our efforts to enact and enforce rules regulating C & R fees centered on two issues:
- AMC lawyers argued that individual states lacked the authority to regulate C & R fees under provisions of TILA 129(e).
- By allowing the “free market” to dictate fees, consumers would save money.
Seeds of the above arguments have now fallen on infertile ground. The Final Federal Rules becoming effective earlier this year clarified that individual states do in fact have the authority and responsibility to regulate C & R Fees. Random checks of Hud-1 closing statements confirm that although appraiser fees have been cut by up to 50%, we have found not a single instance where a consumer is being charged less than the amount they paid in 2010 for a required appraisal.
Louisiana values broad participation of appraisal management companies in our industry and has worked quietly with many entities in bringing them into compliance with our regulatory requirements. Our primary goal is compliance versus confrontation and adherence to our rules versus adjudication. However, it is not fair to the majority of our 140 quality AMCs doing business here to allow the few who choose to ignore or flaunt our requirements to continue business as usual. Consequently, we have recently signed off on a stipulation order with one AMC and now have seven active AMC investigations moving toward formal adjudication.
The effects of unregulated AMC activity in Louisiana are both significant and measurable. In 2010, Louisiana licensed 528 appraiser trainees. Today this number stands at 196. The average age of current residential appraisers in Louisiana is approaching 60. Appraiser income has been slashed by up to 50% by certain AMCs which are now the focus of compliance efforts. Many experienced residential appraisers have turned their back on doing AMC administered work leaving less experienced and less geographically competent appraisers accepting AMC assignments.
In charting new territory in AMC regulation, Louisiana is well aware that new technical and legal challenges to our enforcement efforts will no doubt arise. However, the stakes are too high and the cost to our real estate industry is too dear to shrink from this task.
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Written by : Bruce Unangst
Bruce Unangst has served as Executive Director of the Louisiana Real Estate Commission and the Louisiana Real Estate Appraisers Board since 2010. With a diverse background in consulting, real estate, banking and politics, Bruce brought a unique and diverse skill set to his dual position. Over the past five years, Bruce has focused on upgrading the real estate and appraiser professions through enhanced educational programs for licensees coupled with accountability through consistent regulatory enforcement. Both the Louisiana Real Estate Commission and Appraiser Board have earned plaudits for fiscal management during Mr. Unangst’s tenure.
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Thanks for your effort Bruce and I hope all other states will follow your lead. I due however find issues with the current fee studies as I believe they are flawed. With 85% of the work being directed through AMC’s the downward pressure on non-AMC assignments is thus directly related. In other words, if the going split fee to the appraiser today is $250 to $275 in my area, than lenders often feel anything above that is a gift to the appraiser (non-AMC work). Appraisers will also often market themselves based on what is typical for business in the area (85% AMC work) and bump up their fee slightly for non-AMC work. The appraisal fee market has been artificially discounted for 7 years (HVCC) and I think in the short term the reported fees in the study will thus be flawed. In addition, I think the fee studies should be solely based on what is necessary to produce a USPAP compliant report, and should NOT take into account the expanded scope of work that is normal today. If I get my car washed I may have the choice of 4 different price points and can’t expect the best wash for the cheapest fee. Why have the lenders been getting the following for free ( 2 active/pending sales, non required pictures, maps, FHA type inspections for conventional loans, unnecessary or required extra verbiage, 4 closed sales, the ability to provide unlimited reconsideration requests, 20 CU sales to look at, non required cost approach, MC form, UAD forms, etc.)
I think time will tell, however if all AMC’s must work from a floor set appraisal fee (customary and reasonable), then its my hope that we as appraisers may gain back some control of this industry. Why would an appraiser work for AMC (A) and agree to their 15 pages of scope of work, when AMC (B) has 1 page and will pay the same? With set fee schedules, many AMC’s and lenders will need to do a much better job of recruiting as a single blast e-mail campaign will not cut it in the near future.
Why aren’t appraisers just simply told to refuse all work with AMCs?
Agreed, many of us are only making about $10/hour due to all the “necessary” and additional requirements and I have been doing this for over 25 years. And try and train someone new based on the long hours in turn times that are necessary to get out a compliant and competent report…..Not happening! I will retire much sooner than later and good luck finding appraisers to replace us “oldies but goodies”!
I think it’s naïve to ask appraisers to stop accepting AMC work until things are changed for the better. That is tantamount to telling them and their families that they must lose their homes and starve to solve the problem. That is not workable. I’m not saying we don’t need change, because we need it desperately, but an across the board boycott of AMC work is not a viable solution in the real world where(in my experience, which started in 1969)80 to 90 percent of available appraisal work is lender related.
Well, we are witness to what is being done to correct an unsustainable and, I add, unfair and immoral, situation. Absolutely nothing!
I do empathize with the difficulty many appraisers have in making a living and my suggestion may be naive from that perspective (probably more like Draconian), but what secondary mortgage market appraisers are doing to make a living from AMC work is absolute insanity.
So if a boycott won’t work to change it Russell, what will? I think it is time to revolt and let the banks and AMCs explain to the regulators why they can’t find any appraisers to do their dirty cheap and fast stuff.
The difficulty Edd in trying to bring ALL appraisers together as a single voice (All boycott AMC’s) is that our situations and frustrations vary significantly from each other. Issues can be federal, state, city, urban, rural, client, AMC, etc., specific. In a lengthy discusstion with a fellow appraiser Steve Bucknum under the headline “Are the Standards Set by the Appraisal Qualifications Board too High” the issues he faced were not my challenges. In past posts he had indicated he was retiring in 3 years and as a rural appraiser his current average fee was $735 and he could quote 4 to 6 week turn times. If I take his word for it we worked for many of the same companies but in Southern CA many of the same AMC’s pay $250 to $275 and expect work back in less than a week. Not to put words in his mouth, but are the Steve’s of the appraisal world lobbying about enforcement of reasonable fees? As a soon to be retire, does he have the same concerns as someone who is 20 years away from retirement? He lives within a few hundred miles of just a few appraisers and in a state of only 1,000 (+/-) appraisers. Is he concerned when my single county has a 1,000 appraisers or that the 4 counties I cover has 4,000 serving 18 million people? The victories Edd appear to be coming state by state, and although they are not coming fast enough, I will take the small victories as they come.
You may be right about the Steve’s of this world and if that is what Steve thinks all I can say is, shame on him. I’m in his boat when it comes to geography, demographics and age and I can tell you I am very concerned about where this “profession” finds itself and where it is no longer going.
The battle of ridiculously low fees and AMCs that compete fore the lenders to find the fastest/cheapest appraiser is not mine, it is that of the appraisers who work in that Fannie Mae nonsense, but I will sign on with anything or anyone that aims to shoot it dead and return control of business to the appraisers. I’ve tried several outfits that said they would do it and so far they only end up being cozy with the AMCs.
That and seeking work from AMCs is insane. AMCs do not care about appraisers and look myopically only to the hand that seems to be feeding them. And all that appraisers do is complain about it and then go along with the short pay and short cuts out of what they call financial desperation.
Given the disarray, I can think of nothing other than boycott, especially since Jeff predicts demise of both AMCs and appraising in ten years. The only difference, which is huge in my book, is we go down fighting if we revolt against this nonsense. I have boycotted and it took a long time and was painful. In the process I figured out it is critical to work only for clients that I believe are “good.” I know now how to identify them and none of them are AMCs or even AMC-like. Not one.
Will there be appraiser traitors and opportunists who will back stab and bottom feed? Of course. Will the AMCs support us in any thing we come up with? Of course not. But neither of those make revolt wrong or even a bad idea. The problem is no one wants to sacrifice even for their own eventual benefit. Everyone seems to want to be taken care of and wants someone else to pay the price of fixing it. That has got to be the most selfish co-dependent mind set I’ve ever heard of.
Again, lets stop blaming each other, the more we talk about fellow appraisers the more we fall right into the plans of the banking industry. Why don’t we try to support and educate each other and not tear each other down. Why would I be willing to join forces with you if you call me a back stabber or bottom feeder. Why don’t you sympathize with the poor guy with 2 or 3 kids who has only been appraising a couple of years and cant find work. Your theoretical solution for him is to go get a job at mcdonalds and have integrity that you fought the system. poppycock. The best way to fight is to come together as a group and be one voice, not lets all go down together on the sinking ship. that is a defeates attitude. Id rather be positive and state the facts, yes we are being manipulated by big banking. Instead of boycotting, why don’t we as appraisers in a county or area, agree to adopt our on fee structure, in other words lets get together have dinner talk about what we can all agree to as normal fees. so when the amcs come calling we can say here is my fee, take it or leave it. If every appraiser in the market area agrees, and of course you will have dissenters, but not enough to matter, then the amc will go back to the bank and say, hey we cant find any appraisers who will work for these fees, we need more money, the bank will have no choice but to agree to higher fees. I agree we need to stand to gether but not to boycott, but to manipulate them just as they manipulate us.
I have never done any work for an AMC. I have been an appraiser for 38 years & I refuse to have anything to do with them. Unfortunately, there isn’t enough non – lender work out there, so I have lost about 80% – 85% of my business. I decided that I would rather go out of business than work for AMC”S & that is just about what has happened. The financial hardship has been unimaginable. I can understand why more appraisers don’t feel that they can do what I have done, but I also believe that if all or most of the appraisers in the country had done the same thing – basically go on strike & refuse to work for AMC’s – then the HVCC would have collapsed & DODD – FRANK would never have been written the way it was. I think appraisers would all have had about 2 months of intense financial pain, but that would have been the end of it. If nobody had been able to get an appraisal done, that would have been the end of AMC’s. Appraisers gave up the only power they had.
Right on, and I think a boycott would still result in financial victory for appraisers and the pain would be short lived and hardly memorable. As it is appraisers working in the secondary mortgage market just continue to enable their own slow death.
I have been saying appraisers should take charge of their businesses for years and I get push back that usually says I am naive or simply too stupid to understand. What?
Edd, your situation is much different than mine and I’m sure others face different issues compared to us. As a primarily urban and suburban appraiser I compete against 1,000 + appraises in my single primary county (within 25 miles) and compete against 5,000+ appraisers within a few hundred miles. In theory, I need to be smarter, cheaper, faster, and overall better than 4.999 other appraisers to get any typical order. Edd, I’m not insulting your inelegance, but again just saying everyone’s situation is different and thus each may have their own path to fix the problems.
Yes, my situation is different, in many respects I’m sure.
But, significantly, I am the one who grabbed the bull by the horns and made it different. I was chasing every low fee fast turn time assignment I could find until I decided that I wanted to be a respected professional. So I bit the bullet and am still biting it, and I only accept qualified clients. I decide who is qualified and not one AMC has made the grade, not one.
Based on my own experience and some cliches I believe that secondary mortgage market appraisers have made the choice to to accept the miserable status quo and the Fannie form appraisal clients are getting exactly what they are willing to pay for.
And thanks for not insulting my intelligence. It was a decision I put a lot of thought and time into and it came about when I realized absolutely nobody else was going to fix the disparity between the best appraisal professional aspirations we can muster and what the secondary market has caused appraising to become.
As an independent business owner that happens to do appraising, I think its up to the individual appraiser to decide what works for them. If your within retirement age and want to make a moral stand and can afford do so, than I support that. If your a single dad with multiple kids at home, who am I to say if you should work at 25% of your capacity and not work for the 75% of the business that channels through AMC’s. I can offer my own opinion and thoughts based on my experience but understand it may not work for all.
That just doesn’t work for the industry or the practitioners in it. We’ll just have to disagree Bill.
You expect far too much from yourself, in, as you say theory. I’m told cheaper and faster is absolutely all that is required to win the competition.
You are adding effort that isn’t at all necessary to work as an appraiser in the secondary mortgage market, but I applaud you for recognizing that there is moire to appraising than that. The extras you include are among the basics of what professionalism is all about.
Edd, I agree with you completely, but I certainly understand Bill’s point about the difficulty. Shortly before the HVCC went into effect, I attempted to organize an appraisal boycott in Northern California / SF Bay Area, where I live, & got NO Interest, at all, from other appraisers. NONE. NOTHING. All of the others were willing to just go along with the race to the bottom. Appraisers are simply too willing to undercut each other. Even after 38 years as an appraiser, I still don’t understand the mindset.
I’ve tried to think of a metaphor that describes the mindset you refer to. It really is dysfunctional. When repressed by so called clients we behave like those goats that fall over in a faint when they are frightened and when faced with a challenge we simply attack one another. A can of worms with teeth might be it.
Apparently in the reality of what the “appraisal” industry is my plan to take charge of what we do is something like what I think Trump’s plan to solve the immigration crises is. An impossible dream.
The secondary mortgage market end of stuff has let what they still call appraising become a lick and a promise minimum wage job (sometimes far less than minimum wage if it is done anywhere close to accepted industry standards) with no hope for anything better other than “independence.” Believing oneself to be independent under those circumstances is nothing less than enigmatic.
That sort of “independence” nothing more than slavery to low pay and artificially fast turn times, but it appears it will not change. Maybe Jeff Shurman, Dodd-Frank and the now defunct HVCC are all correct, we need to be carefully watched and managed by AMCs. We appraisers simply can’t handle the kind of independence that puts us in charge of how we perform as professionals even so much as to how much we are worthy of being paid to do our job the best way we possibly can.
How did that come about? Too many appraisers? Entry requirements that are too low? An industry without sensible leadership that can survive? All of the above?
Maybe it really doesn’t matter. Maybe we don’t really matter. For sure, if we work in the secondary mortgage market we are not important or even significant to the process of lending. What can be done to isolate that to keep it from contaminating the entire industry? Or is too late?
Edd, I agree completely. It is totally disfunctional & we are bleeding to death slowly because of this. I am already boycotting AMC’s. Does anybody want to join me?
I hear we are nuttier than the man from La Mancha
Actually it is not hard to understand at all. It is not the appraisers who caused this, it is the banks and amcs who fostered this mindset. Don’t you guys understand that it is totally to the bank and amcs benefit to have us paranoid and at each others throats. What does it do, makes us work for low fees and stupid revision requests and extra data provided for free just to keep getting work. Everything that has been passed into law or practice over the past five years has been geared to regulate appraisers and threaten them with disciplinary actions if they don’t tow the line and do exactly as lenders and regulators say. If you want to control a group of people what is the first thing you do. You pit them against each other and you can ultimately destroy them. The first thing started was the allowing of current Many reviewer appraisers try to eliminate their competition by picking apart anothers appraisal. This started the paranoia. Then we started getting the amcs dictating prices and instead of ordering directly they would broadcast orders asking for bids, yes bids on jobs. That to me violates uspap and all other laws meant to protect the interest of the public. There is no doubt the objective of the banks and amc is to put the appraiser under their thumbs and keep us from ever organizing into a meaningful coalition.
Not so fast Edd, while I admire your willingness to boycott, then what? What, let us say for argument sake that all of this new fangled data research, instant property details online, instant comp data online, services that give you all you ever want to know about a property and it’s neighborhood, what is to stop the banking industry or amc industry to offer technical alternatives to live appraisers? After all, lets be honest here, the reason a bank loans money isn’t really because the home is worth what they are borrowing, it is the risk factor of the borrower. Ie credit score, job, time of residence, net worth, etc etc. The home value is just something to put in a file to cover their butts with auditors. You mark my words, they are trying their best to work toward alternative appraisal reports that will replace live appraisers going out to a property to inspect. So, we can boycott but I doubt seriously it will change anything. Those about to retire form this industry will not have to deal with this in the future, but we that are left will either figure out how we are going to evolve in the valuation industry or just get out. Having said that, there have been many days I have debated what I will do.
Mariateresa, I have always said the issues facing this industry are federal, state, city, neighborhood, rural, city, AMC specific, etc., however, I will now add family. If you had a successful run of 30 years (before HVCC) and were able to put a retirement plan in place and are in a position to work with 15% capacity, I say go for it. But to ask the same of a typical 35 year old with a family of 4 to do the same for a moral victory is unfair. Again, maybe its my specific area, but I can tell you that non-AMC work has been so discounted in fees, that its nearly identical or lower to the split that AMC’s pay. Your area may differ Mariateresa, but I have 1,000 + appraisers to compete against in my single primary county and over 5,000 to compete against within a few hundred miles.
So Bill, since you see unfettered competition as the source of the financial dilemma and the rush to the bottom, I assume you are in favor of raising the bar to obtaining an appraisal license.
No, my area does not differ significantly. I live in Northern California / SF Bay Area. As I said in a reply to Edd, a little further down, appraisers are simply too willing to undercut each other & I still don’t understand that mindset. Undercut each other, so we can all bleed to death slowly, instead of hanging together & giving Andrew Coumo & AMC’s the collective “finger” & telling them “Appraise this, Dirtbags.”
excellent point Bill
I feel your pain Mariateresa. One thing I did was balk on the fees offered by the amc, you can pick and choose the best amc to work for. I will get a fee request and I always go back with a fee close to what I normally make on non work and I explain why the property I am appraising requires the fee. What happens is the amc will go back to the bank and say, hey the appraiser wants more money because of xyz. 90% of the time I get the increase or I will tell them to find someone else. Most cases they come back to me and say, ok we accept your fee. I live in a rural area of SC and there are just not many appraisers left anymore, and its getting worse. These amc companies be forced to either pay more or lose their business to the banks. If there is no appraisers willing to do the work in my area, guess what I am your only choice and you are going to pay me for it. As one mentioned earlier its a market driven value on appraisal fees, well my market is very poor in appraisers and I am definitely pricing my fees based on my speciality, educations and lack of others like me in this area. I suggest you offer to work for amcs but you dictate your fees, you will be surprised how many will fold and use you. just a suggestion.
“Customary and Reasonable” is not pronounced “customaryandreasonable;” it is not a single word. Thus the test of customary and reasonable has two distinct components. The first is, “Is the appraisal fee customary for the subject market?” The second is, “Is the appraisal fee reasonable?” Testing for reasonableness should not be dismissed. Is the appraisal fee sufficient to provide the appraiser a reasonable return of and on their investment in direct, indirect, and fixed costs, with enough left over to reward the appraiser’s investment with a profit. If the answer is no (or Hell No! Idiot!), then the fee is unreasonable. Fee surveys only address the “customary” question. Because it is customary does not make it reasonable. Reasonableness demands critical thinking backed by data… and a little bit of foresight (see further below). I’d also like to gently push back on the contention about “(AMCs) uselessness to consumer welfare…” Lenders have exactly two choices when it comes to managing appraisal production and appraisal provider networks: Do it yourself, or hire someone else to do it. Many lenders opt to outsource appraisal management thus avoiding the necessity to hire, train, oversee, house, compensate and inevitably lay off the same or larger numbers of appraisal department personnel (along with the tools of the trade: equipment, order tracking IT, accounts payable, payroll taxes, plus, plus, plus, plus, plus, plus…) they’d otherwise assume. Outsourcing to AMCs has additional benefits that I won’t go into here beyond noting that they DO add value by freeing the lender of direct, indirect, and fixed costs associated with operating an in-house appraisal management department cost-center. In addition, they significantly reduce appraisal fraud, client pressure, and collusion by keeping the loan originator, appraiser, and other parties to the transaction firmly at arms-length. An argument can also be made for consumers being beneficiaries of (some) outsourcing cost savings, perhaps a few basis points off the do-it-yourself lenders’ APR, faster closings (Don’t get me started on this one… 3-day turn-times were invented by LSI as a sales and marketing stick to poke at competitor Record Data: ”Oh yeah? Well we can get appraisals back in 3 days!”). Surely they benefit the consumer welfare. Feeling a growing disturbance in the Force, I’ll quickly add that lenders put as much or more downward fee pressure on AMCs as AMCs put on appraisers. They should not. Instead they should do what Joan and others have proposed: Cost-plus pricing. The lender pays the AMC’s costs plus a reasonable profit, the AMC in turn pays the appraiser their costs plus a reasonable profit. Using competitive leverage to push AMCs prices down (strenuously) is distorting the appraisal industry business model and threatening the appraisal and AMC industries’ very existence. I’d encourage lenders’ leadership to step in to demand of their in-house AMC contract managers that they pay cost-plus fees. By that I mean reasonable ones of course! If not the appraisal industry—and AMC industry—has about 10 years left. How does that protect consumers?
So, what is it of use the AMCs have added to consumer welfare? Fasdt tujrn times that result in corner cutting that have changed the the appraisal process form a service to a commodity Of course it must be that you consider the banks as the consumers that really count, in which case I guess you’ve made your case. Good for the banks, not so much for everybody else including the principals in the purchase transactions or the property owners in the refis.
And Mr. Schurman, your arrogance and possibly ignorance is showing. Apparently you have never appraised with an AMC as the intermediary. From that perspective it was much, much better for everyone when it was LOs and underwriters. AMCs are not as valuable as you try to make out. Pure spin.
The AMCs are not on the same side of anything of importance to the appraisers.
Edd, You give me a tough choice: arrogance or ignorance. I’ll go with ignorance for the reason you suggest: I’m not an appraiser (I’m a liberal arts major). Why spin this? I’ve been out of the AMC inner circle since 2011. And I’ve said variations of these very same thing(s) in The Mortgage Third Party Risk Blog (’11-’13); The AMC Full Fee Hypothesis (2012); and articles and comments in this publication and elsewhere. I’ve written extensively about the origins of the AMC industry, the origins of the 3-day turnaround time convention, and why the solution to the appraiser/AMC problem is as simple (relatively speaking) as getting lenders to recognize that it is in their best interest to pay AMCs reasonable fee cost-plus, and for AMCs to pay appraisers reasonable fee cost-plus. THAT is the answer. Going back to the glory days of appraiser hired by lender at retail is unlikely to happen. The Outsourcing Genie–in virtually every industry–is out of the bottle.
As someone who has 62 up votes for my comments Jeff, I like to think I’m in touch with my fellow appraiser. Can you also comment on my questions and or concerns?
Ten years? There Russell, is the alternative to changing the situation for the benefit of the appraisers
Is this Jeff Schurman the executive director of the Title Appraisal Vendor Management Association (TAVMA)? Let me clear up some things. You say there are exactly two choices in managing appraisal production, however you fail to mention the biggest trend that many lenders are starting to use, software as a service (SAS). I have many clients that use third party provides that either don’t charge me anything or only a small delivery fee. How can lender (A) only charge me a $10 fee while lender (B = AMC) takes 50% of my income? I also disagree with your conclusions on the expense to the lender to manage the appraisal process. As independent business owners ourselves, we need to single handily do everything you mention to stay in business, but yet your argument is that multibillion dollar companies can’t afford to do the same thing we are already doing. Where was the push by the AMC industry to establish a cost-plus system after HVCC / Dodd-Frank? The AMC industry used the regulation environment at the time to establish a presence and now with decreasing profit margins, wants to change it again for their benefit. The AMC industry should be carful of what they are now asking for (cost-plus) as many will not survive. Will borrowers be okay paying a $250 separate AMC fee? Will lenders pay for the service themselves? Can lenders manage individual appraisal assignments for $10 to $25 per assignment and thus choose to not go through an AMC? Can AMC’s survive if they operate in a free market where their services my warrant a $50 service fee? I agree Jeff that the AMC business may have a life of 10 years, but with significantly decreasing appraiser numbers, my value will only increase over the same 10 years. What will happen to the AMC business model when momentum picks up on a state by state basis where appraisal fees are based on independent studies (Say $400)? Will the overall appraisal fee remain the same to the borrower, but the split to the AMC will be cut in half? Can they survive? With set fees across the board, its the appraisers who will decide what AMC’s survive. When A la Mode sells its Mercury Network for a reported $70,000,000 and BOA cashes out Landsafe for $40,000,000, forgive me for not feeling the pain of the AMC’s and like providers.
Bill, I was the executive director of TAVMA from 2001 to 2011. I’ve been off doing other things since then so I don’t have a proverbial dog in the hunt. Yet I am as concerned as you are about the future. AMCs, title agencies and settlement service providers all do or could deploy SAS as the digital conveyor belt pulling appraisals in, through and out of the building. Yet it is not a third option, and in fact, SAS figures prominently in both alternatives of my two-choice pronouncement. The cost of managing the AMC or in-house AM department would skyrocket without first rate technology. Your $10 per transaction reference doesn’t consider the manual work involved in processing in some cases 1000 or more orders per day. The bank’s $10 delivery fee (assuming that’s what it is in your example) is just one small sliver of the overall appraisal production and appraisal transaction cost(s). To make an apples to apples comparison we’d seek to compare production + transaction costs for a bank managing the appraisal management department in-house versus outsourcing the same appraisal management functions to a third-party AMC. You sort of lost me in the part where you say “As independent business owners ourselves, we need to single handily…” AMCs, or lenders managing appraisals in-house, do exactly those things that you do, but on a massively larger scale. My argument is that the lender is not currently recognizing the actual costs of running an appraisal management cost center based upon the fee they’re paying the AMC. This goes to the core of the frequent lamentation in the appraisal community that, ‘AMCs are earning their fees on the backs of the appraiser….’ This needs to change, and can change, but will require cooperation between both industries, regulators (re-thinking how they interpret C&R fees, maybe putting the arm on banks’ leaders a few pay grades up from the appraisal contract manager level, etc.) Reasonable lender-to-AMC-to-appraiser cost-plus pricing seems the answer. And if it’s any consolation, paying appraisers reasonable fee cost-plus will leave deciding the value of the third-party managed appraisal system where it belongs: in the hands of the lender and AMC.
Although I applaud you for leaving the industry Jeff, as the first proclaimed AMC review appraiser, I hold all past parties guilty in part of creating the mess we are in. As more than 50% of the appraisers in the business are self-employed (companies of one) bringing up business expenses as a reason for the lenders to not manage the process in-house doesn’t work for me. As a small business, who do you think
deals with training, hiring, equipment, order tracking, accounts payable,
computer maintenance, taxes, continuing education, car maintenance, insurance, licensing, plus, plus, plus, plus, plus…? It’s the appraiser who shuts down the income making part of the business for hours, days or weeks to address the business side of things. To say it’s okay and expected of the appraiser to absorb the costs while witnessing billion dollar profits from the banks and not thinking it’s reasonable for them to do the same, is a joke. In establishing their foothold in the industry in the years past, where were the AMC’s in calling for a separation of the appraisal fee? With state by state victories customary
and reasonable fees / Louisiana) and with full AMC state regulations mandating enforcement by each state in 2.5 years, future increases in appraisal pay will be certain. With mandated state support for increased fees, the issue to the AMC is how can they survive when the appraiser gets more and they get less? With failed attempts to establish a separation of fees on the borrower’s paperwork, what has led you to believe a cost-plus system is the answer? Through
regulation, appraisers lost their businesses, have been asked to survive on a 50% income, are expected to spend twice as much time on the same order, are now required to have 4 year degrees, 2.5 years of specific training, etc. If it was okay to put such a burden onto the appraiser a few years ago, I say it’s okay to have similar issues be placed on the AMC model.
Bill, I hit the Post button too soon.
RE: Where was the push by the AMC industry to establish a cost-plus system after HVCC / Dodd-Frank?
TAVMA vehemently objected to the HVCC in a widely distributed 23 page letter. Frankly, we were as flabbergasted as everyone else when HVCC was announced by the NY Attorney General. TAVMA had absolutely zero input in crafting the HVCC, you have my word on that. Prior to being anointed the solution to the appraiser-pressure problem AMCs were fairly obscure with somewhere around 15% market share. Suddenly, Mr. Cuomo’s grand idea thrust AMCs into about 85% market share and swelled the ranks of competitors of all sizes. That is when AMCs became recognized as the Death Star. As for Dodd-Frank, we got our hats handed to us by far-better funded lobbyists at the Appraisal Institute. What we asked for leading up to DFAs passage was for AMCs to be regulated at the federal level of government by the same regulator(s) overseeing the banking industry. Our rationale was that a 50-state regulatory regime was unworkable. AI’s lobbyists said ‘No’ so no it was. TAVMA was in no position to advocate for changes to the fee structure.
RE: The AMC industry used the regulation environment at the time to establish a presence and now with decreasing profit margins, wants
to change it again for their benefit (along with your immediate following points)?
See above. We had our hats handed to us. As for wanting to change the fee arrangement, I’ve been among the most vocal proponents of re-considering the model. The HVCC gave me religion: When a vendor’s business goes from 15% AMC to 85% AMC work, they can no longer make up for the lost income by relying on full-fee customers. I doubt the AMC industry at large is asking for cost-plus. I’m sure though that individually many people in the business would agree—and as the 60-year old plus appraiser population and lack of new blood in the gene pool certainly suggest—the current fee model is not sustainable. Something’s got to give.
RE: Can AMC’s survive if they operate in a free market where their services may warrant a $50 service fee?
We’ll find out. It seems to me that if the value is $50 they’ll earn that amount; if the number is $100 that will be the number. The perception that AMCs make boat loads of money (net, net, net), I believe, is overblown. Appraisal management requires a staggering amount of human, plant and equipment, IT, and many other resources. I don’t believe there’s much money in appraisal management when it’s all said and done. So, to the extent this is true, AMCs will cut services in order to cut costs in order to make the $50 or $100 or whatever number their clients put on the value of outsourcing appraisal management.
RE: What will happen to the AMC business model when momentum picks up on a state by state basis where appraisal fees are based on
independent studies (Say $400)?
Then that is what they will pay (I still think a single federal overseer would have been the superior solution. But I’m not bitter.) Then it is the decision of lenders to decide the better choice between in-house appraisal department management or hiring an AMC to do it. But a caveat: Absent definitive clarity of C&R fees there’s no guarantee that lenders will begin paying appraisers full retail fee… some may be tempted to lay off the cost of appraisal management “onto the backs of appraisers” by negotiating fees the way AMCs do today.
RE: When A la Mode sells its Mercury Network for a reported $70,000,000 and BOA cashes out Landsafe for $40,000,000, forgive me
for not feeling the pain of the AMC’s and like providers.
I feel the same when my neighbor wheels in in his Mercedes.
Bruce, I would very much like to see this article forwarded to the Florida Real Estate Appraisal Board. It appears that recently they have decided no regulation of AMC’s is the way to go. Disaster ahead for sure ! I’m not real sure that lenders going back to direct engagement of appraisers is far fetched. In the last several months I have been added to several direct lender panels, receive full decent fee’s and I set the turn times. I got rid of useless revision requests for AMC required verbiage or format that had nothing to do with valuation and everything to do with reducing AMC review times or just their inexperience. I am an appraiser to make a profit for me and not some other entity. That is a staff appraiser job with full benefits and office support. It is time to bring this battle on. Unless we have some positive change in the industry there will be no industry left.