Appraisers Punished for Sins of the Lenders
Appraisers have been punished for the lender’s sins. It’s just the facts.
In 20 years we may finally figure out what went wrong in the home valuation process. But, by then it will be too late to fix the problem. Then we will really end up with a real estate crisis. The AVM’s (and banks) are creating a false sense of security. They promote a “technology-based” product, so it must be better, right?
Nobody talks about the price of attorney fees or home inspectors, or anyone else associated with the home buying process. No other industry would have ever let this happen. What do you think would have happened if Mr. Cuomo told the legal industry they had to lower their fees, work faster, and could no longer be their own boss? After they have been in business for themselves for years and years, and worked very hard to build up client trusts and a reputation, all that hard work and relationships are out the window. That’s not the way to reward hard work. It’s downright un-American!!
Somebody made a decision that since we are having a real estate crisis, someone had to get the blame. Problems this big requires change. It’s just a matter of who’s going to bear the brunt, no way around it. A problem of this magnitude requires immediate action. But, maybe we moved a little too fast and definitely in the wrong direction. For all the changes to the appraisal process, we still have the same old problems, plus a new set of problems to add to the system.
Even now (three years after the HVCC), some states are just starting to regulate AMC’s. We took a highly regulated industry with strict training, licensing, and ethical standards; and replaced it with an unregulated and unlicensed industry. A new powerhouse business sprang up literally overnight with people rushing to get in on the action. New money and a new piece of the appraisal pie, coming directly out of the appraiser’s pockets. The consumer is the loser in all of this.
By Michael Armentrout:
I have narrowed down a list of six primary areas of what I believe encompass appraisers worth and appeal in the marketplace.
1. Ability to Render Value
It doesn’t get any more basic than this. Our ability to produce a determination of value is the hallmark of what we do. Today’s appraiser’s offer credentials based on licensing, education and experience and have specializations that cover a wide array of disciplines.
The word “ability” can be a subjective term but is ultimately determined by our expertise. A client may or may not desire expertise but it obviously is something we should endeavor to improve constantly.
We are not however, the only source for value determination. The increasing use of the AVM has offered potential clients a much lower cost alternative to our services and BPO’s have become a favorite product for asset management companies in foreclosure work. We may proclaim the shortcomings of these alternate valuation vehicles but their growing use indicates that end users view them as a viable option for some purposes.
2. Competitive Fees
What we charge for our services can vary widely based on locale, client type, volume and the scope of assignment but is still in effect set by customary fee ranges in a particular market. If the same client pool has access to a set number of appraisers, the market will obviously not lend itself to wide extremes for the same service without some attrition. Fees then become relatively competitive in that market.
Recently, fee trends have been one of the pivotal issues related to appraisal management companies in the wake of the implementation of HVCC. Many of the larger AMC’s allocate assignments to appraisers willing to work for as much as 40% less than pre-HVCC rates.
The balancing act for appraisers who work with AMC’s is now to attract new clients with attractive rates yet somehow streamline processes and implement new efficiencies to make up lost revenue. It is possible though; that shortcuts may lead to a reduction in overall report quality and further add to an already fledgling public sentiment toward appraisers.
3. Quality Products
If you were to ask a group of appraisers if they all produced quality products, I’m certain you would hear a resounding “absolutely” and without exception. We all want to believe that we are completing reports that are accurate and reliable but we must come to terms with the fact that not all reports are created equal.
Someone has said that an appraisal is only as good as the available data but while there is a grain of truth to that, a quality appraisal consists of many parts, not just raw data. Market expertise, academic and logical analysis, supportable conclusions, and clear presentation are just some of the components that make a quality appraisal. Making sure we are turning out the best possible quality is the key to our long term survival.
4. Communication
How we communicate with clients is what I believe to be one the most valuable traits of any appraisal organization. It is the bedrock of all business relationships and has historically been the factor that either keeps or loses clients.
In the past, mortgage lending relied heavily on the ability to communicate freely with appraisers. How ironic that this is also what was scrutinized by many in our profession and eventually was a contributing justification for HVCC. Regardless of the opinions on HVCC, the end result has clearly led to a decrease in communication as a growing “form-filler” role has been placed on many appraisers.
The large AMC model makes it difficult to cultivate business relationships on a national or even regional basis due to the scale and protocols of companies that order appraisals overwhelmingly from computer databases. This is where I contend that HVCC has caused the most damage to our ability to do business as appraisers.
5. Turn-Around Time
Besides death and taxes, we can always count on a client’s expectation for their requests to be completed as soon as possible. After all, if they have ordered it, then they are ready to receive it. It is funny how they are not always ready to pay for it.
A quick turn-time has been the norm since the advent of appraisals began and I’m sure will continue until its demise. For all of the changes HVCC has brought, it has had no effect on the expected delivery window for appraisal reports. All clients still want it yesterday.
6. Liability
I have saved this one for last because it is often overlooked but I believe it has become our single largest attraction to the lending market. Our financial, legal and professional liability is what sets us apart from the alternate valuation methods noted above and may very well be what keeps us in business in the years to come. It is also one of the prime motivators for maintaining quality in our services and products.
Don’t believe for a moment that many national investors and banks would not opt for a low priced AVM or BPO if they had recourse against them upon loan defaults. This is why the use of “no appraisal” programs was utilized in some lower risk loans during the buildup to the meltdown of the financial and housing markets.
I urge appraisers not to sell their services away for cut-throat rates. If they do not properly value your professional skills for what they are, then maybe they will value the liability you offer. It’s not free to us and it should not be free to them.
So how do we parse these points? Understanding prospective clients is the key to creating a business model that works and must always be guided by ethical conduct. For instance, if our primary draw is our ability to render value, a client may want predominantly high values therefore creating a dilemma that would lower quality and increase liability which in the end should not be a decision we accommodate.
Striking a balance of these issues can be difficult but is imperative for our success in the appraisal industry. As we continue on the roller coaster ride, we must continually be evaluating a client’s perception of the services we provide.
Dear Mr. Banker:
Why can’t we be friends? I worked so hard and helped you make all that money. This is the way you repay my loyalty and service?
