The Appraiser Shortage Myth Part 43

[Evincere]

I personally have no problem with cost plus. Most AMCs don't either. But shifting to such a model would not solve the problem that so many appraisers perceive to exist.

Let me see if I understand you correctly. AMCs pooling labor, inconsistent with any other industry practice, risen from government intervention rather than the free-market, resulting in lower earnings across the board, is really just a perception problem? Did I read that wrong?

I am glad you caught that.

 

[J Grant]

Let me see if I understand you correctly. AMCs pooling labor, inconsistent with any other industry practice, risen from government intervention rather than the free-market, resulting in lower earnings across the board, is really just a perception problem? Did I read that wrong?

You read it correctly, and it needs to be said that appraisers can fall into the trap of inadvertently supporting the AMC spin by believing "the low fees are the result of a free market, or an over supply of appraisers in an area". and DW chimes in; "High fees in the COW states prove it !" No, it does not prove it. (my comments below reference AMC's, not direct order lenders)

The fact that ONLY the COW states, are seeing higher fees from AMC's due a severe shortage shows of appraisers shows why it is not a free market. In a free market, and normal market forces are unduly influenced. It does not take a severe shortage of professionals in other fields to get fees to a level to keep the work viable . Most professions operate at an ample supply and often over supply, because they operate with their customers having unrestricted access to them and without regulations creating an atypical market dynamic. .

Contrast that to appraisals, where market dynamic is disrupted, by regulations not allowing individual loan officers to select the appraiser; the shift to narrow ordering channel thorough an AMC with the results in consolidation of the effective "demand" of buyers for appraisal services.

The AMC having a large control of the work volume means they hold a concentrated effective buyer demand power over the labor pool dependent on that work. The fact that the AMC does not charge the lender for their service but makes it's profit from a portion of borrower paid $ amount passed to the AMC as payment from lender, creates the incentive for AMC's to shop appraisal orders by low fee; their business survival depends on it.

Remove that incentive by changing the payment structure to cost plus.

 

[Deleted member 130081]

...In a free market, professionals are not subject to regulations restricting their contact with customers...

...The combination of AMC having a large control of the work flow and strong incentive of AMC to shop by low fee due to their business survival depending on being able to pay low fees is the problem....

...The very fact that it changes to cost plus will be incentive for some banks and lenders to stop using AMC's and form their own ordering division....

I agree with point #1 100%

On point #2, I am a little more divided. I think AMCs are a consequence of the initial problem, which was inappropriate legislation. Had the legislation simply provided for heavy sanctions against loan officers engaging in attempts to influence appraisers (and sanctions against appraisers who complied), be it by simply asking for value, or punishing for values that didn't make the loan go, etc., AMCs would still be an extremely small player. However I agree with you in general, no matter how we got where we are, it is now a combination of the way things are and they way they act that is causing the destruction of our industry. This thread is after-all about an appraiser shortage or the myth. Trainees not coming in is a fact, evidenced by the low number of new licenses issued. This will catch up eventually and if the shortage is only a myth now, it should not take more than a decade or so to see an actual shortage - lol - unless the truth is we are actually in over-supply now, and then it may take longer.

On Point #3, I am again a bit divided. DW stated he did not think a cost plus would solve anything (no matter what heck he was really talking about). He may be right. If you were an AMC and you had to work within the cost plus model, how would you make yourself more valuable to a lender? Well, one way would be to continue to shop for low fee appraisers, which would likely attract more lenders, which could result in the AMC being able to charge more per "plus". At least I would do that if I was an AMC. However you might also be right, once the bank sees an operating statement that has a line item for management expense, there will no doubt be some consulting accountant looking at it and asking if the cost can be reduced. Even if futile now that we are where we are, I still support cost-plus. It would at least provide transparency to the consumer about where their additional loan fees are actually going. And if transparency is going to be the only benefit, then why not just require all appraisals include the invoice with the report? That one little tidbit is sooooo telling to the way things actually are.

 

[J Grant]

I personally have no problem with cost plus. Most AMCs don't either. But shifting to such a model would not solve the problem that so many appraisers perceive to exist.

How nice of you to be concerned about the "problem" ( sarcasm ). SL and similar AMC's ARE the problem ! Specifically, the way they conduct business with regard to selection of appraisers with fee as a component, due to not operating on a cost plus basis.

If the AMC's have no problem with cost plus, why not initiate a shift to it? You know why; a potential that many lenders would drop the AMC service, the minute it actually COSTS the lender $.

Now, though technically an AMC "pays" the appraiser, the payment is a pass through from a portion of the borrower paid fee, with another portion of the borrower fee paid out to the AMC for the AMC service. Thus, the AMC service, though lender "paid" for it (from portion of borrower fee), it did not cost the lender $.

If a lender chooses to use an AMC with cost plus perhaps the lender will shift the cost back to borrower rolling it into loan etc, that is up to them. From appraiser point of view, cost plus would eliminate the incentive for AMC's to select appraiser by lower fee as a component. We can deal with fees from that point forward.

 

[J Grant]

frecords: On point #2, I am a little more divided. I think AMCs are a consequence of the initial problem, which was inappropriate legislation. Had the legislation simply provided for heavy sanctions against loan officers engaging in attempts to influence appraisers, be it by simply asking for value, or punishing for values that didn't make the loan go, etc., AMCs would still be an extremely small player. However I agree with you in general, no matter how we got where we are,

I agree, that sanctions/legislation around improper ordering could have prevented this , but we are in consensus we are where we are now. We agree on that.

 

[Eli]

It's all ethics.

 

[J Grant]

On Point #3, I am again a bit divided. DW stated he did not think a cost plus would solve anything (no matter what heck he was really talking about). He may be right. If you were an AMC and you had to work within the cost plus model, how would you make yourself more valuable to a lender? Well, one way would be to continue to shop for low fee appraisers, which would likely attract more lenders, which could result in the AMC being able to charge more per "plus". At least I would do that if I was an AMC. However you might also be right, once the bank sees an operating statement that has a line item for management expense, there will no doubt be some consulting accountant looking at it and asking if the cost can be reduced. Even if futile now that we are where we are, I still support cost-plus. It would at least provide transparency to the consumer about where their additional loan fees are actually going. And if transparency is going to be the only benefit, then why not just require all appraisals include the invoice with the report? That one little tidbit is sooooo telling to the way things actually are.


Switching to cost plus would be THEIR ( the AMC ) problem. AMC's are terrified of cost plus because it has the potential to hurt them far more than it would hurt the appraiser. A number of lenders would drop the AMC model and direct order instead. Any increased direct lender order volume will help appraisers say "NO" to basement fees.

Your point that an AMC could create value by offering a lender lower fee appraisals- its possible but would be harder for AMC's to do, because , Any increased direct lender order volume will help appraisers say "NO" to basement fees.

For lenders using AMC's, they'd arrange a cost plus and decide on an acceptable appraiser fee for their borrowers in an area, end of story.

I think lenders realize offering an appraisal that is few $ less than the competition is not going to give them a significant market share advantage. But if it becomes an issue with any individual borrower, a lender can opt to reduce the appraisal fee to borrower by that $ differential and lender would pay it - well worth it for them to make the loan. ( and they can probably charge the borrower $ more in another fee or roll it into the loan and make it back ))

True transparency is not achieved by including invoice with appraisal ( after the fact), It has to be upfront, in the application phase ..and not just the $ amount and any splits explained upfront, but also explained to the borrower, if this lender uses an AMC, whether the AMC will be using a lower fee as a component of appraiser selection, and what that means as far as which appraiser might be selected. ;

 

[DWiley]

Once again we have a thread where appraisers who have never worked at an AMC assert what they believe certain AMC positions to be and then attack those alleged positions, with nothing to indicate those supposed views even accurately reflect actual AMC positions.

Can you cite cases of AMCs voicing opposition to cost plus? I do actually interact with senior managers from various AMCs on a regular basis, and most that I talk with would LOVE cost plus.

 

[gregb]

http://www.millersamuel.com/its-time-to-debunk-the-debunking-of-the-3-biggest-myths-about-your-AMC/

 

[Evincere]

Once again we have a thread where appraisers who have never worked at an AMC assert what they believe certain AMC positions to be and then attack those alleged positions, with nothing to indicate those supposed views even accurately reflect actual AMC positions.

Relative to your subsequent question it is not necessary for any of us to work for an AMC as an "employee"

Can you cite cases of AMCs voicing opposition to cost plus?

I do actually interact with senior managers from various AMCs on a regular basis, and most that I talk with would LOVE cost plus.

So, what's the problem? What's stopping Senior managers from taking the initiative to implement cost plus? Certainly, if as you say they would "love" too switch there are no regs preventing them from doing so