The Appraiser Shortage Myth Part 43

[Eli]

https://www.federalregister.gov/documents/2017/07/31/2017-15748/real-estate-appraisals

They may wind up in antitrust issues.

Antitrust law is deep. Probably deeper than any other laws.

 

[Evincere]

And TRID made it worse. It is a paperwork nightmare to change the appraisal fee. Thank God for big government and restrictive regulations.

Presumptions are flying like winged monkeys. Do you think its a paperwork nightmare when lenders modify costs/closing statements due to points or rates changes. Rates fluctuate and are generally not locked until a few days before closing. Banks have no problem complying with what regs require. Why should the appraisal fee so segregated and etched in stone in perpetuity as a matter of convenience.

My heart is breaking for the poor, overburdened banks. We should concoct a sing along of of woe for them. Its just too bad another piece of paper or additional figure should be added to the already existing tome of closing documents?

Fees have not changed in years - appraisers are being paid 1990 vintage fees because SLAs between Lenders and AMCs are not renegotiated for cost plus.

 

[Terrel L. Shields]

Come'on, Terrel, be real.
Are you talking about George Baily and Baily's Building and Loan, or ... (the ones who the majority of appraisers work with)?

50% of the money lent today is "in house" Almost all the rest is secondary market 30 yr loans

My heart is breaking for the poor, overburdened banks.

I've done two bank jobs this year, both finished in early July in less than 10 days. Fees total $4900. Ask me if I've been paid yet. zOne purchase, one refi. So what bank is in a hurry...???

 

[Evincere]

I've done two bank jobs this year, both finished in early July in less than 10 days. Fees total $4900. Ask me if I've been paid yet. zOne purchase, one refi. So what bank is in a hurry...???

No hurry. Your fee is being utilized by a Borrower who probably took out an equity loan paying 12% interest to the bank.

 

[Terrel L. Shields]

Borrower who probably took out an equity loan.

Taking equity to remodel .

 

[J Grant]

Another factor that no one has mentioned is that AMC are significantly less costly for lenders than maintaining their own appraisal department. They've essentially outsourced this function, just like they've outsourced facilities management and every other thing that regulations will allow. No more salaries, no more benefits, no more office space. No problems with staffing up when busy or laying off when slow. AMCs are never going away ...

True, though for whatever reasons, more lenders recently have changed to ordering direct- but overall you nailed it as to why AMC's are not going away-

If appraisers want to approach reform from a point of view of limiting costs to consumers, putting a cap on the percent of the fee a lender can portion for AMC management ( excessive AMC percent of fee charged has driven total fee up to borrower).

If people argue capping a max percent for management fees (such as 20%) would limit an AMC profit, an AMC can charge whatever additional rate above the cap to the lender. Of course that would put some of the cost back on the lender-. but that is not our concern. The AMC model flourishes because unlike normal businesses, including normal outsourced business, it does not cost the lender anything for the AMC service- the amount the lender "pays" an AMC is a pass through of a percent of the $ borrower paid for the appraisal.

 

[Rick Stillman]

(my bold)

I've seen some low-fee appraisals that were stellar; I've seen high-fee appraisals that were trash.

Maybe I need to get out more. I've never seen a stellar appraisal. In fact, because of that, I just made a business decision to quit doing reviews of any kind. I no longer will have my name associated with the reports that I've seen. They pay for quick and cheap - they can die with quick and cheap. Which brings me to my next point...

(my bold)
If so many of these low fees appraisers are actually doing substandard work, then they will be shut out and the supply of appraisers who can meet the standards will be reduced. Those appraisers can bid what they think is fair given the quality requirement. The lenders will pay.

I would like to believe that is true. But the mills keep on milling, don't they? I'll say that if the standards we have for food were the same as the standards for appraisals, we'd all probably be dead from the low quality food we would be forced to eat. If cars were built to the low quality standards as many appraisals are, we'd all be dead from the wheels falling off at highway speeds, or the engine blowing up. But - hey, cheaper is better.

It doesn't make me happy to say these things, but I have to say that I know my business. And I call it the way it is, for better or for worse. it is what it is. You would think we'd have learned something from the great recession, but we haven't. And lenders have to play the same game as appraisers do - they have to compete against cut-throat competition as well. It's all one big happy business, isn't it!

 

[J Grant]

I've seen some low-fee appraisals that were stellar; I've seen high-fee appraisals that were trash.

So what? The lender, whether they use an AMC or not , is the one responsible for due diligence. If trash appraisals are being done for a high fee, clearly they should not give further work to that appraiser. And while there may be some stellar, or competent appraisals at a low fee, there are also are a lot of marginal and bad ones. Yet, with the conflict of interest to hire at low fee in place via AMC selection, unless an appraiser is doing work that gets caught as a material USPAP violation, or a lender refuses to accept that appraiser's work any longer, the AMC will continue to use that marginal appraiser and bypass more competent appraisers. (often for a small fee difference)

The theory is over time the "bad appraisers" will be weeded out via natural selection. Lenders who order direct with a better screening process to get on the panel and who have quality ongoing reviews will weed out the bad appraisers,

Except in the most egregious cased, The AMC's will not weed out bad or marginal appraisers,, because they have lower standards of screening to get on the panel, and use computer ranked scorecards to rate the appraiser and award work, and a portion of scorecard ranking is around service ( fast turn-times ) and at assignment final selection, the supposed tie breaker is the fee (always the lower fee).

There can be some competent appraisers and good appraisals done within that system, but overall, the system rewards "survivors" as those appraisers who enrich the AMC by taking on volume, fast turn times, and low fees. All other appraisers, including very good competent ones, are expendable and loss of them is collateral damage.

The fact that ( thank god) there are still direct order lenders engaging competent appraisers at higher fees as well as VA and private work, means a number of experienced, quality appraisers will move away from AMC work. Which might not be a problem, except that the tax payer backed public trust interest, individual borrowers and the seondary market are now deprived of the services of these experienced appraisers, and they are stuck, for better or worse , getting the service of those appraisers who can survive in an AMC system. The system also discourages good people from entering the profession or training, since so much work does flow through the AMC's,

 

[Eli]

True, though for whatever reasons, more lenders recently have changed to ordering direct- but overall you nailed it as to why AMC's are not going away-

If appraisers want to approach reform from a point of view of limiting costs to consumers, putting a cap on the percent of the fee a lender can portion for AMC management ( excessive AMC percent of fee charged has driven total fee up to borrower).

If people argue capping a max percent for management fees (such as 20%) would limit an AMC profit, an AMC can charge whatever additional rate above the cap to the lender. Of course that would put some of the cost back on the lender-. but that is not our concern. The AMC model flourishes because unlike normal businesses, including normal outsourced business, it does not cost the lender anything for the AMC service- the amount the lender "pays" an AMC is a pass through of a percent of the $ borrower paid for the appraisal.

It really does cost them though unless all appraisers are doing demonstration quality. It costs somebody like the bailout.

 

[bnmappraisal]

You posted earlier that there is no fee split based on your personal experience. Please correct me if I read you wrong.

I asked you a hypothetical where the money goes that the borrower pays?

no fee split by whom? Sorry, I don't know what you mean. In my experience at an AMC (and from friends still there) The AMC gets $zzz from the lender, out of that they pay the appraiser $YYY. Is that the fee split you mean?