Voice Of Appraisal

[Joe Flacco]

Thanks Joe. We have enough desks for them at the office but frankly, our office always has empty seats at some point as some work at home more than others. We do want staff to be in the office periodically during the week for mentoring. It has worked well for us over the past 31 years but it may not work for others. There is greater risk placed on ownership given the salaries/benefits so we have to be very aware of where our clients are heading. I remember in 2005 I knew we would go under in 3 years if we didn't steer away from retail bank work and mortgage brokers. We inverted our client base emphasis to non-bank which paid much better but was harder to get and have set a record nearly every year since 2008 without much of an increase in appraisal volume. The AMC model is broken and will eventually die or become a much smaller part of the lending business as lenders slowly figure it out, but I can't wait that long.

Yeah. I heard you mention that in the podcast. Your guest appearance as host on the podcast made me realize that Phil is very talented at what he does.

I don't think the large AMC's are going anywhere. The national AMC model without local firms is terrible but as long as current residential qualifications stay in place, I think that local firms will return. It is also possible that the AMC model evolves. I would like to see more firms like yours in the future rather than fee split firms. I don't think the fee split firm model is too much better than the national AMC model.

 

[Jonathan Miller]

Yeah. I heard you mention that in the podcast. Your guest appearance as host on the podcast made me realize that Phil is very talented at what he does.

I don't think the large AMC's are going anywhere. The national AMC model without local firms is terrible but as long as current residential qualifications stay in place, I think that local firms will return. It is also possible that the AMC model evolves. I would like to see more firms like yours in the future rather than fee split firms. I don't think the fee split firm model is too much better than the national AMC model.

Thx Joe - Interesting on the large AMCs not going anywhere. You're probably right in the near and mid term. Their problem is that they don't provide lenders any real value (no pun intended) - the analytics they offer are only because of the lower quality of the appraisal market they walk within provides window dressing (no offense to good AMC appraisers). They ran out of appraisers in the past year willing to work for 50 cents on the dollar when there was a refinance boom and not only passed along our higher fees but saw their opportunity and added a lot more to their side of the bill. Think about this - what profession that provides nominal admin services gets half or more of the professional fee? Does a movie start pay their agent 50% of their movie pay? Of course not. I think that banks haven't figured this out yet given that we are still in the hangover phase of the financial crisis. AMCs demise may not be imminent, but I don't see the long term growth opportunity for the industry, I only see downside risk. Their sales pitch is cost savings, and hide behind USPAP yet they have become much more expensive and have created more future risk for lenders - I believe lenders are already starting to think about it. Here's a hypothetical: if the federal backstop disappeared (ie feds won't bailout banks), moral hazard evaporates and AMCs rapidly disappear.

 

[Joe Flacco]

Thx Joe - Interesting on the large AMCs not going anywhere. You're probably right in the near and mid term. Their problem is that they don't provide lenders any real value (no pun intended) - the analytics they offer are only because of the lower quality of the appraisal market they walk within provides window dressing (no offense to good AMC appraisers). They ran out of appraisers in the past year willing to work for 50 cents on the dollar when there was a refinance boom and not only passed along our higher fees but saw their opportunity and added a lot more to their side of the bill. Think about this - what profession that provides nominal admin services gets half or more of the professional fee? Does a movie start pay their agent 50% of their movie pay? Of course not. I think that banks haven't figured this out yet given that we are still in the hangover phase of the financial crisis. AMCs demise may not be imminent, but I don't see the long term growth opportunity for the industry, I only see downside risk. Their sales pitch is cost savings, and hide behind USPAP yet they have become much more expensive and have created more future risk for lenders - I believe lenders are already starting to think about it. Here's a hypothetical: if the federal backstop disappeared (ie feds won't bailout banks), moral hazard evaporates and AMCs rapidly disappear.

I get what you are saying. I just think that some of these companies will be able to adapt or evolve in the future.

 

[timd354]

The AMC model is broken and will eventually die or become a much smaller part of the lending business as lenders slowly figure it out, but I can't wait that long.

Whether or not appraisers think that the AMC model is broken, almost 10 years after the AMC model really took off, lenders apparently don't think that it is broken as more than half the volume of mortgage lending appraisals continues to be funneled through AMC's by most accounts. Thus, I don't think there is any reason whatsoever to think that the AMC model will either die or become a much smaller part of the lending business in the foreseeable future. I know that most appraisers don't want to hear that, but that is just reality and appraisers who don't like working for AMC's would be wise to diversify their business and find clients other than typical mortgage lending clients.

 

[timd354]

Here's a hypothetical: if the federal backstop disappeared (ie feds won't bailout banks), moral hazard evaporates and AMCs rapidly disappear.

The problem with your hypothetical is that although that probably should happen, it won't ever happen. The federal government has been bailing out large financial institutions for decades and even if the federal government says that there will be no future bailouts, everyone knows that the next time there is a meltdown of large financial institutions the feds will be right there to bail them out again.

 

[Jonathan Miller]

Whether or not appraisers think that the AMC model is broken, almost 10 years after the AMC model really took off, lenders apparently don't think that it is broken as more than half the volume of mortgage lending appraisals continues to be funneled through AMC's by most accounts. Thus, I don't think there is any reason whatsoever to think that the AMC model will either die or become a much smaller part of the lending business in the foreseeable future. I know that most appraisers don't want to hear that, but that is just reality and appraisers who don't like working for AMC's would be wise to diversify their business and find clients other than typical mortgage lending clients.

More like a 90% share. The same was said about mortgage broker appraisals with 2/3 market share in the bubble. Not saying they will go away, just that their model will change significantly or they will go away. The current model is not sustainable.

 

[Evincere]

The problem with your hypothetical is that although that probably should happen, it won't ever happen. The federal government has been bailing out large financial institutions for decades and even if the federal government says that there will be no future bailouts, everyone knows that the next time there is a meltdown of large financial institutions the feds will be right there to bail them out again.

Presumptuous. We all know that they way the wind blows is directly related to whose hands holds the political gavel.

 

[timd354]

More like a 90% share. The same was said about mortgage broker appraisals with 2/3 market share in the bubble. Not saying they will go away, just that their model will change significantly or they will go away. The current model is not sustainable.

Whatever the share is, apparently lenders are fine with AMC's and continue to use them 10 years later. The only reason mortgage broker appraisals went away is because they were outlawed after the last meltdown. If there is another meltdown and the laws are changed to outlaw or severely restrict AMC's, then the AMC model will perish or change significantly. But unless and until that happens, there is no reason to think that the AMC model is going anywhere anytime soon or will significantly change anytime soon.

 

[timd354]

Presumptuous. We all know that they way the wind blows is directly related to whose hands holds the political gavel.

Presumptuous? Only someone who has not studied the history of federal bailouts would think that they won't continue to happen in the future no matter if the left or the right is in power. To think that it won't happen again is hopelessly naive.

 

[Evincere]

Presumptuous? Only someone who has not studied the history of federal bailouts would think that they won't continue to happen in the future no matter if the left or the right is in power. To think that it won't happen again is hopelessly naive.

And exactly how many more bailouts do you think the American Public is going to tolerate. As many as the govt shoves down their throats? Is there some magical tolerance number

Gee, who wulda thought....a guy like Trump actually got elected.