Stop Accepting Unreasonable Fees

[chad hampton]

Glenn seems almost giddy to see appraisers squirm when bullied by the politically or financially dominant.

That’s because he is.

 

[glenn walker]

That’s because he is.

No I'm not happy or giddy and wish the profession wasn't paying folk's 20 year old fee's but if I was say a MD and Oncologist and my patient was end Stage 4 cancer I would not lie and pretend he wasn't near the end I would prepare him for the final care to make it as pain free as possible.

In real estate Empathy and wishing and hoping won't get fee's increased and re-litigating C&R won't change how the lenders interpreted it's legal meaning.

The best defence is building a better business model that's not restricted to doing AMC or GSE assignments unless your paid good fees.

This trend of low fees started years ago and there's been time for most to get ahead of it but unfortunately many won't survive the next cycle.

 

[Zoe]

If they separate fees on truth in lending disclosures, it will get better. Fastest and cheapest won't be an issue for an AMC if they survive with separation of fees.

I can see possibility AMC.s would go in competition against each other to big lenders and it would be ruinous competition for many to survive.

 

[Overimprovement]

I know this won't be a popular take but no appraiser has EVER been forced to accept any particular fee. We know many have, and we all know why, but NO ONE on this forum is any different than the AMCs offering the pittance wages. They do so exactly because someone will accept them. Anyone here ever go to a garage sale? Ever haggle over a price? Ever try to talk the seller UP? You come to a mutual pricing decision. Oh by the way, why are buying that set of tools at a garage sale for $25 when you can get the same thing at Lowes for $375? Because you just need the quality of the $25 set that's why.

No friends, the AMCs are NOT the problem. I have stated that many times. The problem is the clients--banks, GSEs, and ultimately investors in the paper who are basically saying we don't care--we just want a number that supports the sales price. And since they are all willing to accept that, it will not take long for them to accept that number no matter how it comes about--AVM, seller or buyer stated value, dart board, monkeys, or AMC employees, er I mean independent contractors.

And there is nothing we can do about that. If they don't think knowing a true well-supported market value is important, they will not pay anyone $500, or $750 or more to develop this opinion of market value. They just don't care.

When you buy potatoes (or pick your favorite veggie), do you ask what kind of soil they were raised in, what farmer raised them and in what state, how long they were in sacks during transportation, etc? Maybe a very few care, but most don't. Do these things affect the taste and quality of a potato? Yep. Do you care? Nope. You gonna pay more for the highest quality potato? Nope. Hence most potatoes end up as commodities, with little to no price differences. That is where appraisals mostly are now. You may put together the best report with the best support, but no one cares anymore. If you still have clients that do, treat them like gold but do not plan your 2027 vacation around that income...

 

[glenn walker]

I know this won't be a popular take but no appraiser has EVER been forced to accept any particular fee. We know many have, and we all know why, but NO ONE on this forum is any different than the AMCs offering the pittance wages. They do so exactly because someone will accept them. Anyone here ever go to a garage sale? Ever haggle over a price? Ever try to talk the seller UP? You come to a mutual pricing decision. Oh by the way, why are buying that set of tools at a garage sale for $25 when you can get the same thing at Lowes for $375? Because you just need the quality of the $25 set that's why.

No friends, the AMCs are NOT the problem. I have stated that many times. The problem is the clients--banks, GSEs, and ultimately investors in the paper who are basically saying we don't care--we just want a number that supports the sales price. And since they are all willing to accept that, it will not take long for them to accept that number no matter how it comes about--AVM, seller or buyer stated value, dart board, monkeys, or AMC employees, er I mean independent contractors.

And there is nothing we can do about that. If they don't think knowing a true well-supported market value is important, they will not pay anyone $500, or $750 or more to develop this opinion of market value. They just don't care.

When you buy potatoes (or pick your favorite veggie), do you ask what kind of soil they were raised in, what farmer raised them and in what state, how long they were in sacks during transportation, etc? Maybe a very few care, but most don't. Do these things affect the taste and quality of a potato? Yep. Do you care? Nope. You gonna pay more for the highest quality potato? Nope. Hence most potatoes end up as commodities, with little to no price differences. That is where appraisals mostly are now. You may put together the best report with the best support, but no one cares anymore. If you still have clients that do, treat them like gold but do not plan your 2027 vacation around that income...

Kudo's very well explained. The residential appraisals are no longer just an opinion or artesian skill but were morphed into a commodity after the mortgage meltdown and the AMCs became the floor traders reading out bids and offered prices and the appraisers became the commodity being traded.

Once the appraisers were isolated from the users and the borrowers who are paying for their services the poor appraisers were doomed to servitude and then AMCs gleaning off 25% to 40% off the top of any fee they collected.

The Systems classic trickle down economics 101. Only what's left after the broker IE AMC takes his fees is passed on to the one who actually does the appraisal.

 

[Airstream]

AMCs never pay good fees. I haven't seen one yet. In my experience the only good fees come when the lenders order through their own systems. That way they don't have to give a cut to AMCs.

 

[DWiley]

I know this won't be a popular take but no appraiser has EVER been forced to accept any particular fee. We know many have, and we all know why, but NO ONE on this forum is any different than the AMCs offering the pittance wages. They do so exactly because someone will accept them. Anyone here ever go to a garage sale? Ever haggle over a price? Ever try to talk the seller UP? You come to a mutual pricing decision. Oh by the way, why are buying that set of tools at a garage sale for $25 when you can get the same thing at Lowes for $375? Because you just need the quality of the $25 set that's why.

No friends, the AMCs are NOT the problem. I have stated that many times. The problem is the clients--banks, GSEs, and ultimately investors in the paper who are basically saying we don't care--we just want a number that supports the sales price. And since they are all willing to accept that, it will not take long for them to accept that number no matter how it comes about--AVM, seller or buyer stated value, dart board, monkeys, or AMC employees, er I mean independent contractors.

And there is nothing we can do about that. If they don't think knowing a true well-supported market value is important, they will not pay anyone $500, or $750 or more to develop this opinion of market value. They just don't care.

When you buy potatoes (or pick your favorite veggie), do you ask what kind of soil they were raised in, what farmer raised them and in what state, how long they were in sacks during transportation, etc? Maybe a very few care, but most don't. Do these things affect the taste and quality of a potato? Yep. Do you care? Nope. You gonna pay more for the highest quality potato? Nope. Hence most potatoes end up as commodities, with little to no price differences. That is where appraisals mostly are now. You may put together the best report with the best support, but no one cares anymore. If you still have clients that do, treat them like gold but do not plan your 2027 vacation around that income...

There have always been those who accept fees that are lower than the market average. That is because the market average is just that, the average. When I had my firm it was widely known that our fees were among the highest in the area. One big problem is that too many appraiser have no sense of how to promote their business or market for business other than by lowering the fee.

Another huge issue right now is that the mortgage business is in the middle of a long slump. The low interest rates of the COVID area generated a LOT of work back then, but they also "trapped" a lot of people in their home with an interest rate that makes it very unattractive to move or refinance.

I have posted this before, but just look at the number of loans being originated now

Origination Activity | Consumer Financial Protection Bureau

Origination Activity

www.consumerfinance.gov

From 2015 to 2020, the worst months were around 500K loans originated, and there were many months over 600K. In contrast, for the past three years the best months have been less than 500K, with many months under 400K.

We are all students of supply and demand and how that affects home prices. What happens to appraisal prices when the demand shrinks by so much? There is downward pressure on price (fee) and/or people are forced out of the business. This is just the reality of the demand for mortgage-related appraisal work.

This is why so many lenders who focused on origination have gobbled up servicing companies over the past few years. They needed to diversify and not just focus on originations. Appraisers need to diversify as well, but many are not well versed on how to obtain non-mortgage-related work. There are lots of formal classes on appraisal, but few (no?) classes on running an appraisal business. Many only know what they learned from their supervisor.

I speak to many appraisers about how they run their businesses. Many do not even looking at things like what I posted above. Many do not have a budget, much less a line item in that budget for marketing and cultivating new business. Many just do the work and kinda hope that have enough money at the end of the month to pay the bills. And almost none of them have a growth plan. These would all be considered basic blocking and tackling for most businesses. If a business is to succeed it has to be run like a business, not like a job.

 

[J Grant]

This is not a free market supply and demand. This is a manipulated market where a narrow demand in the limited number of large-scale companies (AMCs and a few wholsalers/lenderd that order directly). To state otherwise is ridiculous.

The AMC's and lenders in an area have access to the same pool of appraisers (make it 80 appraisers for this example ). The lenders All pay retail C and R fee ( $525 for this example ). The lenders are not using the nonsense about loans volume is down so they can squeeze appraisers for lower fees. The AMC;s do that. The AMCs do that becaue their income comes from a split of the borrower fee, a form of govt perk that allows the lender free-of-cost appraisal service. How nice for the lender, but that cost is borne by the appraiser, getting only a part of the borrower appraisal fee.

So, with the same supply of appraisers and whatever loan volume is in an area, the lenders who do not use an AMC pay the appraiser $525 C and R

The AMCs in the same area, with the same supply of appraisers, pay the appraisers $300 per order and keep $225 (average, for this example), so why does the supposed supply and demand affect only the appraisers who accept AMC work vs. the appraisers who are on the lender-direct panel???? WE know the answer to that.

The thread title is stop accepting low fees. The title should be, stop a system that results in such low fees. Which is killing the profession. All to avoid the lender paying the AMC and not have it come out of their pocket ( they might be able to pass it on to the borrower anyway.

The idea of pursuing private work as the answer has to meet the reality that the amount of private work is limited for a residential detail license. No matter how much one markets themselves. Though e-marketing helps, it can not increase the demand side of private orders, and the private order demand is much smaller than the lender demand. With waivers, it further reduces the lender work volume.

Lender work has always had slow and busy periods. The AMCs pit appraisers against each other in a slow period. Lenders ordering direct do not do that. They continue to pay the same C and R whether busy or slow. If an appraiser can not make a decent fee in a slow period , it becomes an unsustainable profession.

 

[Zoe]

There have always been those who accept fees that are lower than the market average. That is because the market average is just that, the average. When I had my firm it was widely known that our fees were among the highest in the area. One big problem is that too many appraiser have no sense of how to promote their business or market for business other than by lowering the fee.

Another huge issue right now is that the mortgage business is in the middle of a long slump. The low interest rates of the COVID area generated a LOT of work back then, but they also "trapped" a lot of people in their home with an interest rate that makes it very unattractive to move or refinance.

I have posted this before, but just look at the number of loans being originated now

Origination Activity | Consumer Financial Protection Bureau

Origination Activity

www.consumerfinance.gov

View attachment 111396

From 2015 to 2020, the worst months were around 500K loans originated, and there were many months over 600K. In contrast, for the past three years the best months have been less than 500K, with many months under 400K.

We are all students of supply and demand and how that affects home prices. What happens to appraisal prices when the demand shrinks by so much? There is downward pressure on price (fee) and/or people are forced out of the business. This is just the reality of the demand for mortgage-related appraisal work.

This is why so many lenders who focused on origination have gobbled up servicing companies over the past few years. They needed to diversify and not just focus on originations. Appraisers need to diversify as well, but many are not well versed on how to obtain non-mortgage-related work. There are lots of formal classes on appraisal, but few (no?) classes on running an appraisal business. Many only know what they learned from their supervisor.

I speak to many appraisers about how they run their businesses. Many do not even looking at things like what I posted above. Many do not have a budget, much less a line item in that budget for marketing and cultivating new business. Many just do the work and kinda hope that have enough money at the end of the month to pay the bills. And almost none of them have a growth plan. These would all be considered basic blocking and tackling for most businesses. If a business is to succeed it has to be run like a business, not like a job.

When you had an appraisal business, the market structure was different. You even worked for an AMC after you left your private practice.

Many banks don't use AMCs. Appraisers that have banks that don't use AMCs operate in a different market structure than appraisers who use AMCs. If fees were separated on truth in lending disclosures between AMCs and appraisers, it would change the market structure for both appraisers and AMCs. It would force AMCs to compete against each other on fee.

 

[J Grant]

We are all students of supply and demand and how that affects home prices. What happens to appraisal prices when the demand shrinks by so much? There is downward pressure on prices (fees), and/or people are forced out of the business. This is just the reality of the demand for mortgage-related appraisal work.

Home prices are in the free market. A borrower can select a home. A borrower can not select an appraiser. Their lender does that, but even there the selection is restricted - no loan officer can select the appraiser; a non-vested person or department, or it is shifted to the AMC. In the second option, the AMC has an ADDITIONAL incentive to obtain a wholesale super low fee. Thus, in the same volume of loan cycle, the direct lender can pay the appraiser fee almost double what the AMC pays, since the AMC incentive was to keep as much as possible from the appraisal fee.
There is no downward pressure on fees (typically) in a slow volume cycle when no AMC is used. I am not covering every outlier, - typically, the lender has no reason to pressure for lower fees when things get slow: the same appraiser fee is paid whether the loan volume cycle is busy or slow

The borrower paid appraisal fee is typically the same as well whether busy or slow loan volume cycle. The difference is, the AMC uses a slow time to extract even a lower appraiser fee acceptance.