AMC Allocation of Commercial Jobs?

[George Hatch]

Yoyu consistently refuse to address the divergent set of motivations about fees for retail (non AMC clients ) vs wholesale (AMC's)

Retail clients, including residential mortgage lenders who do not use an AMC, have an interest in obtaining an appraisal at a reasonable cost. The wholesale client ( an AMC ) shops not just for cost but for profit, which vendor fee can they most profit from? This gives them an additional driver of motivation to pressure fees way beyond that of an end-use client who is concerned with reasonable cost.

I estimated 15% of the market, you stae 5% of the market. The upshot is the AMCs control the leverage of supply and demand on the res side because of their huge market share, not because of some heroic stance of the CG community or because back in the day some res licensed certs took on trainees. If you guys are bidding against each other and your fees are flat even without AMCs, you are experiencing some degree of oversupply.

The CGs do not have more options because the market is not so oversupplied - the CGs have more options because there are many more points of origin (diverse demand points ) for ordering commercial appraisals AND they can do residential work - they thus are not stuck with a highly concentrated number of big AMC /affliated lenders or big lender clients who control a large share of the volume on the residential side, Then add in the profit motivaiton dirving ee presssure from the AMCs.

You consistently ignore the real-world example that with the SAME supply of RES licensed appraisers, fees plunged almost overnight when the HVCC shifted a large amount of volume to the AMC's. Which blows the oversupply -the appraisers are to blame- out of the water.

Though by now the res appraisers working for AMCs are so traumatized and in need of a fee increase, that it has become entrenched -a sorry state of affairs.

What you are ignoring is the significance of the sequence of events. Once the lenders were faced with the choice between direct engagement (like the FRT lenders) or AMCs (as some of them had already been doing) many of them chose the AMC route. That happened first.

The spread of appraiser-competition followed. THAT was the effect of supply/demand. The progression of that trend in that sequence was/is significant to the outcome. As in, not irrelevant.

"If you won't do it we'll find someone else who will - BECAUSE WE HAVE OPTIONS AND YOU DON'T.​

Ask the AMC operators. They freely admit to shopping by fee among (who they consider) to be similarly competent appraisers. But they also comment that it was always the case that a few of their appraisers were approaching them to offer lower fees in exchange for more work. Same as has always occurred on my side of the business. Most of our assignments among our regular clients are the result of us competing with each other, often by fee. Not always, but often.

That's what YOU keep ignoring.

As for CGs not being so short-sighted as to flood their own market, just the fact that these clients still shop by fee (successfully) should leave a mark on your reasoning. But you keep missing that point. Deliberately so, it appears. Just because the discounting has been lower (due to them having fewer alternatives) doesn't mean they don't shop by fee.

Think it through. What do you think would have happened if the CGs had been as dumb about trainees as the CRs and doubled their number in 5 years? The fees would have compressed accordingly AND the AMCs would have had the same oversupply to pit against each other on their way toward selling the bundled fee to the lenders. Enough so as to gain traction in the non-resd'l mortgage lending markets.

 

[J Grant]

What you are ignoring is the significance of the sequence of events. Once the lenders were faced with the choice between direct engagement (like the FRT lenders) or AMCs (as some of them had already been doing) many of them chose the AMC route. That happened first.

The spread of appraiser-competition followed. THAT was the effect of supply/demand. The progression of that trend in that sequence was/is significant to the outcome. As in, not irrelevant.

"If you won't do it we'll find someone else who will - BECAUSE WE HAVE OPTIONS AND YOU DON'T.​

Ask the AMC operators. They freely admit to shopping by fee among (who they consider) to be similarly competent appraisers. But they also comment that it was always the case that a few of their appraisers were approaching them to offer lower fees in exchange for more work. Same as has always occurred on my side of the business. Most of our assignments among our regular clients are the result of us competing with each other, often by fee. Not always, but often.

That's what YOU keep ignoring.

As for CGs not being so short-sighted as to flood their own market, just the fact that these clients still shop by fee (successfully) should leave a mark on your reasoning. But you keep missing that point. Deliberately so, it appears. Just because the discounting has been lower (due to them having fewer alternatives) doesn't mean they don't shop by fee.

Think it through. What do you think would have happened if the CGs had been as dumb about trainees as the CRs and doubled their number in 5 years? The fees would have compressed accordingly AND the AMCs would have had the same oversupply to pit against each other on their way toward selling the bundled fee to the lenders. Enough so as to gain traction in the non-resd'l mortgage lending markets.

I am not ignroing anything. You have been spinning the blame for years ot appraisrs and not addressing the real reason for AMC fees. While appraisers caving in or offering on occasion to lower them have a share of blame, it is simply a desperate response to being squeezed with little recourse (except to quit or leave the res loan realm behind)- because the reality is the lion's share of volume in res work is on the lender side.

It is a distraction to compare it to your fee competition - AMCs only control 5% of the volume. Lucky you, because it is the AMC's who have the motivation to bid not just for reasonable cost (your fees are bid for a reasonable cost). The AMC's pit appraisers against each other to obtain a low fee that returns them a profit and not just cost. Couple that with their enormous market share. There is no similarity to it on the commercial side.

I will provide an example. You, me, or any average person needs a lawn mowing service. They shop around and compare some fees. Many fees are similar. A customer often chooses a mid-range fee, but even if someone chooses a service with the lowest fee, they are just paying a cost for the moving service. But imagine if a regulaion chages things to where many individuals are not going to choose and hire thier own lawn mowing services . Overnight, 10 big companies now control 80% of the lawn mowing orders, and the companies are compensated by receiving a split of the pay/fee from a lawn mower who charges them the least. The company is not charging its customers for mowing the lawn. This company offers free lawn mowing service to customers, which gives them an enormous market share. ( the govt perk of a bo, by a government perk of a bundled fee that sees the company instead get compensated by how low they can drive the lawn mower guys' fee down and pocket the rest.

This sorry state of affairs has little to do with res appraisers having taken on too many trainees. If there were not a sufficient number of appraisers who were trained, lenders would have had trouble fulfilling orders. Even if an oversupply of trainees occurred in some mill shops, it was corrected when the number of trainees per mentor was limited to 3 per supervisor back in 2010.

That is supported by the fact that the same number of residential license appraisers were present before and after the HVCC. And literally overnight, the massive shift to AMC ordering saw fees cut in half, because overnight, appraisers lost their former lender clients who now ordered through the AMC's.