Let The Borrower Pick The Appraiser

[Eli]

Make AMCs illegal. Banks can order the appraisals. Either that or display the names online of what appraisers are charging so we can Bully the cheap skates.

That would likely solve the commingling fees issue that many here hate with a passion. XYZ AMC is suddenly bank staff. That could work on the commingling fees issue. It won't solve the market structure issue but it would make a bunch of appraisers estatic. I know several who would pee in their pants.

 

[J Grant]

It would be a simple fix, if those in position to do so wanted to fix it, which they clearly have no intention of doing so, but I'll put it out anyway. . Regulations could could cap the AMC or lender charged services of an appraisal fee to 20% of consumer paid. If an AMC needs to make more profit, the AMC could charge lender an additional fee, whatever that is its up to them.

I doubt anyone will help us though, they never have in the past. Which leaves it up to each appraiser to hold out for better fees or have the guts if they are staff appraisers, to insist on decent base compensation salary like any other normal professional job, not accept low salaries (25k-32k avg salary is the norm with those I've interviewed with), the low salary is supposedly offset with a system of percent of billings with a meager bonus for each order to induce them to churn out volume, ) Staff appraisers do an appraisal for an average of $180 (including benefits factored in), which is why companies are eager to hire staff and thus keep work away from fee panel as much as possible.

In any event, I seriously doubt borrowers would ever be allowed to pick the appraiser and I personally don't support the idea.

Anything might change with Trump,, from gutting appraisals as regulatory waste, dismantling fannie and FHA which would have a devastating impact on appraisals, or repeal of Dodd Frank/ allowing individual loan officers/mortgage brokers to order appraisals, and deregulate lending ushering back high risk loan products with teaser rates, adjustable rates etc as we saw in the boom.

 

[TRESinc]

JGrant, IMO, you are making an emotional argument based on the real-life squeeze that many appraisers find themselves in. I get that.
But without accepting the fact that, by definition, the minimum standards (which are different for every assignment since no two assignments are exactly the same; but they have the same requirement: credibility and not misleading) is the basic benchmark that defines everything else that goes into the appraisal process, you are missing the most critical factor in the equation of fee, turn-time, credible results, and business-sustainability.


Again, this thread was about borrowers picking the appraiser from a lender-approved list. You already said that you think many borrowers would use fee (and maybe turn time) as a significant factor in their selection process.
Why should you not get the job at $450 and 10-days if I'm bidding $600 and 3-weeks? Unless I can impress upon the borrower that my reports are so significantly superior to yours and that difference matters, why would they pay me and not hire you? And, that difference doesn't matter; you will complete the assignment to at least the minimum standards as well as I will. You may even exceed what I do.
But, UCBruin walks-in and can do the report for $400 and 5-days, and his work meets the same minimum as ours does. Why shouldn't the borrower hire UCBruin?

The obvious counter-argument is, "Well, if we were negotiating fees in the $400 to $600 range for a standard house, we wouldn't be having this argument!!!"
But here is the problem with that argument: There are some appraisers out their who have refined their process such that they can meet the minimum standards and do the work for $275. If you, UCBruin, and I are competing against that appraiser, she is going to beat us out most of the time. Why shouldn't the borrower benefit (since they are selecting the appraiser in this hypothetical) from that lower fee? Isn't a less costly service that meets the minimum standards in the public interest?

I personally believe that fee, by itself, does not drive quality (I've seen enough appraisals to make this claim with confidence). I've seen reports where I think they did it at a fee I wouldn't consider that were acceptable, and I've seen reports priced at a fee higher than I would have charged that are unacceptable. And the fee for these residential reports start closer in the +$400 range, not the $250-$300 range. Note what I said: "fee, by itself, does not drive quality".

The fee is almost always the argument on this forum. It is a losing argument because fee is not what is important or significant in the appraisal process. Minimum standards/requirements and meeting them is what is important in the appraisal process. Focus on that, and everything else will fall in-line. And we should be prepared (as I am because I personally see it all the time) to accept that if the minimum standards are really the benchmark, someone may be able to complete an appraisal at a price and within a time frame that beats us. When that happens, we have a choice: We can see how we can become more competitive, we can try to find a client-base whose requirements exceed the minimum (which, again by definition, becomes that assignment's "minimum"), or we can determine that our service is no longer competitive and make a decision if our service is sustainable or not.

I don't go out of business or lose jobs because clients won't pay me what I want. I go out of business or lose jobs because another appraiser can meet the minimum standards at a price I cannot (or, am not willing to accept).
This is true for nearly all types of professions and services. Ours is no different.

The focus on fees is a focus on the outcome.
The focus on standards is the focus on what determines the outcome.
All I need to do is figure out how I can deliver what is required and how to price it so that I'm competitive and my business is sustainable.
I get to choose which competitive arena (high volume residential mortgage, lower-volume private party, a mix of the two, and what kind of sub-property/client base I'm going to target) I'm going to compete within.
My fellow appraisers (and I) are the ones that determine how, within that arena, we compete.
Forget the oligospony argument as well: Appraisers in Oregon are getting $1,000 to $2,500 an assignment for what cost 2-years ago maybe $500-$600. No amount of purchasing-power by an AMC is changing that.
Appraisers in Los Angeles where there are a lot of them? Maybe they start around $250 to $300 for a similar mortgage-appraisal. Do I really have to point out what the reason is for the fee difference between those two markets?

oh denis, there you go again spouting off logic and common sense vs rants and whines. when will you learn?

 

[J Grant]

Denis, I understand your point about minimum standards...but not every appraiser fulfills minimum standards equally well.

The profit from fee incentive to banks or AMC's create incentive to pick lesser appraisers who quote lower fees, and pass over better qualified....your argument that as long as the report met min standards, it's fine...but who determines that the min standards were met? The very same clients profiting from picking the cheapest bidder? Conflict of interest is the problem.

I disagree that for tax payer backed res lending work, allowing the lowest fee and or fastest turn time to drive selection is sound policy, even if the client claims that supposedly, minimum standards were met. And what happens when more than min standards were needed to develop credibly, why would an underpaid appraiser struggling to pump volume on tight deadline concern themselves with that?.

Who/what determines a report meets min standards... a computer "review" looking for rote errors/boxes checked? A QC review by out of area appraiser done in 15 minutes? A "review" for format and typos by a clerical person? Why do so many appraisals that supposedly met min standards at point of acceptance turn out to have serious value related or other deficiencies seen later in a forensic field review?

Whatever fee structure is out there in any region, the incentive for those selecting appraisers to choose assigning by lowest fees should be removed. You can argue min standards , but I fail to see how allowing selection by fast /cheap serves anyone except the entity profiting form it. It's driving away better appraisers, including those who pursue commercial license to escape the res field environment. Res lending work needs good appraisers, it does not need form fillers churning out volume at warp speed which is the only way to profit in a low fee environment. I fail to see how a field driving out experienced and competent and awarding to bulk volume to fastest cheapest is good for borrowers, the public trust or the secondary market.

Your argument is that it 's fine as long as the fast TT, cheap fee report meetst meet minimum standards. It's clearly not fine for the profession to drive good people out, and the question remains f which person, entity, or computer program determines minimum standards were met ? What method did they use to determine that and did the method address content, or just format? At what point does conflict of interest make the claim of meeting minimum standards from the client who profits from fee selection of appraiser questionable.

Automated reviews and fast short form reviews done are about compliance, typos or format, they do not address the key narrative content, comps, adjustments or value, thus the credibility aspect of minimum standards is unknown as being met.

 

[Mike Kennedy]

"Independent and Objective" means exactly that. For Mortgage Lending assignments, Borrowers are NOT the Appraiser's Clients. As it should be. Lenders & their Agents are subject to Federal and State Laws governing their behavior - for good reason.

 

[J Grant]

I bet the complaints and suits against appraisers would increase if borrowers were allowed to select. Will never happen..or highly unlikely to happen, but borrowers would be the first to complain and sue etc if they don't like the result, And RE agents would be back to steering to use "their' appraiser...we saw where that led in the boom.

 

[djd09]

Oh surely there could be no AMC buddy buddy system.

 

[djd09]

The too big too fail controlled AMC picking the appraisers. Great system.

 

[hastalavista]

Denis, I understand your point about minimum standards...but not every appraiser fulfills minimum standards equally well.

Of course they don't (I assume when you say, "equally well" you mean either meet or don't meet. Because once you meet them, they are met and anything more than that doesn't change that they have been met).

The profit from fee incentive to banks or AMC's create incentive to pick lesser appraisers who quote lower fees, and pass over better qualified....your argument that as long as the report met min standards, it's fine...but who determines that the min standards were met? The very same clients profiting from picking the cheapest bidder? Conflict of interest is the problem.

I am giving up on this one. Most on this board do not know what the competitive forces are in the AMC world and that most of the larger lenders pretty much know how much money AMCs are making with the specific lender's contract. All the large lenders have the information to know what their vendors charge and what the appraiser is getting paid; by market, by state, by property type, etc., etc., etc. There is no hidden profits here. AMCs have to make a profit to stay in business. The lender is not allowing the AMC to make an exorbitant level (although, as I say, few believe that); if one AMC is making too much money by charging too much, another will step in and take its place.
An AMCs profit margin is similar (and on the lower end) than any other service-type organization. 15-25% pre-tax.

I disagree that for tax payer backed res lending work, allowing the lowest fee and or fastest turn time to drive selection is sound policy, even if the client claims that supposedly, minimum standards were met. And what happens when more than min standards were needed to develop credibly, why would an underpaid appraiser struggling to pump volume on tight deadline concern themselves with that?.

Again, you don't get it. I say, "minimum standards" are minimum standards. The amount of research and analysis necessary to do a tract home is not the same as it is to do a complex home. There is no such thing as, "what happens when more than the min standards were needed...?" By definition, you meet them or you don't.

Who/what determines a report meets min standards... a computer "review" looking for rote errors/boxes checked? A QC review by out of area appraiser done in 15 minutes? A "review" for format and typos by a clerical person?

The same entity who is responsible for ensuring that the appraisals they rely on are credible. The lender. You imply they are just going to take appraisals willy-nilly. That goes counter to everything we have seen on this board regrading the complaints about reviews. The level of review is increasing, not decreasing.

Why do so many appraisals that supposedly met min standards at point of acceptance turn out to have serious value related or other deficiencies seen later in a forensic field review?

Because they were fraudulent or completed incompetently, that is why. And the vast majority of appraisals have no issues at all. None. They are credible, reliable, and meet the minimum standards. Because some don't doesn't mean most don't.
But fee has nothing to do with incompetence or fraud.

Whatever fee structure is out there in any region, the incentive for those selecting appraisers to choose assigning by lowest fees should be removed.

AMCs get hammered by lender clients if they only go to the low bid appraiser. AMCs are required to pay customary and reasonable. AMCs have the data to show that in Market X for House Y, the average fee is $300. Those that bid $275-$325 are going to get that job. Those how bid lower are not. Those who bid higher are not as long as there are bids within the $275-$325 range. Why do AMCs operate like this? Because they are supposed to be in compliance with the IFR and their lender-clients (all the large ones) audit them to ensure they are in compliance.


I am going to make a sincere effort to not post any more on fees, how the AMCs work in the real world, how lenders audit AMCs, etc., etc., et., because it doesn't matter. There is a contingent here that somehow believes "fees" is the answer to the problem and nothing can convince them otherwise.
I am not making this a personal attack on you JGrant or anyone else; your position (at least on this forum) likely represents a large share if not the majority. And, no, I don't think anyone taking such a position is naive, stupid, or any of that (maybe stubborn ).
I do think you've picked the wrong component to argue about and try to get changed.
I think that is a losing argument with the larger group of stakeholders (which includes the consumer) and policy makers.
No one can argue against maintaining minimum standards and enforcing them; and if it costs more to ensure that is done, everyone can understand that.
A lot of people can argue against increasing fees when there are appraisers willing to take less (and that main argument will come from the consumer advocates/stakeholders; because lenders and AMCs will get their cut regardless).

 

[djd09]

Not only does the Fox guard the hen house, the Fox also gets to pick where the hens sleep. Independently Controlled.