More AMC and PDC Bull$hit

[J Grant]

Actually, that volatility was exactly what happened in 2008-11. Using REOs as "arm's length" sales was a major part of that.

Under certain conditions. But is there not a time when no sale or few sales can meet all the conditions of MV? Such as, is it really a competitive and open market when a financial crisis is dominating the market?

Can a seller really act prudently with a foreclosure notice sitting on their table? Thus are the buyer and seller, each acting prudently and knowledgeably, and each having equal bargaining power? Of course not. The buyer has the whip hand and other buyers are limited by the reluctance of lenders. Cash is King. The seller is forced to sell by the lender. And the lender reselling an REO might be forced to do so, or they might keep the house and marking it up as part of their own effort to inflate their reserves . (meaning 'booking' $300,000 as their own asset as the FDIC requires - again I am talking banks not FNMA- rather than selling it for $200,000 and thus having to cut their bank reserves by $100,000.)

The MV definition does not reference equal bargaining power. RE markets often swing between buyer and seller markets - when the buyer and seller demand and supply are in balance, those are stable periods of the market. When markets are in extreme imbalance, such as a financial crisis or the height of a frenzy caused by very low interest rates, then market value is skewed to the higher or lower ends of the price/value spectrum

But even in a volatile and S/D imbalance, there is a comparison for typical and reasonable motivation. In a seller market with a bidding war, for example, the "winning" bid is usually the highest offer - so if the 8th bid is highest, they get the property -well that means 7 other buyers offered less - so who was the dominant buyer price point - the 7 buyers acting more prudenly even in a hot market or the 8th buyer willing to pay super high to get the house? We often saw contracts during that time where the buyer agreed to pay over the appraised value. I often appraised those properties as well as any property that indicated it below the purchase price in that insane market, and those properties have often lost between 10- 20% plus ion value. But the lender was protected in their equity position due to the appraisal. This is not the case with a waiver/value acceptance, where the purchase price is the property value in a sale . (Read the Fannie statement on it )

Back to MV - in an REO depressed price market, there are still more reasonable prices and exposure, and then the very low prices . Appraisers are often "punished" by clients and even appraiser peers for coming in at the market value we are engaged to deliver. I will appraise higher than an SC price at times as well as lower.

 

[RCA]

It's all BS when it comes to AMCs.

 

[George Hatch]

Actually, that volatility was exactly what happened in 2008-11. Using REOs as "arm's length" sales was a major part of that.

Under certain conditions. But is there not a time when no sale or few sales can meet all the conditions of MV? Such as, is it really a competitive and open market when a financial crisis is dominating the market?

Can a seller really act prudently with a foreclosure notice sitting on their table? Thus are the buyer and seller, each acting prudently and knowledgeably, and each having equal bargaining power? Of course not. The buyer has the whip hand and other buyers are limited by the reluctance of lenders. Cash is King. The seller is forced to sell by the lender. And the lender reselling an REO might be forced to do so, or they might keep the house and marking it up as part of their own effort to inflate their reserves . (meaning 'booking' $300,000 as their own asset as the FDIC requires - again I am talking banks not FNMA- rather than selling it for $200,000 and thus having to cut their bank reserves by $100,000.)

If a seller is holding property they cannot afford to keep and they are acting in what they perceive to be their own best interests then is it not prudent to get out now at whatever price the market will bear? As opposed to watching the pricing trend decline even further while at the same time running up their own holding costs?

If a buyer is suffering from FOMO and believes the prices will continue to increase is it not prudent for them to buy now at whatever price the market will bear?

 

[Terrel L. Shields]

If a seller is holding property they cannot afford to keep

A bank holding ORE (what community banks call REOs) they get to book the value as part of their reserves. Their choice is to sell and reduce reserves or hold at an inflated book value. They might be asked to mark to market but in reality, many OREs are held to keep from reducing reserves. And often in the post 2011 world it not only paid off but paid off handsomely. Banks hold property for years in some cases. But if the examiners tell them to sell, they do have to sell and it's put many a bank under who would have survived with a bit of forbearance.

 

[sputnam]

Of course, they can't force appraisers to accept low fees ; however, the AMC's narrow control of a large share of volume creates an extremely imbalanced supply and demand, which is why they can get such low fees. And as you did not contest it, we agree that the AMC is a wholesale buyer, not an end-use buyer ( like a lender is ) of appraisal services.

A lender's profit comes from making loans, not gouging a split of an appraisal fee. Thus a lender only needs an appraisal fee be C and R since the borrower covers the appraisal fee. The AMC, on the other hand, takes a split from that appraisal fee, - an AMC gets compensated from its vendor appraiser, thus is unlike any other "rational" business that charges its customer a cost (the customer of the AMC is the lender) .

An appraisal was never meant to be a middleman "product" to provide the profit for the AMC industry. An appraisal is far too labor-intensive and yields too little production output for that. AMCs in the old days, prior to HVCC, used to charge maybe 15% of the appraisal fee as a discount; now they gouge as much as they can.

You missed... or do not want to accept the point. AMCs are not our friends. They are not our mamas or daddies. Their obligations are not to appraisers. Their obligations are to their Clients and to the owners of the company. If we, as appraisers, accept lower fees just so we can stay busy... then, we are going to be offered lower fees.

An appraisal is meant to provide the user of the appraisal with information. That's it. Period.

 

[J Grant]

You missed... or do not want to accept the point. AMCs are not our friends. They are not our mamas or daddies. Their obligations are not to appraisers. Their obligations are to their Clients and to the owners of the company. If we, as appraisers, accept lower fees just so we can stay busy... then, we are going to be offered lower fees.

An appraisal is meant to provide the user of the appraisal with information. That's it. Period.

Thanks for mansplaining it to me that AMC's are not our friends ! Res appraisers are not naive idiots who believe that. The point is that the extremely imbalanced supply /demand coupled with AMC 's shopping appraisals on a wholesale market them up level ( when appraisals were meant to be a retail end user service ) That drives fees down lower than in a normal S/D maerke- which explains why when the HVCC saw lenders turn en mass to AMC use, fees were cut in half virtually overnight by the AMC BEFFORE they sent an order out, I suppose legally after some years they were advised not to do that anc ompetivie bid instead in a humiliatintg reverse auction to "win" an order - the borrower should be informed of that.

Do you think borrowers and investors would be happy to learn that the appraisal for an MV opinion was shopped in a flea market style reverse auction to the lowest fee, by-passing more experienced and competent appraisers whose fees are still covered by the appraisal fee the borrower paid to the lender?

Is the borrower informed upfront that the lender will send their appraisal to an AMC to shop the job out for a low bid ? No. The borrower should be given a choice.

The borrower trusts the lender and assumes they are assigning to the more competent appraiser at the fee or close to it that the borrower paid, not shopping it in an auction to see an AMC make a buck off of it driving the choice of which appraiser gets the order. THAT is why the AMC forbids the appraiser from disclosing their fee andattaching their invoice to the appraisal.

Compare the wholesale low AMC fee for the same appraisal from the same lender client when ordered directly from the lender vs when ordered from an AMC.

Hopefully, one day an attorney will file a successful class action suit for appraisers wrt the AMC fee issues.

 

[TerryRohrer]

Thanks for mansplaining it to me...

Well, look at the rabid, blue-hair feminist playing the victim card because she can't even deal with a fraction of what she doles out. Pathetic!

 

[chad hampton]

I thought AMC‘s were our partners? That’s how the idea was presented. But it is our fault for trusting scumbags and liars and handing our businesses over to them. Lesson learned.