The Appraiser Shortage Myth Part 43

[glenn walker]

I don't know any business that wants cost plus unless you are a government defense contractor whose basic fee is already inflated by 50% or more and the tax payer covers the plus part of the equation. Nobody is going to cover a cost plus model for appraisers and even if they did it would have no positive effect the lenders would simply tell the borrower how greedy appraisers are but don't worry soon everyone will have PIW where the borrower simply pays $200.00 to get the appraisal waived. BINGO-- NOW THAT'S A GOOD COST PLUS MODEL.

 

[TRESinc]

I think what bothers appraisers is the spin put forward by DW and others with AMC interests behind their posts. Personally he sounds like a great guy to sit down and have a beer with, or talk about appraisals with. However his posts on the topic serve a purpose- has anybody wondered why a chief appraiser for a national AMC, who surely must be very busy, spends so much time on a BB board ?

anyone ever wonder how an appraiser who supposedly doesn't cut any corners and does $80,000+ a year in billing has time to be the top poster month after month on this bb? currently the second highest poster of the month has 282 posts. jgrant is sitting at almost 200 MORE, 472.

While cost plus can not change appraiser behavior, a shift in market conditions ( to cost plus) will change the ways appraisers compete: if a uniform fee is paid for work from an AMC in a region ( at whatever level), appraisers are no longer competing for each and every order with low fee as a component of selection.

and here comes your circular solution to everything - someone else eliminate the competition for you so that you can have an easier life.

 

[hastalavista]

I've posted about cost-plus model in other businesses previously.

Prior to becoming an appraiser, I was in the restaurant business. At one stage in my career, I took a job overseeing the employee dining facilities and the executive dining facility for Wells Fargo Bank in Northern California (including their HQ in San Francisco).
The company I worked for had a cost-plus arrangement. We'd charge a set fee for our management of the facilities (including the employees who ran the particular dining sites; they were our employees); the client would pay for all other costs related to providing food service (they owned the equipment, but they'd pay for the food, inventory, beverages, etc.). Sounds like easy money, but even though they paid for all the operating costs over our management fee, our performance was judged on (a) our ability to manage the costs and (b) the overall quality of the service as judged by their employees.

So, cost-plus is a business model that works in larger scale operations.

My wife used to work in the commercial furniture and office space world. Sometimes her jobs were bid on cost-plus (managing office restacking within a large office facility).
She is now doing architecture and design work. She has a nice remodel/addition job going on. She is project-managing the construction process; it is bid on cost (her cost) plus (the contractor's cost).

I did a consulting job for a credit union. They need the collateral values updated for their portfolio. I managed the job based on a cost-plus structure.

Cost-plus is more prevalent than one may think.


(in all the examples above, there wasn't any existing regulation which inhibited the cost-plus model )

 

[DWiley]

"However his posts on the topic serve a purpose- has anybody wondered why a chief appraiser for a national AMC, who surely must be very busy, spends so much time on a BB board..."

Two reasons:
(1) it provides good insight into the views and opinions of appraisers around the country, and
(2) it provides an opportunity to address some of the big misperceptions that many appraisers have about the AMC business

I learn a lot by monitoring various blogs, podcasts, etc. For example, in the latest Phil Crawford show I learned that I apparently have some secret agreement with Fannie Mae It is so secret that I don't even know about it

 

[Evincere]

I guess I need let our accounting people know we have just been doing things incorrectly. . You seriously think that lenders pay AMCs in advance of receiving a report? Sorry, that is a credibility crusher.

Well, I am just sorry you don't know what you don't know or that your company bills the Lender directly as opposed to how other AMCs operate. ie. Lenders place the orders with AMC; AMCs collect the payment from Borrowers prior to assigning. And the practice is quite common. The lenders obligation per TRID is to inform Borrowers what their appraisal will cost, not necessarily to collect the payment for the Appraisal.

 

[DWiley]

Lenders place the orders; AMCs collect the payment from Borrowers prior to assigning. And the practice is quite common.

Thanks, I needed the laugh the way this day has gone so far

 

[timd354]

I learn a lot by monitoring various blogs, podcasts, etc. For example, in the latest Phil Crawford show I learned that I apparently have some secret agreement with Fannie Mae It is so secret that I don't even know about it

I don't have the time nor patience to listen through most of Phil's podcasts....who made the allegation about you having a secret agreement with Fannie, Phil or one of his esteemed guests?

 

[DWiley]

I don't have the time or patience to listen through most of Phil's podcasts....who made the allegation about you having a secret agreement with Fannie, Phil or one of his esteemed guests?

Phil himself threw that out about 18 minutes into the most recent show He also made a quip (just short of 24 minutes in) about how maybe someone could call me up and get a statement about it. I guess his Google must be broken, or he lost my contact info (I have emailed him before, so he should have my contact info), because he certainly did not call or email me prior to throwing out some pretty big unfounded speculation.

Apparently, a topic that has been discussed on this very forum had escaped PC's radar. So, when I posted something that he did not know, he made some BIG assumptions about the source of my information.

I will just add it to my list of falsehoods that are known to be true

 

[Mr Rex]

You are being profiled bro:

wiley

Sly, takes risks, a little bit crazy.

 

[Evincere]

So, cost-plus is a business model that works in larger scale operations.


Cost-plus is more prevalent than one may think.

Maybe. Maybe not.

http://valuationmanagementgroup.com/fee-transparency-appraiser-and-AMC-fees/

When it comes to fees and the issue of transparency, all AMC operating models are not equal. While there are variations, AMC’s generally operate under one of two business models – Fluctuating and Cost-Plus.

For purposes of this blog, we will be referring to non-complex residential assignments.

Transparency signifies openness, communication, and accountability. This is something that is easy to notice or understand. Transparency is operating in a way where others can see what actions are being performed.

The Fluctuating Fee Model – Under this model, the AMC quotes a flat fee to the client (the quoted fee). The goal under this model is for the AMC to find as many appraisers as possible to agree to conduct appraisals at a fee that will enable the AMC to retain the highest possible fee which is the difference between the appraiser’s fee and the quoted fee. As such, the AMC’s fee fluctuates and at the end of the day, AMC’s operating under this model expects their net fee income to allow them to remain a viable business entity.

There are reputational and operational risks associated with the fluctuating fee model. This model may involve robo-bidding in search of the lowest appraiser fee. Robo-bidding is described as the practice of email blasts to all appraisers within a geographic area defined by the AMC requesting the appraiser’s best fee, or requesting that appraisers accept the assignment at the AMC’s target fee, and the first to accept is awarded the assignment. This practice may or may not take into consideration the geographical competencies of the appraisers receiving the bid opportunity. Quality and performance issues can be significant when AMC’s troll for the lowest bidder. Banks, credit unions and other lending institutions may also discover that their preapproved panel of appraisers is not being utilized. This model is driven by finding the lowest cost appraisal in order to increase the fee the AMC will retain. Often it is not apparent to the lender how much compensation the appraiser is receiving, and therein lies the issue of transparency.

The Cost-Plus Model – This particular model sets the fee that an AMC earns per order at a predetermined and agreed upon fee. The client establishes a standard customary and reasonable appraiser fee for the markets in which they operate and the predetermined AMC fee is added to the appraiser’s fee to arrive at the total appraisal fee. The fee does not vary and has no bearing on the fee that is paid to the appraiser.

Under a cost-plus model, it is not necessary to send typical residential orders out for bid. This model does not reward the AMC for selecting the cheapest appraisal fee. The cost plus model encourages the AMC to select the most qualified appraiser, not the cheapest.