Appraisal Scoop

Should I Be Working On My Appraisal Designation?

Author: Woody Fincham - http://www.woodyfincham.com  - Woody was one of the founders and the managing appraiser for FM & Associates. He has worked as a fee appraiser for 8 years for various firms, most recently with Braun & Associates in Maryville, TN. He is now an appraiser with the City of Newport News Real Estate Assessor, and performs private fee work with F&M Associates in Virginia Beach, VA. Woody is a Certified Residential Appraiser in Virginia and Tennessee. Woody is also a Member of the a la mode labs project

To Become Designated or Not.

Should a designation be the goal of residential appraisers? If you ask several appraisers, you will get a bunch of different answers on this topic. When lurking over at appraisersforum.com, it can sometimes be comical how polarizing the topic of designations can be. Normally these conversations degrade into one side trying to out-insult the other. I wanted to summarize some information in one place regarding designations, and the benefits of earning a designation.

What Designations are Available?

Several organizations offer real property designations in the United States. The largest five are comprised of the Appraisal Institute (AI), the American Society of Appraisers (ASA), the American Society of Farm Managers and Rural Appraisers (ASFMRA), the National Association of Independent Fee Appraisers (NAIFA), and the Royal Institution of Chartered Surveyors (RICS). The AI has the most recognized designations in the USA: the SRA and MAI. The next three, ASA, ASFMRA, and NAIFA, are somewhat smaller organizations, but are all equally recognized within the industry. RICS is not as well known in the USA, it is originally from the United Kingdom.

All of the major five designations require specific classes, exams, real world experience and demonstration reports. Each designation earned shows that the appraiser has taken education that far exceeds the education of most licensed or certified appraisers. Many appraisers attend private schools that offer education that is typically less quality. The mentioned organizations have, arguably, the best appraisal education available in the United States. Designated appraisers also agree to be held to the standards, that they hold membership in, respectively. These standards are beyond the normal standards set forth by USPAP. A designation can be removed by the respective organizations if the member is found to not meet the standards, whether from maintaining CE to conduct unbecoming in practice.

Below is a chart that shows the essential differences between the SRA designation requirements, and a typical certified residential appraiser. I am using the SRA for the comparison, because it is the one that I am most familiar with. The other organizations have similar paths to designation.

 
 * The education must include the appraisal curriculum overview every cycle. This course allows designated members an opportunity to look at new theory and practices as they develop.

Looking at the requirements one notices the small difference in classroom hours, the demonstration report, the continuing education and the experience hours. While it is possible for a non-designated appraiser to have taken all of their education from one of the five organizations, the biggest difference rests with the demonstration report and the continuing education. The demonstration report or acceptable alternative allows the appraiser to show case his or her ability to research and report value utilizing the proper techniques and procedures that are contemporary at that time. Once again, the continuing education must be from a quality provider, most often the organization that the designation was earned from.

What is the Big Debate Amongst Appraisers?

As I mentioned earlier, appraisers in general have a mixed response as to whether designations are beneficial or not. Depending on whom you ask, you may get a flowery reply, or you may get a very cynical reply. Asking a designated member about the benefits of earning a designation will usually result in a very positive response. If you were to ask a seasoned non-designated appraiser (meaning an appraiser who has been active for more than 10 years), the answers are normally very scattered, but are often backed up with strong opinions either way.

I have had the pleasure of being able to attend various industry functions all over the country. In doing so I have met numerous appraisers, and this topic often arises. I have been surprised more than once by the replies that I get.

Here are some of the negative things that I hear: 

Click below to continue reading . . . .

IVPI is DOA - Fannie and Freddie to Deploy a "Complaint Process"

Washington, DC –Fannie Mae and Freddie Mac will deploy a complaint process for violations of the Home Valuation Code of Conduct (HVCC), according to a letter from FHFA Acting Director Edward J. DeMarco to New York Attorney General Andrew Cuomo. The letter, which outlines developments with the HVCC and related agreements, states that Fannie Mae and Freddie Mac, now in conservatorship, will not be funding the Independent Valuation Protection Institute (IVPI).

“As conservator of Fannie Mae and Freddie Mac, our priority is to keep the Enterprises focused on the important role they play in supporting the mortgage market,” said DeMarco. “The need for a complaint process is being addressed in a way that we believe is more practical than with the Institute.”

Fannie Mae and Freddie Mac will deploy a complaint process to address suspected code violations including a mechanism for providing pertinent information to state and federal regulatory and enforcement departments. The process will be put in place within the next few weeks.

The letter from FHFA to Attorney General Cuomo also addresses some of the benefits the HVCC has brought to the appraisal process including insulating appraisers from undue pressure.

“The Code has improved the independence of the valuation process—a critical element in assuring homeowners pay a fair price for properties and that investors have confidence in mortgages backing securities they purchase,” said DeMarco. “The Code has also aided efforts to combat mortgage fraud, a leading contributor to the housing finance crisis.”

Download HVCC Institute release letter 52010

Listen to the Think Big Work Small guys discuss the HVCC Amendment to the Senate Bill AND the FHFA's non-funding of the IVPI.  This topic starts about mid-way through the video.

a la mode Releases DaVinci for iPad

I just wanted to give everyone a heads-up that DaVinci for iPad is now available in the App Store.  You can download it from this link: http://itunes.apple.com/us/app/davinci-for-ipad/id372048588?mt=8. 

Like the first iPhone version, this is a Labs release.  There are some areas we know are still a bit rough around the edges, and in particular the photos handling we're going to revamp quite a bit.  But, you'll definitely get a feel for where we're going with this.

First is the sketcher.  Not only do you have more room to work with your sketch, we've been able to implement a toolbar that makes switching between drawing modes, adding symbols and labels, and defining areas more intuitive.  A new keyboard layout simplifies entering dimensions and drawing lines.  We've added directional arrows to the keyboard that can be used instead of swiping if that feels more comfortable.  And we've also introduced the ability to draw 45 degree walls by either swiping in a diagonal direction or using the corresponding arrow keys, which is a huge time-saver.

 

Data gathering also got a huge boost from the extra screen space in that we're able to show the data entry form, navigation between forms, and the active QuickList on the screen at the same time.  Tapping a QuickList item automatically takes you to the next field and loads the next QuickList.  You'll be amazed how fast you can rip though the data gathering phase.  Even the FieldPad benefitted with all the extra screen space for drawing with your finger.

 

One of the key features of the iPad is that there's no correct or incorrect way to hold it.  DaVinci adopts this philosophy by rotating all screens automatically no matter how you hold it.  So whatever orientation feels most comfortable to use is just fine.

 

Also, just like the iPhone version, you can configure DaVinci for iPad to sync reports, form layouts and QuickLists from WinTOTAL, TOTAL 2010 or DaVinci Mobile Pro.

Give it a try and let us know what you think.  We'd love to know.

Thanks,
Adam Calvery
a la mode, inc.

HUD Updates REO Lead-Based Paint Appraisal Reporting Requirements - Mortgagee Letter 2010-17

Handbook Change

Appendix A, Section A-3, bullet two is being replaced in its entirety with the language below: 

"If the appraiser observes defective paint in a home that was built before 1978, in the physical deficiencies or adverse conditions section of the appraisal report, the appraiser must enter an “X” in the “Yes” box, and note all areas affected. However, if the appraiser does not observe defective paint in a home that was built before 1978, an explanation is not required in the physical deficiencies or adverse conditions section of the appraisal report."

If you should have any questions concerning this Mortgagee Letter, call 1-800-CALLFHA. Persons with hearing or speech impairments may access this number via TDD/TTY, by calling 1-877-TDD-2HUD (1-877-833-2483). 

Download HUD-FHA ML 2010-17 - Lead Paint  

Runt Rants - The Appraisal Business Versus the Appraisal Professional - The AMC Discussion Continued

AUTHOR: Ken Verrett: The author is the owner of Acorn Appraisal Associates, a 24 year old firm offering a wide range of quality appraisal services to the Financial and Business Communities. 

This series has generated much good comment and views from various readers.  Thanks to all for taking the time to add to the discussion!

We've tried to focus on several basic points in this series...points which not everyone agrees with, but which I believe are quite crucial to our understanding of where the Appraisal Profession is today, and what fundamental changes should be considered to ensure it's viability for the future. 

The Fundamentals

• The Appraisal Profession is a vital part of the Loan Origination Market - The existence of an Appraisal on each property adds confidence and security to the underlying asset which therefore extends to packages of loans sold in the market.
• The Professional Appraiser is the single unbiased supporter of the loan transaction and that position aides in the confidence created in the Collatorized Mortgage Obligations (CMO) that are offered to the global market.
• Appraisal Management Companies (AMCs) have been created to facilitate the interaction between the lender and the appraiser to achieve transactional efficiencies vital to current and future markets. 
• The AMC market is composed of a few large firms that control 80 percent of the appraisal demand in the USA, and many smaller firms that compete for the remaining business.
• The large AMCs that control 80 percent of the market function as an Oligopoly which results in inordinate power over the market.
• The Oligopoly has created a two tiered pricing structure for appraisal products services which serve their short term purposes, but which fundamentally damage the working of a competitive market.
• The resulting problem is not with the existence of Appraisal Management Companies, but with the business model of the top firms which are able to distort the market by virtue of their Oligopoly status.

Let's be very clear.  The result is the imposition of a two tiered pricing market for appraisal services; the 'one off' market, and the AMC market. We've described that stark contrast earlier parts of this series and the impact on the Appraisal Profession is very significant.   

There is one last fundamental part of the AMC business model that affects the Appraisal Profession adversely and should be addressed whenever the opportunity for change presents itself.  That fundamental is recognition of the role of the Appraisal Business as a separate reality, apart and distinct from the Appraiser.  That's the subject of today's post.

The Appraisal Business Versus the Appraisal Professional

 We've discussed previously the changing market...moving from local to regional to national to global.  As the market for securitized loans has evolved, the lenders have moved from being the holder of those loans to the originator and seller role.  The lenders are now selling the loans to investors who ultimately buy the loan packages as a simple investment...much like a bond. 

The lender/originator is now more of a retailer; using their retail outlets to originate loans, packaging them into like groups, then offering those packages to the market.  When the package is sold the lender then uses the proceeds to originate more loans which are in turn sold. 

As that market evolved new businesses evolved to serve that changing  market: the AMCs, Mortgage Servicing Companies, Automated Valuation Companies, the Wall Street "Bankers" who sold the packaged loans, even Appraisal Businesses that employ a number of appraisers.  Each of these business models evolved to serve the needs of a changing market.

It is a long standing tradition that users of appraisal services engage the appraiser directly for the appraisal.  That arrangement was quite efficient when local lenders made local loans to local borrowers and a local, lone appraiser was engaged to provide the appraisal.  For some appraisers, that model still best characterizes the way they do business: they are sole entrepreneurs working alone, perhaps with an clerical assistant.

However, as the market has evolved and grown the efficiencies required that spawned the specialization of efforts such as AMCs has also required response by appraisers who wish to serve the mortgage loan origination market. The Appraisal Business Model employing several appraisers has evolved to meet that need.

The majority of appraisal businesses now are multi appraiser firms.  I did a survey of 174 appraisal businesses last year.  Sixty percent of those firms employed multiple appraisers, with the average employing three full time appraisers.  Generally, the more appraisers employed the more efficiency the appraisal business achieved.

The efficiencies that result  are significant.  In the survey I conducted, the Appraisal Business that employed five appraisers was on average four times more productive than the single appraiser business as measured by the average monthly output per appraiser. 

The typical multi appraiser business is owned by one or more appraisers.  They invest in offices, hardware, software, and data bases that are needed to produce appraisal products.  They employ administrative staff to provide clerical and administrative support services to an appraiser staff who are W2 employees, not independent contractors.  The appraisal business provides marketing, training, customer service and quality control to the lender/clients. The appraisal business guarantees quality, service times, and regulatory standards for each assignment they accept.

If my survey is representative of the market today (and I believe that it is) sixty percent of the appraisal firms employ multiple appraisers, and because they are much more productive, they produce the vast majority of loan origination appraisals completed by appraisers each year.  In my survey, over eighty percent of the appraisals delivered were completed by multi appraiser firms. 

That should not be a surprise.  The evolving mortgage origination market requires shorter response times, more efficient participants, all while maintaining quality standards.  The multi appraiser business model is a response to those demands, just as is the Appraisal Management Company. 

Yet the process of ordering appraisals is often according to the old standard, when sole proprietors were the dominant appraiser business model.  That is, some lender/clients insist on specifying the appraiser to assign the order to, rather than assigning it to the appraisal firm.

That old standard works for the sole proprietor, but it doesn't work as well for the multi appraiser firm.  The multi appraiser firm guarantees the quality and performance of their employees.  The advantages they provide to their clients are dependable service, consistent turn times, consistent service.  They achieve that by taking advantage of the efficiencies that the larger business model provides.

One of those advantages is the ability to deploy the firm's resources in the most efficient way possible.  Assigning appraisal orders to the staff as appropriate results in significant efficiencies.  Studies we've done in our own firm suggest that we achieve a 30 percent increase in field efficiency by assigning each appraisal to the employee who can best meet the performance required.

Many, even most, clients recognize that reality.  They assign the appraisal to the Appraisal Business and allow the firm to deploy their resources in the most efficient way to meet the client's needs. 

The Oligopoly does not. The top AMCs require that they assign appraisals directly to the employees of the appraisal firm, bypassing the ability of the multi appraiser business to control and allocate their resources in the most efficient manner.

The result is that the Oligopoly creates a market in which they force the appraisers to accept a 30-40 percent lower fee for the appraisals they order, and they refuse to allow the appraisal business to deploy their resources in the most efficient and profitable way, reducing field research efficiency by 30 percent in multi appraiser firms operating in large metropolitan markets.

Since the vast majority of The Ologoply's appraisals are delivered by multi appraiser businesses, the effect is to threaten the long run health of the entire Appraisal Profession. 

What industry or profession could remain healthy when their market is dominated by an unregulated Oligopoly that forces the market to accept price discounts in the form of kickbacks equal to 30-40 percent of the competitive one off price for the product, and in addition bypasses the major efficiencies created by those businesses to deliver service to their clients?

If we all can accept that a healthy local, regional, national and global market place for mortgage originations depends in part on a healthy Appraisal Profession, isn't it reasonable to demand that the Oligopoly make simple changes to their business model which cause that health to be threatened?

Isn't that in part what HUD/FHA recognized when they attempted to adopt rules which would force AMCs to unbundle their pricing, pay appraisers for their services equal to the "one off" standard fee which prevails in each market? 

Simple Changes For the Betterment Of All

I don't consider AMCs to be evil. I consider them to be a positive development in the evolution of the global market for first and second loan originations.  My firm's personal, in depth, and long term experience with AMCs is that they are generally well run, efficient, even pleasant to deal with.  I recognize that they provide a very needed service to the large national lenders and mortgage originators and I welcome them in the industry. 

The two simple changes to the business model of the Ologopoly members that I propose would change the market for the betterment of all, including the lenders and orginators they serve. 

• First, unbundle fees they charge for their services; bill the lender for the outsourcing services, and the appraiser for the efficiencies they provide to appraisal firms who work with them. Pay the true market rate for the appraisals they order, without requiring the haircut, the kick back, that is deemed illegal in other markets.
• Second, contract appraisal services with Appraisal Firms, and allow the Appraisal Firm to assign the appraisal to appraisers in their employ who are best qualified to deliver that particular service at that particular moment.

Those two changes would correct the injustices perpetuated over the last two decades, restore the health of the Appraisal Profession, and improve the overall business of the first and second mortgage loan origination markets, markets which have grown to be a significant engine of prosperity for local, regional, national and global economies.

Isn't that in everyone's best interests?

AUTHOR: Ken Verrett: The author is the owner of Acorn Appraisal Associates, a 24 year old firm offering a wide range of quality appraisal services to the Financial and Business Communities. 

 

PR: Zaio Update - "Z products" to offer prompt online access for direct LOS interface

NEWS RELEASE Progress Update for the US Market – RE: Zone Data Systems LLC TSX Venture Exchange Symbol: ZAO May 14, 2010 CALGARY, AB

 Zaio Corporation will now be providing regular updates on Zone Data Systems LLC’s development and delivery of the first appraiser-backed valuation database for the United States.

Zone Data Systems, LLC (ZDS) announced the completion of its Full Membership enrollment on April 15, 2010. The tally stands at 233 Partners, who own appraisal businesses in 25 states, operating in 32 of the top 40 MSA’s in the USA. The Partners employ over 500 certified appraisers in those markets and are currently providing a full range of traditional appraisal products to the financial community.

ZDS LLC was formed in May 2009 to conclude an agreement with Zaio Corporation to develop and deliver the industry’s first dynamic, appraiser based valuation database for the USA. This database is backed by independent, local appraiser research completed by each of the Partners in their various jurisdictions. To the best of our knowledge ZDS is the only appraisal organization that requires its members to conduct detailed market value research on homes in advance of the appraisal order.

ZDS is 100 percent owned by American appraisal business owners who have licensed software rights from Zaio Corporation to build, maintain and deliver the database within their assigned Zones. ZDS is releasing this week the latest full version of valuation research software for populating the database in each of the Partner Zones. Plans are to begin delivering the new database driven appraisal service by midsummer 2010.

ZDS employs Zaio Corporation’s patent pending Valytics software and the unique Geoscore technology to organize key data on all properties within a market, attach cardinal rankings to seven key value attributes for each property, and analyze sales data within that market segment to arrive at accurate value estimates for every property in the market. This whole-market analysis is reviewed continually as new sales and listings occur in the market and value estimates are adjusted and balanced as necessary.

"By continually updating the research and analysis on all properties in advance, ZDS is able to offer superior market research with unbiased independence and near real-time response. All reports are fully USPAP compliant. Valuation database products and services are called Z Products. Z products will offer prompt online access directly into the database for direct LOS interface, a Portfolio Viewer web application for tracking the value of every home within any portfolios and standard appraisal reports which can be delivered in both PDF and MISMO format. Valuation research is being conducted regularly and in advance of any order for virtually every residential dwelling."

Margaret Lai, Chair of the ZDS Marketing Committee and owner of Abacus Appraisal Services, Inc. in Redmond, Washington, states “Scores of ZDS Partners have been working the past year on various projects necessary to bring these unique appraisal products to market. We are excited that the time is drawing near for full implementation.”

Value of Home Appraisal Process in Question - St. Petersburg Times

Reported by TampaBay.com

In February, Neumann found his dream home: a lovingly restored, 1936 traditional with garage apartment in St. Petersburg's desirable Woodlawn area. He signed a contract for $375,000, and the lender ordered an appraisal. 

 The results flabbergasted everyone. 

A Tampa appraiser unfamiliar with Woodlawn valued the property at $315,000 — $60,000 less than the amount the buyer and seller agreed was a fair price. Even the normally conservative property appraiser's office showed the house to be worth $331,000.

"I've shared our story with other Realtors who've lost sales due to faulty appraisals since the (code of conduct) was enacted. Appraisal management companies are hiring inexperienced appraisers willing to work for a lot less. They do inaccurate appraisals that are serving to further the blight of the housing market.''

The first appraiser declined comment and it is not known which company hired him. A trade organization defends appraisal management companies, saying that appraisers actively working for its 45 member companies have an average of 15 years' experience.

"It would seem to me that if the average appraiser has 15 years, the likelihood that an experienced appraiser is coming out to do the job is pretty good,'' says Jeff Schurman, executive director of the Title/Appraisal Vendor Management Association.

But, Schurman added, "if anyone asks them to do an area they're not familiar with, they should turn that assignment down.''

The Florida Legislature is considering a bill that would require appraisal management companies to register with the state and the owners to disclose their licensing and criminal histories. A Clearwater man whose appraisal license had been revoked subsequently started an appraisal management company.

 via www.tampabay.com

Runt Rants - A "Two Tier Pricing Structure" for Appraisal Services

AUTHOR: Ken Verrett: The author is the owner of Acorn Appraisal Associates, a 24 year old firm offering a wide range of quality appraisal services to the Financial and Business Communities. Overview

We've had a good discussion of the volatile and emotional issue of the AMCs impact on the lending transaction and on the Appraiser Profession specifically.   Several appraisers have added their views.  At least two AMCs have provided their views.  Many of the comments challenged my views and assertions.

It's all good. 

Both AMCs and Professional Appraisers Are Important and Necessary

What I hope I've established is that the Appraisal Profession is a positive force in the local, regional, national, and now global communities.  Professional appraisers are one of only two unbiased participants to most lending decisions these days....the other being a Professional Realtor. 

There is arguement that the Realtor in this age of declining dual agency is no longer unbiased.  That has some merit.  However Professional Realtors have laws governing their conduct as well as a strong code of ethics to follow.  If they remain true to both, their position is largely unbiased and positive.

Professional Appraisers are unquestionably unbiased, they perform their duties admirably.  We only need look at the current discourse over the causes of the current credit credit crisis and note that no one even attempts to blame the appraiser.  Our job was done and done well.  We know from talking to our E&O Insurers that appraisers are being named in foreclosure suits at an alarming rate, but the majority of those are lawyers casting wide nets to bring all into the mess that they can.  Such is the weakness of our litigation system today.

We also contend that the AMC is a legitimate industry, has been around for decades, and serves a useful purpose...for both the lender and the appraiser.  Many appraisers dispute that, several here have voiced that view and I'm glad they contributed.  But those arguements don't carry the day in my view.  AMCs are here and will continue to be the principal conduit of appraisal ordering and therefore demand for appraisers working in the mortgage origination niche.

It's Not The AMC That Is The Problem

My view is that the problem is not with the AMC industry, but with the business model that many have adopted, driven by the top 5 representing over 80 percent of appraisal demand.  The problem with that business model is that the vast majority of the AMC volume operates by charging the independent fee appraiser for services that should rightly be charged to their client...the lender or broker.

That charge is 30-40 percent of the fee that the appraiser receives for providing their professional services.   I've offered my opinion that I can see a 5-10 percent charge to the appraiser due to the efficiencies that the AMC can provide to the organized and professional appraiser or appraisal firm.  But that leaves 25 to 30 percent that is a gross over charge....appraisers are paying the price in the form of that haircut for services that the lender or broker client of the AMC are receiving. 

Let me state the problem in dollars.  If the typical appraisal fee is $350, the appraiser is forced to pay the AMC $105 to $140 for the privilege of working with that AMC.  If one accepts my view of a legitimate charge of 5 percent for services the AMC provides to the appraiser, ($17.50) then the appraiser is being over charged $87.50 to $122.50 on each appraisal they perform! 

The appraiser is being forced to subsidize someone one else in the transaction.  That someone else is the lender or broker client of the AMC.  In a competitive market that would not happen, it does not happen.

I've stated that there are two pricing markets in the appraisal process:  the One Off Market, and the AMC Market.  In the One Off Market the fee to the appraiser or appraisal business is $350.  In the AMC Market the fee to the appraiser is $350-140 or $210.

How Can Two Pricing Markets Exist?

Many appraisers, some commenting here, state that two pricing markets exist because of inexperienced, fraudulent, bottom feeding-corner-cutting appraisers allow it to exist.

The top five AMCs argue that the AMC Market IS the true price market by virtue of the fact that they demand and obtain the haircut from the appraiser. 

Both are empty charges in my view. 

The two tier pricing structure of appraisal services is a result of the Oligolopy Market that has been created by the top 5 AMCs who provide over 80 percent of the appraisal demand.   

In the One Off Market the fee for a typical 1004 mortgage origination appraisal is $350.  The One Off Market is a fully competitive market with many buyers and sellers of appraisal services.  The price settles in at $350.  If any buyer or seller attempts to influence that price...higher or lower...they are rejected.  That's the way free markets work.

The AMC Market fee for that same appraisal is $210.  The AMCs are able to obtain that fee because they are part of an Oligolopy.  Together the top five AMCs represent 80 percent of the demand for mortgage origination appraisals.  That is not a fully competitive market; that is an Oligolopy.  In Oligolopies the power shifts to the few who control demand.  They set the price. 

The appraiser in such a market can't afford to ignore 80 percent of his source of demand.  If the client requires such an ignomonious haircut the appraiser has no choice but to accept it.  That's a classical result of an Oligolopy!

The No Spin Wrap Up

Remember the old phrase "What's good for General Bullmoose is good for the USA"?  Originated in the Little Abner comic strip I think, and was a parody of what big business was claiming at one time in defense of the Oligolopy/Monopoly General Motors created and was using to abuse other market participants.

The last twenty years the claim could have been "What's good for the Financial Congolomerates is good for the USA."  The top five AMCs are creations of large Financial Congolomerates.  They created the Oligolopy Market, they set the prices to their advantage because they can.

But just as the General Bullmoose claim was false, so is this current claim.  We've seen what is good for the Congolomerates is not good for the USA.  The Credit Crisis worldwide is a result of short sighted business practices on Wall Street, aided by lax government oversight, ignored by legislators influenced by lobbyists.

HUD/FHA recognized that and is attempting to correct the situation by requiring unbundling of the fees reported on HUD 1 Statements to borrowers.  FHA is attempting to return to One Off Pricing for all FHA loan appraisals. 

HUD acknowledges that a healthy Appraisal Profession is vital to our local, regional, and national communities.  They recognize a healthy Appraisal Profession is even vital to the global economy.

Professional Appraisers agree.  They should be supporting HUD/FHAs courageous effort to correct the situation. 

The largest threat to the Appraisal Profession is the Pricing Structure created by the Oligolopy of the top AMCs, who were created by the large national financial institutions, and which force appraisers to pay for the benefits those same lenders receive from outsourcing their appraisal departments to the captive AMCs. 

Professional Appraisers have endured that Oligolopy enforced artificial pricing for long enough.  It has weakened the Profession which is vital to our local, regional, and national interests.  That Oligolopy has forced the appraisal businesses to accept fees which are below that necessary to maintain a competitive and profitable business.   

The Lenders themselves are damaged when the Appraisal Profession is weakened.  A healthy Appraisal Profession provides underlying value support for the CMOs that the golbal market invests in today, and those CMOs are vital to the continuing business of the national lenders and mortgage brokers.

The time has come to change the AMC business model.  Charge a fair price for the services provided and charge it to those who receive the benefits.  Eliminate the haircut to the appraiser.  Charge the Client for those services.  Do that and the single most damaging problem in the mortgage origination market will be resolved. 

Next time we'll discuss the one remaining thing that must be changed in the current AMC business model in order to restore the Mortgage Origination market to a fully competitive state where all can participate and which supports our local, regional and national communities best.  (Hint...we identified that in the first of this series.)

AUTHOR: Ken Verrett: The author is the owner of Acorn Appraisal Associates, a 24 year old firm offering a wide range of quality appraisal services to the Financial and Business Communities.