GUEST AUTHOR: Woody Fincham - Woody is a Deputy Assessor with the City of Suffolk Real Estate Department, Suffolk, VA. Woody is a State Certified Appraiser in Virginia and SRA designated member of the Appraisal Institute. Contact: woody@woodyfincham.com
With the recent press release from CoesterVMS, a growing Maryland based Appraisal Management Company, which has appeared all over the webs the last several days my email and telephone have been busy with other appraisers expressing contempt about it.
“We’re serious about transforming the appraisal industry from ‘the way it’s always been’ to ‘the way it should be,’” said Coester. “Value is comprised of quality, customer care and price. This is taken from a press release published January 7, 2013 by CoesterVMS, a Maryland based appraisal management company.
Some Background
In the period prior to the Dodd/Frank bill, appraisers often worked directly with the lenders. There were many ethical, symbiotic relationships, but there were some very shady associations as well. Like most things that attract the attention of congress, a quickly thought out solution was put into place, and it was one that would ultimately benefit the lender with little consideration for the appraiser. Congress’ solution favored large business, and with it we entered into the AMC era of residential appraisal.
Lenders love appraisal management companies (AMCs); they work with one large company that manages a fleet of small business real estate appraisers. It makes sense logistically, as it streamlines the lender’s involvement with the appraiser. There were already several large AMCs, and I knew few appraisers that coveted a relationship with any of them. They were and are mostly all difficult to deal with from the appraiser’s perspective.
On paper it looks like a system that works, in reality, well that’s another story. Dealing with appraisers is difficult, I am an appraiser and I freely admit it. We are difficult to deal with due to the nature of the work product. Each property that is appraised requires a property specific analysis: not every property in a given neighborhood can be appraised the same way. Lenders have always viewed the appraisal as a hoop to jump through and it just needs to be done. To them the appraisal report should be a commodity; a streamlined service that requires nothing but a “three comps and done” approach. They have not and continue to not value any thorough analysis. If it loosely meets the minimum standards, and I mean if it looks like an appraisal report then surely it is an appraisal report, they stamp it as just another part of the loan file and move on. Therein lies the problem, the client wanted and continue to want something that cannot be ethically done. They have almost zero interest in vetting the collateral; they just want to make the loan.
AMCs, and by extension, lenders prefer to deal with appraisers by treating them all like product providers rather than service providers. Appraisal reports are not commodities; they cannot be replicated en mass. While it may be possible to establish a minimum report fee that an appraiser can do a simple property for, as the complexity of the assignment ratchets up, so does the appraiser’s time which means the price should go up accordingly. By establishing a flat rate, this means that AMCs will continue to put pressure on fees when retaining appraisers. It means that the AMCs benefit from hiring the appraisers that charge the lowest fees.
Wait a minute! We are starting to talk about fees. One may ask “if the appraiser agrees to take a low fee, then what’s wrong with that?”
That is a great question, and I am glad you asked it. Every appraiser has a pricing structure that works best for that appraiser. While it can be argued that setting a market price is each business owner’s prerogative, and I would agree with you, there is a threshold that just cannot be crossed without sacrificing something in the process. Even if the appraiser is working out of a bedroom in his or her apartment there are fixed expenses that must be accounted for. Typically, what the lower price appraisers do is make up for the fee with volume. They speed up the appraisal process, and in doing so delete or skip what should be done to develop a proper analysis of their data. This practice, combined with the ridiculous turn time requested by the AMC equals shoddily done work. For context, I mean a less than 72 hour turn time.
The added chagrin to the AMC is any appraiser that takes the proper steps to think an analysis through. When dealing with properties that are not in a homogenous-market area, an example in my market are ocean front homes, time has to be taken to analyze the data in a meaningful way. Many AMCs send out blast emails soliciting for a set low fee and short turn time. Any appraiser that accepts the assignment on those conditions gets the assignment.
This means that most appraisers doing steady work do not even take the time to see what they are trying to be engaged to do. In most cases this ignores the competency requirement in USPAP. In the cases where I am slow in work and will actually read the blast emails that I get, by the time I have looked up the property details and established whether or not I want to and can do the assignment, someone has already taken the order. This leads me to believe that they accept the orders without evening vetting their ability to perform the work in a competent manner.
AMCs as a whole focus on two items: turn time and fee. They will speak about quality, and preach that they exhibit the highest quality in the business. How is that possible? How can you expect short turn times, low fees and high quality? You really can’t, but AMCs act as a buffer to the lender. They are now the equivalent of the enforcer on a hockey team.
All that has happened in the new AMC-era is that they kicked the can down the road, rather than fix the problem. What we had before with questionable appraisers being selected by lenders trolling for high values, has now been replaced with AMCs that hire less than quality appraisers willing to underprice the completion by doing incompetent work.
So What Does All This Have to Do with CoesterVMS?
Brian Coester (CEO of CoesterVMS) who was at one time an appraiser in Virginia should know better than anyone that every appraisal is a custom job. An appraiser cannot simply place a flat fee on every report that is done. Yet, that’s the model that he uses when his company “manages” appraisers.
It should be noted that Coester allowed his license in Virginia to lapse after he was party to a report that he assisted in inspecting and preparing that was found to be poorly prepared by the state board in Virginia. His father was the one sanctioned as he was the supervising appraiser. The supervising appraising, his father, was sanctioned by the board and fined. Virginia does not sanction assistants. Alex Uminski, SRA, a well-respected Richmond area appraiser, was asked by Fannie Mae to do a review of the property appraisal report that was ultimately the issue for the complaint. Once, Uminski had finished the review and discovered that the report was inflated and that the Coesters were not from the local market area, he turned them in to the State Board. It should be noted that the property subsequently sold for much less than it was appraised for, after the inflated property value supported loan defaulted. Uminski added that the low sale price was after the foreclosure transactions and a rehab, for an arms-length sale.
The Coesters traveled from the Gaithersburg, MD area to Richmond, VA to appraise the property. This is a distance of approximately two hours without traffic. Sometime thereafter he decided it was a better deal to run an AMC. This should be a concern for anyone engaging this company to manage appraisers. If professional ethics have been worked around as an actual appraiser, how then does this same person start “managing” appraisers?
Feedback from Peers
Shawn Kennedy, an appraiser in the Hampton Roads area of Virginia, was engaged to do a report for Coester in the fall of 2012. He completed the report, or was very close to finishing it when CoesterVMS called to cancel the report. Kennedy made them aware that since he had finished the report he would be charging for it. Kennedy has yet to see one dime of the fee for the work.
Pat Turner, SRPA, another well-known Richmond area appraiser and former state board member shared some things with me as well. Apparently Turner was doing business with a long time mortgage client that Coester came in as an AMC client to handle the appraisal roster for the company. Turner was getting a steady fee of $450, but accepted a decrease to $400 to continue receiving work. A while later, Coester started asking Turner to complete reports for $350. Turner refused, and found out later that his company was blacklisted due to the refusal to decrease the fee further.
Turner followed with a phone call to Mr. Coester asking why his company had been blacklisted. Coester said that was not the case. Turner, who had downloaded and printed the information from Coester’s website portal, informed Coester that he had a copy of it in his hand. This led Turner to state to me that this is apparently how shoddily CoesterVMS is run.
So let’s return to the quote at the beginning of this article: “We’re serious about transforming the appraisal industry from ‘the way it’s always been’ to ‘the way it should be,’” said Coester. “Value is comprised of quality, customer care and price. “
Many appraisers are seeing how the AMC model is changing a needed profession, but not for the good of the public or for the good of the lender. Virginia certainly doesn’t need this kind of haphazard burden placed on the professionals that value their real estate. I am sure some colleagues from other states would agree.
Disclosure I have to give disclosure here; I am on Coester’s fee-panel. How many assignments have I done? None. Zero. Zilch. They solicited me to join, so I did. I figured, why not, it never hurts to be on a list. I get the occasional blast email to accept an order, always below $275. With that being said, I have no agenda here other than to expose the readers to a fuller understanding of the inherent problems with the AMC model and working directly with a company that so many of my local peers seem to constantly have chagrin with.
GUEST AUTHOR: Woody Fincham - Woody is a Deputy Assessor with the City of Suffolk Real Estate Department, Suffolk, VA. Woody is a State Certified Appraiser in Virginia and SRA designated member of the Appraisal Institute. Contact: woody@woodyfincham.com
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