"In the first part of this article, I brought forward some questions and opinions regarding AMCs. In this, the final part, we get into some bigger questions and I ask for some help from good ole Uncle Sam" - Woody Fincham
Money Driven, Ethics be Damned
A
MCs don’t allow appraisers to charge their own established fees; they force them to reduce them so the AMCs can add their fees on top of the appraiser’s fee. In order to keep the report price attractive the only give they can get is from the appraiser. Why should the appraisers pay for the services the lender needs? Just considering the cost of petrol appreciation over the last 5 years, the cost of appraisal services should be going up as well, but here we are needing specially trained, college educated, licensed professionals, but the exact opposite is happening.
The training, continuing education expense, and time needed to properly do appraisals (not to mention the overhead to run the business part of it) requires professionals that do this full time and are career minded people. The day of the person who saw opportunity in the housing boom to do something to make more money is gone. The country needs better appraisers than that, we need long term professionals that appraise because it’s in their blood, not to pad the wallet.
"You have to also look very closely at this important fact: AMCs are not regulated on any level by the States or the Federal Government. They are offering a solution that will give the lender what they want, but without much cost, if any, to the lender."
The volume of work that a large lender like Countrywide, Wells Fargo and other big lenders have really offsets fair market competition. Considering the sheer volume of work each of these companies need a month, they go out into the real world where appraisers are small business (most of the time they have less than 4 people in the company) and talk them down on their prices. I read a report the other day that stated 3 out of 4 jobs are because of small businesses. I guess its ok for overly paid executives at these large AMCs, and the lenders that higher them, to ruin an industry so long as it suits their needs. I have spoken with my Congressman, Randy Forbes, and I am still waiting on the man to get back to me. Congress doesn’t care about this specifically; they are too removed from the issues to see how it all works. (All I can do is to refuse to vote for the man, and refuse I will on every position he ever runs for.)
They are using the volume carrot to attract appraisers. For a well respected appraiser who is designated and having been in business for a decade or two to accept this kind of work is almost comical. Many established firms will simply decline the ridiculous fee amounts, and can afford to do so because they have plenty of other work to do. So that leaves the AMCs to troll for the appraisers that are not well established. Being established does not make one appraiser more ethical than another one, but when you have so many new people to the industry, shouldn’t the quality of the work be the primary concern for these companies?
What’s worse than negotiating down an appraiser, is that when a lender first goes on board with an AMC, the AMC often times will not give the appraiser any choice. The mentality is simply to completely disregard the ethical relationship the lender had with a competent appraiser and tell them you will either accept the new fee or else you will be removed from use for the lender. Here are a few examples:
An appraiser from Oklahoma sent me the fee schedule the firm has with RELS Valuation. The normal cost for a typical home in the region is $300, RELS will only pay 200. That is a third of the fee the appraiser normally makes. On the upper end of that same market a $5,000,000 home report runs about $1,800. This is a report that takes somewhere around 3 weeks of time to do, and a few hundred miles of driving time to look at comps and the like. Guess what RELS pays for the service: $620! Why do they get so much less? It’s simple; they will find an appraiser that is most likely under qualified, to do the report.
What can make that situation even worse is that RELS has a specific turn time for all assignments. Whether it is a townhome with a tremendous amount of available comps, or the same $5,000,000 property they give a standard 5 days to complete the report. How can a competent report be finished by any level of appraiser with such requirements? The turn time is set because the lenders judge the AMCs on their turn times, and the cost. The reason they judge them is because the AMC is acting as the appraisal company to the lender.
The Richmond, VA area has seen very recent switches in AMC fee amounts. In an email several area appraisers were told that their fees would be reduced to $275 for conventional work, $325 for FHA work, and $275 for condo reports for RELS. Landsafe is also reducing what they will pay: $265 for conventional work, $340 for REO work and $200 for 2055 reports. This is an area that is seeing 350-425 for fee work typically.
FISERV, an AMC that does business with BB&T, requires the inclusion of a dress code for 1099 sub-contractors as well as a criminal back ground check and specific turn times on assignments as well as low fee work. Truth be told, all AMCs are telling appraisers that are not employees some of these things if not all of these things, but they have to return work in a certain period of time, many require dress codes, many also force you to accept their fee schedules, whether they are fair or not. I am not an attorney, but isn’t making such demands on professionals on the verge of over stepping the 1099 requirements set by the IRS?
There is the option for appraisers to say no thank you to these companies, but what appraiser can truly afford to do that if the only work they ever had was from these companies? The biggest reason the amounts are being reduced does not take much thought to figure out. It all comes down to volume. The AMCs are getting hit with a reduction of profit due to the slow down, so their solution is to reduce the appraiser’s fee. My fee work is getting harder and harder, as comps are become less and less available, requiring more time and more resources. These companies expect you to be squeezed for their benefit. How does their profit expectations account for what is best for the public trust?
Where is The Government when WE need them?
Where is the government at to help us? We need their protection so that the public does not lose the good appraisers we have. Appraisers are a unique group of professionals. No matter what happens the regulators always seem to allow the big companies to get at the appraisers. How can appraisers remain independent if AMCs are allowed to control us by fees they set? The only appraisers who are willing to work for the fees they want to pay are not fit to do the work that they are paid for. It leaves the good guys out in the cold.
I have yet to hear one Congressional Representative look into this issue. Mitch Weiss’ AP article deservingly points a finger square at appraisal regulation as being a problem, but it does not address the newest problems with AMCs. It also mentioned the problems coming in from the mortgage industry and real estate industry regarding influence over appraisers. We are taken back to the crossroads in that article of “we need more regulation”. I rebut that saying we need lenders and AMCs to see the value in working with ethical appraisers, and I am sorry but you will always get what you pay for. When you hire companies that put profit in front of ethics you end up the same mess all over again. Congress really needs to see past the large trees in the forest, and concentrate on the forest in totality. If allowing big business is their solution, they will effectively critically wound almost 80,000 appraisers across the country.
Congress does not see that as hindering our economy, because appraisers don’t buy $5,000 a-plate-dinners, when Countrywide et al can but 30 at a time. The total impact they are going to have on the economy due to hurting a rather large base of small business entities will amount to God only knows how much negative effect, but what is another sector of industry to the incompetent mess we have all elected. Of course this is the same government that did the exact same thing to the American farmer.
AMCs are Appraisal Companies
It’s hard to believe that AMCs are allowed to exist the way they do. The spotlight of the media is forever threatening to show these companies for what they are. It’s only a matter of time before some reporter figures it out, and the public takes note from it. That same article I referenced by Mitch Weiss made several Congressmen take note and remark about the situation there. I hope someone like Mitch delivers it to these companies as well. Lou Dobbs, Glenn Beck, Bill O’reilly, and the rest of the talking heads are fast to take up the cause of the failures of the lenders to the public. I wish that the appraiser’s plight was considered important. Like many things, common sense and discussion can fix a lot.
AMCs also operate on other levels as well in the appraisal transaction. They are left to quality control review the reports. They are also left to order a second opinion in many cases. Many of these same companies use software to determine whether or not a report is acceptable. In short they conduct appraisal reviews directly. Reviewing appraisal reports does require a license in many states. This means that these companies are doing business as unlicensed appraisal entities.
Often times they employ licensed appraisers as staff, but USPAP (our guidelines for licensure) requires appraisers to be competent in the market in which they appraise. If a reviewer is sitting at a desk in Oregon and he is reviewing my report in Virginia Beach, VA, how can he be competent in my market? It’s simple, he can’t, even with all the computer access in the world it would be too time consuming to get competent to do a review. Some of these companies get around this requirement by hiring local reviewers in the market, but guess what they are willing to pay: you guessed it the same discounted rates or worse. Review work, at least what I do, can take as long if not longer to do than the report. If the report is bad, sometimes I have to establish the quality and then give my own opinion of value. How can you get competent appraisers to do that when they spend 12 hours on a report that will only pay them $150?
If AMCs were required to be held accountable, and to be licensed under regulations that are enforced, I could see using them. Right now, they are allowed to manage and set market rates for an industry that they themselves are not qualified to be a part of. The same type of people that run these big mortgage companies are the same guys that run the AMCs. Several large AMCs are owned or partially owned by the lenders they work for. How can that be even remotely acceptable? If one of these guys owned half of my appraisal firm, would it be right for them to use me to appraiser their collateral?
If these big corporations were required to go through the same types of overhead and licensing good appraisers do, the cost for them to do business would be so high that lenders would see us as what we really are: good work at good prices. It’s not who finishes with the most money in this industry, it’s finding that common road that allows the public trust to be served and protected.
The problems, and the people contributing to them, are mind boggling. Shawn McGowan , President and CEO of Valocity (one of the big AMCs) is also the Chair of the Appraisal Foundation’s Board of Trustees. These guys are part of who establishes USPAP and supposedly protects the public trust. I am all for the entire industry being involved, but here is the copy of an email his company sent out:
Subject: Velocity
Valocity has instituted an automated order assigning system. This system will assign orders based on THREE major criteria's.
- Lowest Fee
- Distance from subject
- Turn around time.
In reviewing your profile to make sure that you are set to receive the Maximum about of orders, we are SUGGESTING ONLY that by "Lowering your fees by $10.00-$20.00 on some products (1025-SMALL RESIDENTIAL AND 1004-URAR) is an attempt to keep you as competitive as our other approved appraisers in your coverage areas.
This is NOT MANDATORY, it is voluntary, and does not guarantee order volume, but will place you in better position to receive orders. If you agree, please sign, date, email or fax back to 772-325-2415 or 901-328-5729.
Thanks for all your hard work!
Name Redacted by author
Recruiter Appraisal Relations & Recruitment
Read Response Here: Download valocityshawn_mcgowan_response.pdf
Look at the first of three MAJOR criteria; lowest price is the biggest concern. Not only is that a concern, but within the body of the email is further emphasis regarding reducing the fee down. My opinion and that of many appraisers is that they send out these letters to intimidate appraisers to reduce their fees. Many appraisers do not talk about their business as a matter of competition, and they also are reclusive by nature.
This means that when most appraisers get these types of emails they don’t say anything to other appraisers. In some cases, such as RELS, LSI and many more, the appraisers are being held to confidentiality agreements to not discuss the fees with the lender client or other appraisers. They don’t want the lender to know exactly how low the appraisers are going, if they did, why would they need to pay the AMCs their jacked up rates? They don’t want appraisers to do talk as it would eventually get passed around that they ask for rate reductions periodically to set a lower rate.
Once they get one appraiser to do it, they can call other roster appraisers and say, well you are not the lowest guy in town, and will you lower the fee? They play us one against the other. If it is illegal for me to call together a group of my competitors to discuss marker pricing, then how is it legal for these companies to do it?
That is why affiliating with the Appraisal Institute is a good business decision (as well as any appraisal related organization that holds meetings for the members to attend); due to the local gatherings they do with the chapters. I cannot say I am always agreeing with National, but the local appraisers that gather together and chat is worth every penny it costs.
Common Sense and $1.25 Gets You a Cup of Coffee
The oversight and regulators of the mortgage and appraisal industries need to see these companies for what they really are. These companies need to be held accountable for the work that they do and how they go about hiring the right people for the right job. They need to be licensed by the same oversight that appraisers are, at least when the appraisers are finally over seen by a system that works. FHA really needs to make sure the AMCs are not touching their loans until it is completely clear that only appraisers that are being used are good at what they do. I would not mind seeing FHA go to a fee panel like VA. It is not really capitalism in action, but at least it keeps the crazies away from government backed loans.
AMC and lender executives should not be able to chair or otherwise run an industry body such as the Appraisal Foundation. Their participation is welcome, but only as a part of the overall board. These boards need to be populated by appraisers, and of those appraisers, the majority should be independent small company appraisers. That way it reflects the real appraisers out in the world and not other affiliated interests. The appraisers have been punished unfairly for the S&L problems, by allowing lenders and others to push their agendas on a profession that depends on being an independent and ethical part of lending in our country.
What many may see as one appraiser complaining about fees, it really is deeper than that. The news media does give negative criticism to the appraisal industry. I agree with much of that, but like many problems within our society the rabbit hole does go deeper than the obvious. If you pay for a professional opinion you will often get that. If you buy a box of manure, well, you can try and polish it up, but you still bought a box of manure.
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I look forward to your questions and comments.
Author: Woody Fincham - http://www.fmava.com/ - Woody is one of the founders and managing appraiser for FM & Associates. He has recently become an instructor with a local real estate school, teaching broker pre-licensing and real estate agent pre-licensing. Woody is a Certified Residential Appraiser in Virginia, as well as North Carolina. Woody is also a Member of the a la mode labs project
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