I know that I promised an article on BPO’s at the conclusion of my last article, but I have been settling into my new position here at Braun & Associates, Inc. During my break over the holidays and the relocation to Tennessee, I stumbled into some things that many of you have as well: one of my long term and largest clients hired a fee cutting appraisal management company (AMC). The guilty party: National City Mortgage (NCMC), which was recently acquired by PNC.
Fee Slashing Hits Very Close to Home.
I received a call from a colleague that does a higher volume of work with them explaining that it was rumored that EAppraiseit was taking over from Network Appraisal Services (NAS). Like many things in our business, I initially filed it in my brain under Just Another Rumor. I made a few calls to some folks at NAS and found out that not only was it true, that is was happening within 3 weeks, at the end of the year. I then called the branch I did most of my work with and starting inquiring about what was happening, and how it would affect my company (at this point I was transitioning the contacts and leads to another appraiser to take over for me once I moved) and most importantly my family.
The branch manager, and several of the more well known originators that I have had years of good, ethical business with had no clue what was happening. I was directed to contact corporate and speak with Peter Kirsch (his last name may be spelled incorrectly as I couldn’t confirm it) one of the vice presidents of the company at the national level. He and I spoke and I asked him what was happening and he explained that corporate had decided to move in a different direction. I started to explain to him the negatives that we were going to be faced with as appraisers and he cut me off. He explained to me that he was fully aware of the situation with Eappraiseit and Washington Mutual, and various other items of notability.
My point to him was going to be regarding the fee cut and the damage that was going to do to the appraisers who, like me, had a long term relationship with NCMC. He started in the other direction, and I was very shocked that he was familiar enough with it to assume that was my complaint. That means that NCMC actually disregarded what ended up causing the entire HVCC, as being little else but white noise when it came to profit. You see, in my case I was charging $350.00 for a normal residential lending use report. Eappriaseit cut the fees to $210.00. That is a forty percent (40%) cut in fee!
I spoke with this gentleman for a few more minutes and touched on the harm it was going to do to real, everyday working people. People that had helped build his company into what it had become. He was at the very best, flippant and careless about it. He can be summed by one of his own statements. “It really is a business decision, as if you won’t do the work there are more appraisers who will”. I was shocked, angry and did my best to simply be polite and end the call.
One of the originator’s that I know explained to me that now they are required to collect $435.00. The originator contacted me to inquire regarding why my fee had increased, and I explained that the opposite was in fact the case. So not only did the companies use their combined control of volume to force appraisers to lower their fees, they factored in a pay raise. This means they took one division of their company from making twenty five dollars an order, to making $225.00. If they do 10,000 orders a year, that is an additional 2.25 million a year by strong arming small business. I am not accusing the lender of doing this, but I have to ask if National City is making any money on this new increase in fee? They certainly have harmed their ability to do loan application by requiring $435.00, instead of $350.00.
There are certainly other AMC’s out there to work with that leave the appraisers’ fee alone, and that will give the same service, while keeping the money in the American economy. I would even be willing to accept doing work with one of the companies that charge the appraiser a processing fee. I would rather lose $15.00 than 40% of my fee. These lenders are looking at this as economics in scale. Like most financial and economic applications these companies have proven to not use prudent judgment.
Economics in scale do not work with products like appraisal reports. Appraisal reports require custom research, unique applications of theory, and expert decision making to be prepared properly. Each job is a unique problem. Economics in scale work great when you can hire a teenager to make a hamburger the same way a thousand times a day, or a factory to stamp out washers.
It also does not hurt to actually care about the companies that you work with. In this case the gentleman from NCMC used the term “business decision” as code for we don’t care, you are a vendor relationship and we care less whether your family can eat next month or not. I am also a customer, or let me re-phrase that; I was a customer. Over the course of several years I developed ethical business relationships with people at NCMC that meant something to me. It’s a hard pill to swallow to learn that you are a nothing but a number to their keepers. Such is life, and when these middle management executives are thrown into the street due to corporate re-alignments and closures, I won’t rejoice in it, but I won’t shed them a tear of sympathy either.
On the Home Front
The two people that I left with my contacts, both former associate contractors whom I care about as much professionally as I do on a personal level, are still working with NCMC, but only as a last resort. Now when a call comes in for an order they are treated to the delightful sound of a foreign outsource worker, in most cases struggling with English as a second language, wanting to assign a new order. That adds insult to the injury, as they are further increasing profits by hiring incompetent, non-American slave labor to increase their profit and displacing more Americans.
So what we have now is a lesson in economics, one that has been taught to us repeatedly throughout American History. Large companies always make excuses and ways for their corporate executives to make so much money that they will go to inhuman lengths to do it. In this case, if you replace Eappriaseit’s name with ConAgra and National City’s name with small American farmer, you get the same story. There are countless other examples just like this one, all ending poorly for our fellow citizens. Why does an executive of a company need to earn so much money that they make the average employee within their own company look like a pauper in comparison to themselves?
NAS was one of my favorite AMC’s to work with, but apparently the parent company, First American, decided that just making twenty five dollars an appraisal was not enough. They sat for a few years watching appraisers charge their normal rates, and the lender pay twenty five dollars to NAS per order to handle the ordering, management and light digital review for each report. First American is one of the biggest contributors to the harm that is currently being done to all appraisers, they sell BPO’s and AVM’s for use in lieu of traditional appraisals. Just because you don’t work with an AMC now, doesn’t mean you won’t be affected. These companies are recruiting relocation companies, attorneys, and many other regular users of valuation services.
By taking on the volume that they do, then skimming the profit out of it for us, it is bound to bleed into the non-lending work. The case with the farmers and large factory conglomerates eventually led to congress getting involved to help with tax credits and other ways to assist the families who in most cases could not live any more on the meager scratching they brought in, if any, from doing the only thing they know how to do. The farmers were even given the support of Farm Aide, through efforts with John Mellencamp and Willie Nelson. I don’t think we will garner any celebrities defending the appraisal industry.
I also don’t think we will see any bailout funds, tax credits or stimulus packages assembled for our assistance. I am sure we would actually be accountable for the help, where most lenders have not been. There is no reason for my fraternity brothers to give me money to make sure I get a little richer while the peasants in my kingdom get that much poorer by having the funds taken from their pockets. Alms for the poor are difficult to toss out from those tall ivory towers.
I look forward to your questions and comments.
Author: Woody R. Fincham http://www.braunappraisal.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 eMail: [email protected] Ph 865.273.2234
Recent Comments