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.
Last week we presented the alternate view of the AMC market compared to the Coester Survey. That Survey presented the findings of their 'thousands' of appraisers in their panel, and ended up with an unfortunate lead paragraph;
"After further analysis of the data from the Annual Coester Appraisal Group Vendor Survey, it seems like many of the implications made regarding the state of the mortgage industry as a whole have been debunked."
I hope Acorn's experience debunked the debunking! Our reported experience reasonably matched the Coester Survey in each of their findings...with the exception of 'rating of the AMC experience', and more importantly, the 'fee relationship'.
The Coester Survey reported appraisers rating the AMC experience as below average. Acorn's rating of the AMC experience as above average seems easily reconciled. Acorn has evolved over a ten year period to serve the AMC market. We've made changes in our business model to maximize the benefits of an AMC client base and minimize the disadvantages. The typical appraisal business does not cater to AMCs in my experience. That explains the different ratings results in my view.
The Coester Survey reported that appraiser fees did not vary between those received from AMCs and those from 'one off' orders in the local market. In Acorn's experience that is hogwash, and it is contrary to the hundreds, even thousands of appraisers I've visited with over the years. As I reported last week, only one of the eighteen AMC clients Acorn is pleased to serve fits that fee model. The rest take a hair cut equal to an average of 32 percent of the 'one off' local fee. Coester may be, likely is, a AMC business that matches the business model of the one client Acorn has....but that doesn't mean they represent the market!
Policy makers, Regulators, others of influence who read the Coester Survey report would be well served to continue to read Appraisal Scoop and learn 'The Rest of the Story'....because that's exactly what we plan to present! More important will be the comments from the readers. They will confirm some key points, but likely differ on significant points. The net result will be telling it like is it from the appraiser's viewpoint.
Remember my background; bank lender, bank executive experience in a Financial Services Conglomerate which included major Residential Mortgage Origination and Servicing Divisions. Owner of Acorn Appraisal for 25 years, ownership now shared with the next generation. Partner in Zone Data Systems, LLC (ZDS), a new venture that aims to provide innovative appraisal services nationally.
I don't remind you of that to beat my drum but to establish credentials for this discussion. I do want the reader to pay attention. I'm not smarter than you...refer to the origin of 'Runt Rants'. But by golly I am an experienced corporate guy and an experienced entrepreneur. I'm wise because of those experiences.
The History of Appraisers
Homeownership is a foundation of our country, the entire array of businesses supporting residential homes, including the lending sector, represents a bedrock of our economy. When the residential market goes in the tank as is has in the last few years, the national, even the global economy is affected. If we had forgotten that connection we are now reminded.
The Appraisal Profession...it is a Profession...grew in the last century as home ownership grew. Appraisers occupy a unique position in the economy. They are charged with being the single unbiased participant in the sale transaction...similar to what the Realtor was in the dual agency model until recent years. The appraiser is charged with determining value...usually market value...that the lender uses as a major support for the underwriting of the proposed loan.
The professional appraiser of today is increasingly more educated, both formal education and appraisal theory education. He is charged with a fiduciary responsibility to his client within the constraints of the Uniform Standards of Professional Appraisal Practice (USPAP) and he is regulated by his State. He is also expected to be an expert in the market in which he is appraising...familiar with the nuances of local conditions, exogenous and endogenous to the property in question. In the vast majority of the cases, he meets all those qualifications and requirements and delivers quality results.
The Licensed and Certified Appraisers may be employees of Banks, other lenders, or support industries that serve the residential home market. May be. But most often, (and the ones I'm going to discuss) are Independent Fee Appraisers who are also Business Owners. We, they, own businesses that provide Professional Appraisal Services under the constraints of USPAP, State Regulators, the Appraisal Associations we may be a member of, and the laws governing agency and fiduciary responsibility to their clients.
If you consider the entire history of the Appraisal Profession; if you consider their performance in the various business cycles; if you compare that performance to the ups and downs of the business cycle, the catastrophic failures that have occurred along the way, one can't but be impressed with their professional results.
In each crisis there have been attempts to blame appraisers for the problems that arose. Most such attempts have fallen short of making the case in the immediate aftermath of the crisis, and in all cases have proven inaccurate in the bright light of history.
The Appraisal Profession has done its job.
A Briefer History of the AMC
Since the consolidation of the banking and lending business began in earnest after the S&L Crisis the Appraiser has been called upon to provide even more of the local market expertise than previously. Before the loan officer was also local, was judged on his portfolio performance. After consolidation the loan decision marker was distant...at a regional or national corporate office, and often was rewarded on near term performance...number of loans made or dollar growth in his assigned market. The Appraiser became the sole unbiased local market expert.
Shortly after consolidation of the lending business the Appraisal Management Company business model began to make significant inroads into the lending profession. Large, even bloated central bank offices had to reduce expenses. The Appraisal Department was 'out sourced' to an intermediary...the AMC. Often the Conglomerate retained ownership of the AMC through intertwined subsidiaries.
As an outside observer, it is easy to surmise the objectives of that out sourcing effort: reduce HQ overhead, shift the cost of the Appraisal Department to another company, yet continue to control the processes necessary for processing a loan application. Since the other company was often part of the conglomerate, there was interest in reducing the cost of the appraisal management function in the process.
A business model of the AMC was created at that beginning by those conglomerate financial services corporations, a business model that was copied by others, including those AMCs which were started independently. It is a business model which is most typical today, including the pricing strategies.
The Current Environment
The AMC Business Model has dominated the bridge between the lending business and the Appraisal Profession for decades now. Estimates I've seen suggest that 80 percent of the first and second residential mortgage appraisal demand in the USA routes through AMCs. Other estimates are that 80 percent of that business is done by the top five AMCs.
That is a critical funnel for a critical process in our nation's economy, in the global economy! It is important that we all understand how that business operates; its strengths and its weaknesses as they affect a cornerstone of the nation's economy.
There are many advantages to that business model, advantages to the lender, the borrower, and even to the appraiser. There are also some disadvantages to the lender, the borrower, and to the appraiser.
Next week we'll talk about those advantages and disadvantages, what's right and what's wrong with the AMC Business Model...touching on the lender and the borrower, but focusing on the appraiser.
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.
Recent Comments