Appraisal Scoop

Bradford Technologies Brings Regression Analysis To Residential Appraisals

First appraisal technology to provide statistical analysis for GSE-approved appraisals

SAN JOSE, CA – MARCH 10, 2012 — Bradford Technologies, an innovator of valuation tools and solutions for residential appraisers and parent of the AppraisalWorld online community for appraisers, has announced the redesign of CompCruncher, its valuation technology used by appraisers to prepare statistically supported valuation reports. One of the major changes is that the system now provides regression-based analysis for GSE-approved appraisals. CompCruncher 2.0 is the industry’s first and only appraisal technology to enable regression analysis for the most commonly used residential appraisal forms.

The original CompCruncher produced Collateral Valuation Reports (CVRs), a highly accurate alternative valuation report. CompCruncher 2.0, however, can be used to create Collateral Valuation Reports as well as traditional residential appraisals on GSE-approved appraisal forms. The process of using CompCruncher will remain largely the same. But once an appraiser uses CompCruncher 2.0 to develop a value, he or she will then be offered the option of choosing the type of report to produce: a CVR, the GSE-approved appraisal form 2055, and soon the appraisal form 1004.

CompCruncher 2.0 is currently in beta testing with several lenders and appraisal management companies. Only certified and trained appraisers can use CompCruncher or CompCruncher 2.0 to create statistically supported valuations of any kind.

“Our lender partners have told us repeatedly that they want to bring the level of reliability they get with the CVR into traditional appraisals—that’s why we created CompCruncher 2.0,” said Jeff Bradford, CEO of Bradford Technologies. “Now every appraisal can benefit from the higher accuracy that results from scientific analysis. Values can be determined based on analysis of literally hundreds of properties, rather than a handful of properties—for 100 percent of the appraisals used in the market.”

More than 2,000 appraisers have been trained to use CompCruncher to prepare Collateral Valuation Reports. Working in concert with some of the nation’s largest appraisal firms, Bradford will be offering no-cost training on CompCruncher 2.0 to current CompCruncher users. The company anticipates that in 2012, it will train 5,000 more appraisers to prepare not only Collateral Valuation Reports, but also statistically supported traditional appraisals. The Collateral Valuation Report is being used by several Top 20 banks.

“Values for an entire multi-trillion dollar industry are being supported by 25-year old valuation methods for an appraisal product that today is quickly becoming a commodity. It’s time for our industry to make some serious changes in the way we value properties,” said Mark Linne, the company’s chief strategic and valuation officer. “We need to move away from the art of appraising and start incorporating science. Most appraisal technologies tout efficiency and speed, but accuracy is where we need to focus—and CompCruncher 2.0 has the ability to bring that accuracy into virtually every residential appraisal in our industry.”

About Bradford Technologies, Inc.
Founded in 1987 and based in San Jose, California, Bradford Technologies has long been recognized as the leader in innovative appraisal solutions. Among the company’s offerings are ClickFORMS™ hassle-free appraisal processing software, the AppraisalWorld online community and services portal for appraisers, and the Collateral Valuation Report (CVR) produced by CompCruncher™, the first statistically supported, USPAP-compliant valuation product. Bradford Technologies is dedicated to building trust and reliability in the appraisal profession and providing leading edge solutions for appraisers, appraisal management companies, lenders and consumers. Bradford Technologies is recognized as a Top 50 Service Provider by Mortgage Technology magazine in 2011. For more information, visit: www.BradfordSoftware.com and www.AppraisalWorld.com.

 

Media Contact
Jeri Yoshida
Strategic Vantage Marketing & Public Relations
[email protected]
310.396.8813

CoreLogic® Introduces New Platform That Integrates MLS and Public Record Data for Appraisers

PR: November 09, 2011, Santa Ana, Calif. -

-AppraiserSuite Will Help Appraisers Find "Fresher" More Relevant Comps-

CoreLogic (NYSE: CLGX), a leading provider of information, analytics and business services, today announced the release of AppraiserSuite, a platform that combines multiple listing service (MLS) and public record data in a single online workspace for appraisers, review appraisers, underwriters and quality control personnel. The new subscription-based platform enables appraisers to quickly research and compile property and market information from multiple sources. AppraiserSuite also streamlines the comparable selection process and offers the ability to export data into standard appraisal reports through form population tools.

Download a Sample Report - Click Here

AppraiserSuite provides direct access to the MLS data in many of the top U.S. markets gathered through the CoreLogic Partner InfoNet™ program in which more than 66 MLSs participate. By incorporating MLS and public record data into a single workspace, AppraiserSuite provides details on the subject property, comparable properties, historical transaction information, tax data, and other property and market area characteristics. AppraiserSuite is also able to highlight inconsistencies between the two data sources, and offer the opportunity for Appraisers to contribute their own information that may help reconcile these differences.

AppraiserSuite includes leading mapping technology that provides a view of neighborhood factors that impact a property's value like parks and active railroad lines. AppraiserSuite also allows appraisers using ACI2010™ to import their property and comparable research data directly into industry standard appraisal report forms such as a Uniform Residential Appraisal Report (Form 1004) without manually rekeying the information.

Ben Graboske, CEO of CoreLogic MarketLinx, said, "Real estate professionals contribute local market insights directly into their MLS systems. AppraiserSuite makes it easier for appraisers to gather the information they need when determining the value of a property. By incorporating MLS information into AppraiserSuite, we are providing appraisers with a broader view of the market and with the tools to make the entire appraisal process more efficient."

In addition to helping appraisers generate reports for real estate financing purposes, AppraiserSuite can generate an alternative valuation report such as a desktop appraisal, APO or an addendum to other standard appraisal forms. The report follows USPAP compliance standards and is available as a PDF or a MISMO XML Output.

AppraiserSuite is also available for Appraisal Management Companies (AMCs) and can be integrated into an AMC's current order management system, creating a seamless user experience for appraisers and quality review teams.

CoreLogic has been featuring AppraiserSuite during the Valuation Expo in Las Vegas, Nev. on November 7-9, 2011. New AppraiserSuite users will be offered a $150 discount on a one-year subscription if they sign up by November 30, 2011.

ASA and NAIFA Send Joint Letter to FHFA, Fannie Mae & Freddie Mac Expressing Concerns on HARP Program Reliance of AVMs and Requesting a Meeting

On October 25, the American Society of Appraisers (ASA) and the National Association of Independent Fee Appraisers (NAIFA) submitted a joint letter in response to yesterday’s announcement by the FHFA and the Government Sponsored Enterprises (GSEs) of changes to the Home Affordable Refinance Program (HARP) involving greater reliance on automated valuation models (AVMs) to value collateral property. In the letter, ASA and NAIFA expressed concerns regarding the GSEs quality control standards being used to ensure that the AVMs they utilize are reliable

On Monday, the Obama administration announced an expansion of their Home Affordable Refinance Program (HARP), which helps homeowners underwater on their mortgages to refinance into terms that lower their monthly payment. As part of this renewed effort, the Obama administration has approved reliance on “reliable” automated valuation models (AVMs) used by Fannie Mae and Freddie Mac (collectively termed the GSEs or Enterprises) to determine the value of the underlying collateral. Where a “reliable” AVM is not available, however, they must use an appraisal.

ASA’s and NAIFA’s letter says that given the fragile condition of the mortgage markets, the financial stress of many homeowners, and the temporary nature of the HARP program, the two professional appraisal organizations do not oppose the change. However, the letter expresses serious concerns over the reliability of AVMs in general and the GSEs’ AVMs in particular; and, it urges much greater transparency in the quality control systems that the Enterprises will be using to weed out unreliable automated valuation models in refinance transactions. The letter also states that the professional appraisal community, including the Appraisal Standards Board of the Appraisal Foundation, should have been, and should still be, consulted by the GSEs on their AVM quality control requirements.

ASA and NAIFA believe that safety and soundness and the interests of consumers and taxpayers in mortgage-related transactions are best served when collateral values are determined by professional, independent appraisers.

Jack Washbourn, President of ASA, stated that “while we generally support reliance on professional appraisals for determining collateral values for refinance transactions, we recognize that the scope and nature of this specific program might warrant limited use of AVMs. Still, it is imperative that quality control standards be implemented that protect homeowners, taxpayers, and the housing market from further losses when relying on an AVM, and we feel strongly that the professional appraisal community must be involved in crafting those standards."

Download: ASA and NAIFA Joint Letter to the FHFA, Freddie Mac, and Fannie Mae

About the American Society of Appraisers - The American Society of Appraisers is an international organization of appraisal professionals and others dedicated to the education, development and growth of the appraisal profession. More than 2,000 of its 5,000 members are business valuation appraisers. ASA is the oldest and only major organization representing ALL disciplines of appraisal specialists, originating in 1936 and incorporating in 1952. ASA’s headquarters is in the metropolitan Washington, DC area. To find an accredited appraiser near you, visit http://www.appraisers.org  or call (800) 272-8258.

Can Appraisers Compete With Automated Valuation Models?

VALUE ADDED As a Practical Matter, Can Appraisers Compete With Automated Valuation Models?

Guest Post: The author, Edd Gillespie, is a Certified General Appraiser from Pueblo, CO that specializes in litigation support, 1031 exchanges, estate appraisals, and commercial mortgage work.

Does USPAP Standards Rule SR 1-4 Actually Define Appraising? USPAP Standards Rule SR 1-4 lays out the required process to develop the appraisal. “In developing a real property appraisal, an appraiser MUST collect, verify, and analyze ALL information necessary for credible assignment results.”

Last week the Fifth Circuit Court of Appeals breathed life back into HAROLD H. HUGGINS v. FNC, Inc. [Download OPINION_FNC_Case-Opinion_24Feb2011] where the issue is about FNC, Inc. opening appraisal reports delivered via FNC’s AppraisalPort and then incorporating the data and conclusions into FNC’s National Collateral Database. The objective being to compete with appraisers. The appraisers’ attorney highlighted what it is that appraisers bring to the process of appraising that Automated Valuation Models (AVM) do not. He said appraisers bring “… experience and judgment to bear on providing services no database can replicate: inspecting the premises, reporting on recent renovations, identifying damage, and verifying the continued accuracy of existing information.” I think he nailed the very essence of USPAP compliant appraising that AVMs will never duplicate.

The attorney’s comment had currency with the court, but where does what he said fit into USPAP? To comply with USPAP Standards Rule SR 1-4 real property appraisers “…MUST collect, verify, and analyze ALL information necessary…” 

Three of the things the attorney told the court has to do with collecting information, “inspecting the premises, reporting on recent renovations, identifying damage.”

Appraisers say they are often criticized by home owners for not spending enough time in inspection, and residential appraisers often respond that they are NOT home inspectors. But, if the information that could be collected in an in-depth inspection is relevant to value, then where is an appraiser going to get it if he or she doesn’t get it through personal inspection?

The HUGGINS attorney also said the appraiser’s significance is in, “…verifying the continued accuracy of existing information.” Even though USPAP recognizes quality, credibility and misleading in appraising it gives us no instruction about the process of verification.

Some appraisers report that verification can be accomplished efficiently by comparing the information contained in different data bases, for example; the public record and MLS or Realist and Realquest. But, can’t an AVM easily be programmed to compare data bases and be in compliance to some extent with USPAP?

On the other end of the spectrum are appraisers who maintain that verification should come from a person who is personally familiar with the property and transaction. This depth of verification has logistical obstacles and objectivity issues, but assuming some of those can be overcome it is a technique that AVMs will never use and remain fast and inexpensive.

An appraiser who does not have a complete picture of condition or is analyzing unverified information is in exactly the same position as an AVM.  Neither the AVM nor the appraiser who skips inspection or verification advertises their shortcomings, but the AVM doesn’t have to be USPAP compliant and the appraiser does.

What do YOU think?!

• Should appraisers who can’t afford to be USPAP compliant quit appraising?
• Should AVMs and other “valuation” products be USPAP compliant?
• How can appraisers do what they are required to do by USPAP and compete with the speed and price of AVMs?
• Why should clients pay more for an appraisal than for an AVM that does the same thing?
• What do you think the difference is between what an AVM does and residential appraisers who compete with them are doing?
• Do you agree that an USPAP compliant appraisal requires in depth property inspection If you completed the in-depth inspection and verification implied by the HUGGINS attorney, how much time would it consume and what would you charge?
• Should USPAP be amended to eliminate the stringent requirements of USPAP Standards Rule SR 1-4?
• Should appraisal inspections be on a par with those of a home inspector? Should appraisers be better trained to collect and verify necessary information?

Prior Article - Similar Topic:  You Want It WHEN!? - How Long Does it Take To Complete An Appraisal?

• Download NOTICE_FNCCase-Notice_from_Court24Feb2011
• Download OPINION_FNC_Case-Opinion_24Feb2011

The author, Edd Gillespie

, is a Certified General Appraiser from Pueblo, CO that specializes in litigation support, 1031 exchanges, estate appraisals, and commercial mortgage work.  Contact Info: 590 N. Matt Dr. Pueblo,CO 81007 Phone 719-252-7624 E-mail [email protected]  

 

Real Info, Inc. Launches AVM Plus Property Condition Report to Meet Interagency Guidelines

BUFFALO, N.Y.--(BUSINESS WIRE)--Real Info, Inc. a national technology provider of real estate data and automated valuation models (AVM’s) announced its offering of automated valuation models (AVM’s) with property condition reports designed to meet new regulatory appraisal and evaluation guidelines. Real Info, Inc. has contracted with Cleveland, OH–based, Safeguard Properties, the nation’s largest privately held mortgage field services company, as their provider for third party condition inspection reporting with full photo documentation.

The recently published Download Interagency Appraisal and Evaluation Guidelines recommend that lenders should consider obtaining verification of a property’s current physical condition when utilizing AVMs.  By supplementing its existing AVMs with external property condition reports and subject photos, Real Info, Inc. is assisting lenders in achieving compliance with the new requirements and ensuring accurate results. The process is seamless and provides the end user the opportunity to request a condition report as a stand alone product to accompany any AVM, including Real Info’s i-ValTM and realAssessmentTM reports.

"Property condition reports are conducted by a qualified real estate professional to determine subject location and condition, which include photos along with an AVM. The offering includes tier-based pricing based upon expected turnaround times, giving the user affordable and time sensitive options to meet the demands of their current workload in as fast as two days."

“Safeguard and Real Info share common goals to help improve and stabilize the mortgage industry,” said Alan Jaffa, CEO of Safeguard Properties. “With property condition reports, we are able to meet industry guidelines and improve the quality of property data for lenders.”

“Our collaboration with Safeguard Properties enables lenders to not only meet, but exceed valuation guidelines in as little as two days,” said Jim Kirchmeyer, founder and CEO of Real Info, Inc. “By using a condition report in conjunction with an AVM, any potential issues are caught early in the process which makes an accurate valuation much more credible. By working with the leading provider of inspections, Safeguard understands the importance of up-to-date information so that users can properly verify the physical condition of a property quickly and efficiently.”

Real-Info provides three proprietary AVM's: i-ValTM, realAssessmentTM, and Q-ValTM, which utilize the knowledge database through rules-based, expert system models to arrive at a predicted market value for a particular residential property. The company's licensing partnerships with nationally recognized AVM developers provide an extensive menu of valuation products for clients.

Source Permalink: http://www.businesswire.com/news/home/20110215007239/en/Real-Info-Launches-AVM-Property-Condition-Report.

 

The Dawn of a New Era in Appraising

Guest Post by Tony Pistilli, Certified Residential Appraiser and Vice-Chair, Minnesota Department of Commerce, Real Estate Appraiser Advisory Board, Minneapolis, Minnesota

Approximately 30 years ago the automobile industry began to introduce computers into cars and since that time they have never been the same. What was once considered a rather simple procedure – tuning up your engine or even changing the spark plugs – has become an almost impossible project for anyone, except the highly trained automobile technician.

Today nearly every aspect of your car is aided or controlled in some manner by a computer. Digital radios with CD players, climate control systems, cruise control and pollution control devices are just a few of the components that are aided by computers. Computers now control the engine functions and other systems within the vehicle where mechanical components once ruled.

The introduction of these new technologies into automobiles required mechanics to learn new ways to maintain cars. They needed to become proficient in computer analysis of the new, non-mechanical systems and they learned new terminologies. In addition to the ratchets and wrenches they have always used, they were now using computers to help them do their jobs.

At the time, this must have seemed like a huge change. However, the auto mechanics that embraced the new technology, seeing it as a way to enhance their current core skill sets, were greatly rewarded. The mechanics that didn’t adapt and learn the new technologies… well, they are now picking up the phone and calling to make appointments to have their cars maintained by the highly trained – and highly paid – automotive technicians! And by the way, those mechanics who didn’t adapt and learn the new technologies are also no longer earning a living maintaining cars.

Technology Will Transform the Appraisal Process

This same transformation of an industry that occurred in the automobile industry in the ’80s has been under way for many years in the appraisal industry. With the average age of an appraiser approaching his or her mid-’50s, I know many of us have been around long enough to see what we thought, at the time, were some pretty big changes over the years. It might have seemed almost revolutionary when we went from two-sided tape to glue sticks, or from carbon copy FHA appraisal forms and tractor-fed forms printed by the first-generation computers to appraisal form software – not to mention the industry’s effort to enter into a “paperless” environment with digital cameras, online mapping, electronic sketch programs and digital signatures. With all of these changes, appraisers are certainly more productive today as a group of professionals, but as significant as they may have seemed, these changes are merely incremental improvements on an existing process.

Technology has allowed us as a profession to reduce the turnaround time for delivering reports while reducing the costs associated with preparing them. Email has eliminated the need for faxing and mailing reports. We are no longer bound to photocopying and collating reams of paper to create multiple copies of our reports for our clients. We buy fewer printer cartridges and have been able to eliminate our photo processing and mailing expenses. We have become more efficient and more productive and this has, in a small way, made it more understandable why appraisal fees haven’t increased in the last 20 years. We all know it is a far more complex environment to be appraising today than it was just five years ago. But the technological changes that have occurred over the years haven’t addressed that issue. All these changes haven’t really altered the way we do things and how we value real property. We can do reports quicker but not necessarily better.

At a time when the banks and financial institutions are all clamouring, and rightfully so, for more reliable appraisal reports, we have responded by routinely providing a fourth or fifth comparable sale and occasionally a few comparable listings. We are essentially still doing things the same way we always have and as a result it now takes longer to complete an appraisal report than it ever has, despite all of the efficiencies that have been introduced through technology.

In the flight to create more reliable and accurate appraisal reports, the agencies have introduced a multitude of requirements on how appraisals are done: comparable listings in declining markets, the 1004MC form and most recently the inclusion of interior photographs of the subject. Again, these have not necessarily proven to produce more reliable appraisal reports, just ones with more pages and addendums. What we need today is real change that will in turn produce a dramatic result.

Real change is affected when new systems or technologies are introduced that alter the entire process and ultimately the way things are done. Real change produces a totally different result, not just a polished version of the same old thing. Compared to what is about to happen over the next few years, what we have experienced to date has been a “buff ‘n’ shine” of the appraisal process. The real change that is about to occur will transform the way we do things and bring about a new era in real estate appraising!

Whether you know it or not, a new frontier in appraising is upon us and the change it is bringing is unlike anything we have ever seen before. Right now there are many very intelligent and creative people working to develop the next generation of valuation tools and processes that will catapult appraisers into the role of highly trained and well-paid valuation analysts. I use the term “valuation analyst” to describe this new breed of appraisal professionals, however, my friend Mark Linne has coined the term “econometricians,” and others have used terms such as “trusted advisors” and “valuation technicians.”

Regardless of what they will be called, the members of this new era of valuation professionals will be highly trained and will possess a thorough understanding of statistics and regression analysis. They will have scores of data and analytical information available to them at the front end of the process that up until now was either unavailable or very expensive for the individual appraiser to obtain. They will be highly trained to understand how to collect, manipulate and interpret large data sets. They will use tools and processes via the web to present data in visually understandable graphs and charts. They may complete their reports on the Internet rather than using traditional appraisal software and the time to complete the reports will be reduced to a fraction of what it is today. In addition, their reports may look very different than they are today, much more visual and graphic, but they will also be much more transparent and objective to the end user.

This combination of upfront analytics, greater data collection, and increased transparency and objectivity, delivered in a more graphic and understandable format, is exactly what lenders and financial institutions are searching for in their quest for a more reliable valuation of the collateral in the lending process. Much like the transformation of automobiles in the 1980s, the process of performing an appraisal in the near future will be much different. Those appraisers who choose not to learn and adopt the new technologies will be left behind, like the mechanics who chose not to change with the times, and will be left looking for a new way to make a living. This change should be viewed as an opportunity to appraisers. This change should be embraced by appraisers

Appraisal Regulation Will Intensify  . . . . Click here to continue reading!

 

FNC Lawsuit - "That legal issue is just not gonna fly . . . ."

I assume that many of you remember the lawsuit that was filed as a class action against FNC back in the Summer of 2007?  

"Plaintiffs allege, FNC has acquired and compiled this proprietary appraisal data into a “National Collateral Database,” where it may be accessed by subscribing lenders and other market participants."

Would you believe that It's STILL going on!!?   That's right!  At the bottom of this post is a complete audio file of testimony and rebuttals before a panel of judges. 

http://www.ca5.uscourts.gov/OralArgumentRecordings.aspx

Here's just a sample of the testimony that starts around twenty-seven minutes into the proceedings . . . .

Attorney: “In that sense, uh, uh, the statements were made to the users, not to uh competitors. The misrepresentations were not anti-competitive in the traditional sense of a Lanham Act Claim. The relevant inquiry, we would submit, is the relationship of the parties as it pertains to the challenge against the statements. And here, the misstatements were made to the plaintiffs appellants that as simply as users of. . .”  (huh?)

Judge: Give us your data and we will keep it confidential and when basically then you take the data and dump the competition . . . that’s the allegation.

Attorney: That’s the allegation your Honor. As a factual matter we will argue that stating that the data will be secure refers to the security of the transmission not to ultimately who would use it.

Judge: “We won’t let anyone else have it . . . we can use it.”

Attorney: But, but, that’s uh . . .

Judge: I hope you can sell that distinction to a jury (snicker) . . .because what that says is “We can have your data. We’re gonna protect it. Don’t worry we won’t let anybody steal it . . . .we’re gonna use it!”

Attorney: Well, uh, Your Honor, I think that at bottom what they’re suggesting . . .

Judge: That legal issue is just not gonna fly . . . .

Download FNC 09-60804_10-6-2010

PR - Bradford Technologies Partners with Appraisal Management Company Collateral Valuation Research Inc. For CVR Report Capabilities

San Jose, CA and Scottsdale, AZ – September 21, 2010 – Bradford Technologies innovator of valuation tools and solutions for residential appraisers and Collateral Valuation Research Inc. have partnered together to further expand Collateral Valuation Report (CVR^TM) coverage area throughout North America. 

Over the past two years, the appraisal industry has seen a tremendous amount of change as a result of new lending regulations.  Today, producing a typical Uniform Residential Appraisal Report form can be very involved and a time-consuming way to determine a property’s valuation. 

For HELOCs; appraisal reviews; and property assessment reconsiderations; Bradford Technologies’ CVR^TM is the effective and economical solution to meet the needs of AMC clients.   With statistically supported data, the CVR is leading the industry in valuation reporting.

With over 50 years of combined lending and appraisal management experience, Michael Stapley and his business partner  Kirk Jungbluth, founders of Collateral Valuation Research Inc., instantly recognized the value the CVR presented appraisers. 

“Appraisers could produce as many as four CVRs in the time it would take them to generate just one traditional uniform residential appraisal report (URAR).  For appraisers, focusing solely on CVR reports is not only less stressful, but it eliminates the constant need to be on the road evaluating properties.  More time in the office means more time to generate business.  The CVR provides a tremendous opportunity to combine appraiser skill and experience with new technology that will absorb most of the time related elements that involve data evaluation for the appraisal report. ” 

“To be involved with a company who changed their business model to accommodate the demand for appraisal reports with better accuracy, transparency and affordability delivered in the CVR, validates all the effort we put into developing this report”, said Jeff Bradford, chief executive officer of Bradford Technologies.  

 

“We look forward to our continued partnership with Collateral Valuation Research and their nation-wide network of appraisers,” said Bradford.

 

Bradford Technologies

302 Piercy Road

San Jose, CA 95138

PRESS CONTACT:

Rosalie Berg

Strategic Vantage Marketing & Public Relations

305-971-5352

[email protected]

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. 

 

First American Introduces Appraiser-Validated Price Opinions - Identify "High Risk" BPOs

First American Valuation and Property Solutions, a member of The First American Corporation family of companies, has announced a new valuation service, the Appraiser-Validated Price Opinion.

Appraiser-Validated Price Opinions, the company says, are expert opinions that provide a second level of review for broker price opinion (BPO) users, without the need to build in-house review functions. While this is not an appraisal, a licensed appraiser confirms the specific set of values determined by a local Realtor by looking at comparable sales and verifying accuracy. If discrepancies are found, the appraiser provides a new set of values, complete with an explanation of how they were determined.

Available as a complete outsourced option or as a supplement to in-house review teams, Appraiser-Validated Price Opinions help clients identify high-risk BPOs, the company says.

“This year servicers and investors will order millions of BPOs as they work through loss mitigation scenarios and attempt to value portfolios and distressed assets,” says Joni Pierce, division senior vice president for First American Valuation and Property Solutions. “With this level of activity, it is even more important to verify accuracy while increasing throughput and reducing processing costs.”

Appraiser-Validated Price Opinions are available as exterior-only or exterior and interior reports. Reports can be made available to the customer in seven to 10 days.

SOURCE: The First American Corporation and MortgageOrb.com