A & E Appraisals Blog - Maricopa County Arizona - Real Estate Blog

This is part 1 of a series regarding appraisal devaluation.

The appraisal industry as of late has dealt with many issues that are resulting in the de-valuation of the industry. Management companies, data companies, and others have had little problem with stepping in and twisting appraiser’s arms behind their backs. Appraisal fees are no longer quoted from appraisers, but are dictated to them by many companies.

Fiserv, LSI, MDA Lending Solutions, and Rels Valuations are all now working with Wells Fargo as appraisal management companies. The fees that are charged to the lenders in my service area are $340.00. The fees offered to appraisers range from $160.00-$190.00.

The picture that comes to my mind when I consider the situation is that of a pimp. These management companies are offering appraisal work at just below the area normal ($350.00) and retaining appraisers that are unable to get full fee work. The AMC’s are asking appraisers to undress and partake in the “oldest profession”.

Here we are in a climate of national financial turmoil, a good deal of which was caused by Wells Fargo. Why should Wells Fargo or any other lender that took bailout funds be allowed to make decisions liked this? By hiring someone willing to do work that essentially has no room for profitability, means that they are attracting the bottom of the barrel, and quite frankly, always have in regards to the competency and ability of the appraisers who have always worked with them.

National Policy Enables Price Fixing

The tides have shifted thanks to the agreement brought out by Andrew Cuomo’s office in New York. The HVCC will most likely turn out to be one of the most harmful things to appraisers that have ever been drafted. Even if it does not go into effect, the damage is done. AMC’s have used it to promote their systems as being HVCC compliant and have prompted many lenders into using systems that they never needed to use.

What this agreement between Cuomo and Fannie Mae and Freddie Mac has done is one of the single biggest blows to small business I have seen in my life time. Most appraisal firms are small offices of 1-5 people. You are lucky to find many that actually have administrative staff. There are the exceptions in every market, but for the most part appraisal offices are simple small business. This agreement does destroy any local affiliation or networking an appraisal company may have with the lenders that will be required to comply to the policies enacted with this agreement.

Keeping commissioned personnel on the origination side away from the appraisers makes sense, especially considering the amount of horror stories we have all heard over the past few years. Where the damage sets in is with the ridiculous way these lenders are now doing business. Prior to the inclusion of AMC’s on a massive scale, lenders that wanted to do unethical work could simply threaten appraisers to go along or get cut off from future work. Once all this is policy goes through, or if it doesn’t it still changed the way lenders work with appraisers, the system has been set up to allow non-regulated entities to essentially provide appraisal work without any regulation whatsoever. If an AMC pushes a value, or intimidates an appraiser there is no regulatory body to report them to. The lender still gets to drive values indirectly by hiring a third party to do it for them.

AMC’s are being allowed to go in and set a regional pricing structure at such a low level that many appraisers cannot afford to perform the work. In Wells Fargo’s price sheet it is almost price fixing to see that a company capable of the volume they are have 4 companies separately guarantee them the same prices on a 1004. Each of these companies will turn around keep a roster of “professional” appraisers to send some work to, knowing that they get to pocket close to 50% of the appraisal fee.

Contract Worker versus Employees

There is not a single appraiser in my area that can make a living doing a manageable volume of fee work that can do a report for $180.00 across the board. When you consider the cost that E&O insurance, continuing education, automobile depreciation, health insurance, MLS, software, equipment and the many other expenses you have as a small business, you lose a tremendous amount in just maintaining the business. Let’s not delve into the expenses and time needed to grow the business.

What these companies are doing results in them retaining licensed professionals as employees without treating them as employees. In some cases, such as FISERV, you are asked to undergo a criminal background check, to dress in certain attire, and are given very specific time frames. The last time I talked with my CPA and we chatted about employees versus contract labor, he did mention to me that the more control I exert on the person the more it looks like I am an employer and not a vendor.

Wachovia and RELS both have required very specific technique to be implemented regarding absorption rate analysis and other items. These companies dictate very specific things even to the point of telling you to only use certain software, or that you have to use a service to upload your report . Often times they will also request information that they truly should not need in order to process your report: items like listings, tax records and other things that they cannot get access to as they are not technically members of the service providers the appraiser uses.

Bottom Line

It seems as if the perfect storm erupted with this financial crisis that will enable the large lenders to do what they have wanted to do, get rid of the appraisal process or cripple it enough to keep it under thumb. Highly skilled and competent residential appraisers normally run firms. These same appraisers also require high caliber work that means extra steps to support the estimates of value produced by that firm. If there is no profit in the fees then many appraisers will stop doing the work, or get put out of business from being under paid.

The sad reality is that James Lockhart, Andrew Cuomo, and many others who should see the problem as it is, either can’t or don’t want to. The longer lenders and their hired thug AMC’s are allowed to set the fees for appraisers the public will continue to receive bad appraisal work. No one at any level of importance has tried to look at the process from the ground up. They have all been kept at such far away distance that they are incapable of seeing the problem. These are step by step issues that fall below their pay grade.

I have yet to see any true residential appraisers working in conjunction with these offices to help the problem. The appraisal industry players that have been involved are all upper level commercial appraisers. The Appraisal Institute is a wonderful organization, but the leadership has remained very firmly on the commercial side of things in regards to the background of the individual leadership. Asking a commercial appraiser to help with residential appraisal issues is like asking a civil engineer to design a 3 bedroom home load bearing wall system. I am sure the mechanical engineer has a good idea of how to do it, but I doubt it will work as well as a structural engineer designing the same project.

This ends this part. My next piece will be on BPO’s. It has been an ongoing battle for many appraisers to try and keep the REO work that is being given to real estate agents. Appraisers in Nevada, and now Virginia are both trying to stop BPO’s being used in lieu of appraisal reports for REO work, and would you believe that lenders are lending money based on BPO’s? The next article will be finished very soon.

AZ Real Estate Commentary

AMC’S - The first set of letters that spell appraisal de-valuation.