Posts Tagged ‘ Appraisal Management Company ’

Boston, Massachusetts: Sales Prices Rise as Demand Surpasses Supply

July 5th, 2017

AppraiserSpotlightCoesterVMS-Sandra PendergastAppraiser Spotlight- Sandra Pendergast

Sandra has been an appraiser for the past 15 years, and primarily services the Boston metropolitan area. She decided to enter this field of work when she made a career change after gaining custody of her 2 grandsons. Over the years Sandra has worked through fluctuations in her market, and has seen the changes that have come as a result. Recently, the shortage of inventory in the Boston market has led to an increase in sale prices as bidding wars have driven prices up over the appraised value. In her spare time Sandra enjoys painting and writing, but has remained busy with work in her market. According to Sandra, the key to success as an appraiser is patience. The educational requirements of becoming an appraiser and trainee experience needed is a long process, and patience is essential.

Boston, Massachusetts Market

Sales prices reached new heights in January 2017 for the Boston metropolitan area as demand continues to outweigh supply. The average price for a single-family home increased 7% statewide to $342,500 compared to January of last year, as inventory remained low (The Warren Group). According to The Wall Street Journal, the median sales price for the Boston Market rose from $685,000 in 2015 to $791,000, while rent in the neighborhoods surrounding Fenway Park increased 2.5%. Though inventory is being added to the market, there is a shortage of affordable housing for middle and low income buyers. According to Boston Agent Magazine 80% of the new construction being added to the market is housing, but primarily in the form of luxury apartments and condos. This paired with bidding wars has driven prices up and out of reach for many low-income buyers.

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Fee Plus Model for Appraisers – Want to give it a try?

November 26th, 2013
The Dodd Frank has done alot of good and alot of bad for the mortgage and appraisal industry. On one hand you have the entire mortgage market which was really going to almost disappear if they didn’t gain global investors confidence back. They patched this by putting in regulations to hopefully prevent another huge crash and restore confidence. Then on the other hand the new regulations have caused lots of companies to shut down as they are just not able to keep up with the wave of regulations. This is the case with the appraisal industry as well. There needed to be something done to stop the broker/loan officer and appraiser relationship. The HVCC and Dodd-Frank although not perfect have at least started to move the appraisal industry in the general right direction. People tend to overreact to new things too quickly, you have to give it 10 years or so before really making any judgments on it.

The purpose for financial regulations isn’t as much about the United States controlling the mortgage market as it is about global investors having confidence in the United States mortgage market again. Within the appraisal industry its not so much about controlling the appraiser as it is about presenting a clear and conscious policy to the global community that they would accept as a transparent, ethical and practical way of getting a valuation on a home. Regardless of your personal opinion on Dodd-Frank, AIR, CFPB at a macro level works. The specifics of market by market and house by house it obviously doesn’t but I know the global community isn’t concerned about that as theirs local financial institutions that can fill the void in that market like a community bank or credit union.
So what about a fee plus model? 
The reality is that the fee plus model is a great idea, I actually love it and we have the ability on the software side to do it in compliance with all the regulations it’s just we’ve never been able to get a customer to agree to it. Even all the “chief appraisers” that we’ve talked with this about like the idea at first and then when you start getting into what it would take and the amount of trust they would need to give us when it comes to this they always back out and typically push it off to “sales won’t agree to it” type response.
Within Dodd-Frank there are two ways to go about being in compliance with the customary and reasonable fee provision. One way is based around a fee survey model which you would survey all the appraisers in the industry and then pay them what the survey says for each product within each market. Then theres the fee plus model which would be based on what a particular appraiser sets on a case by case basis for that report. The fee plus model is simple, you’d take the appraisers fee in the market and then add an appraisal management company fee on top of the appraisers fee. So for instance if the appraiser is charging $350 and the appraisal management company charges $100 to process the order the total fee would be $450, in which $350 to the appraiser $100 to the appraisal management company. If another appraisal was done and the appraiser charged $450 the total fee would be $550 in which the appraisal management company would still get paid a flat fee of $100 per order regardless of what the appraiser charges. From an appraisal management company side, this is an awesome deal, if we could know and budget that we would get paid $100 on every file no matter what then I’d be more then happy. Believe it or not for all the negative stuff about appraisal management companies taking fee’s from appraisers and paying them pennies, the reality is that most of the time lenders have set service agreements that we can only charge so much in a certain area regardless of how much the appraiser wants or how complex the property is. It’s sad but sometimes we make nothing on files. Also the funny part about the fee survey or the fee plus is they are all essentially an add on to the appraisers fee, its just a matter of do you want to do it on a micro or macro level. I believe that a micro level makes alot more sense as you’re able to drill down much more to the specifics of the market.
But back to fee plus model, that simple formula works, and is something that we would love to do. The only issue is that fee’s would vary on every assignment and then what happens when an auditor says “you did a loan in this neighborhood and the cost $475 why did this other borrower have to pay $525, and another one $400 for the same type of property?”. This is the so called $64,000 question that we can answer but its going to take alot of data, cooperation by the appraisal community and trust by the client as we are going to have to make a case on every assignment that we choose the most competent the appraiser on every assignment in context of the property, assignment type, and history with the appraiser and that the fee for the file is justified and can not be questioned on a file by file basis. This is where most lenders back down as they don’t want to have to deal with constant changing in GFE on appraisal fee’s as well as the auditors questions of why this appraiser, why this fee, why not this other appraiser and the lower fee?
The simple answer to this is that it should trust should be put in the appraisal management companies internal policies to assign the most competent and qualified appraiser every time, however they are going to need to a hell of alot of data to prove that this appraiser over this one is more competent and thats why the charge for the appraisal is not more or less but different because theres different qualifications and level of competency with each appraiser. We need to go to a client and say “the appraisal fee will be from $300 – $800 and you really can’t question us why on a case by case basis, you just have to trust we are doing our job”. When you get audited we can provide to you the “why” but the issue is giving the why as its ass signed would take more time then anyone could afford to give as its very complex algorithms and scorecards to figure who really is the best appraiser in the market.
Any takers on this?

Why Appraisal Management Software Won’t Keep You Compliant

September 20th, 2013

Your appraisal management software isn’t cutting it–and neither is your appraisal management company’s.

I want to dispel a common misconception. Despite what you hear from the appraisal segment’s technology vendors, appraisal management software won’t keep you compliant. Period, full stop. If you don’t believe me, ask your technology vendor. The truth is, appraisal management technologies can be great tools for automating processes, but compliance is about more than automation. True compliance takes an expert.

As everyone in the mortgage industry is aware, the appraisal process has changed a lot over the past few years. In the most recent news, we have the Consumer Financial Protection Bureau’s third-party oversight requirements. This is a big concern for lenders. The big focus is on the fact that it’s now the lender’s case to prove that its vendors are in compliance. But that’s the only the beginning. Lenders must also be able to prove that their processes (a) use proven predictable methods, (b) can identify issues, and (c) proactively prevent those issues from happening again.

Thanks not only to the CFPB, but also to the Dodd-Frank ActFannie Mae’s appraisal independence requirements and the Uniform Collateral Data Portal, not to mention numerous state and federal regulations, there is simply no way for lenders–or AMCs–to get around having a dedicated program for ensuring a compliant appraisal transaction.

Some of you may be thinking that you’ve been doing just fine with your appraisal management software. While anything is possible, it’s more likely that the reason lenders are “doing just fine” is simply because they haven’t been through an audit that indicates otherwise. Yet.  

It’s easy to get tempted into believing that it’ll be easy to manage the appraisal process yourself, especially now that appraisal management technology vendors are offering their systems as a Software as a Service type, where you can buy software off the shelf and implement it quickly.

The idea is that if you take the appraisal process internally, you will have a better overall appraisal process, while still maintaining some control. But this is overlooking one very important detail: a strong appraisal process requires experts, not just someone who manages technology. Generally speaking, a self-managed appraisal process is not ideal, nor should it be looked at as a long-term option.

Are there are exceptions to the rule? Yes. However, I don’t know if I’ve ever seen one. I’ve spoken with hundreds of lenders and banks–both customers and non-customers–and I’ve never heard of a self-managed appraisal process working long-term. Every lender we deal with, that has tried to manage the process on its own, has ended up outsourcing to an appraisal management company. The reason is simple: it’s more effective, efficient and compliant. Those are their words, not mine.

The reality is that no one–not even an appraisal management company–is capable of being compliant with software alone. Thinking that an appraisal management software will make you compliant is like expecting Microsoft Word to make you a Pulitzer prize-winning author. Microsoft Word can give you the vehicle to convey your story, but it takes a lot of skill and dedication to write well enough to win the Pulitzer, just as it takes a lot of skill and dedication to be compliant with all appraisal regulations.

If lenders expect to be 100 percent compliant, they’ll need a serious compliance program that includes quality control procedures; internal audit procedures; an internal appraisal and valuation audit system; and a host of compliance systems that keep close tabs on potential customary and reasonable fee issues, quality issues, USPAP violations and appraisal fraud. If you’re missing any one of these ingredients, your system is not going to cut it.

There’s also the issue of appraiser independence. The guidelines state that lenders must establish “absolute lines of independence.” That “absolute” part can mean the difference between smooth sailing and a costly compliance violation. The practicality of a small regional lender or even a midsize national lender establishing “absolute lines of independence” while keeping their appraisal process in house is not realistic.

To be 100 percent compliant with this regulation, the lender would have to set up an entirely new office with a manager, staff appraisers and processors. Most mortgage companies that manage their appraisals in-house are not nearly as equipped or trained as the code requires and typically end up rushing processors into ordering appraisals.

If you’re wondering why this hasn’t been much of an issue lately, it’s because most lenders have not gone through audits with FHA, Office of Thrift Supervision and investors. When this does happen, how are they going to prove that they have maintained “absolute lines of independence,” when the appraisal department is in the same office as the processors and production staff, who are interested parties?

Using an independent third party to manage appraisals provides an extra layer of protection against collusion, which in turn increases investor confidence. There are also the benefits of reduced cost, and enhanced productivity among processors and loan staff, who can stop being concerned with the appraisal process and start focusing on higher yield activities.

There’s no way around it. When appraisal services are handled in-house, overhead costs get higher when production increases, but when volume dips, layoffs become inevitable–after a period of covering the costs of being overstaffed, of course. If volume spikes again, companies are then forced to rehire staff. It’s easy, especially when there’s a revolving staff door, to fall into the trap of quickly assigning the appraisals rather than taking the time to have them done right. Most appraisal companies, on the other hand, have economies of scale, which allow more orders to be done faster and more efficiently than any in-house process.

There’s no excuse for risking these compliance violations, particularly when shifting the appraisal process to an independent third party is usually free to lenders or at least at a heavily reduced rate.

Outsourcing the appraisal process brings consistency to your quality levels, turnaround times and overall costs, regardless of volume. Conflicts of interest will vanish and variable costs will turn into profits. Your third-party appraisal management company can answer any investor questions, just as it can take care of any errors, should they occur.

Adopting a truly independent appraisal process helps ensure long-term success, allows for future growth and makes it easy to maintain positive relationships with investors. That’s something that an appraisal technology just can’t do.