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?