BRAIN C. COESTER'S BLOG
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Posts Tagged ‘ Appraiser Fees ’

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?

Customary and Reasonable Fees – Not so Customary, Not so Reasonable.

September 19th, 2013

One of the biggest topics in the industry is customary and reasonable appraiser fees. The theory is that the appraiser should be paid a customary and reasonable fee for their specific market area, which may vary.  With this, I agree 100%.   Appraisers should be paid a fair fee for their work based on the specific market area conditions, and doing so will greatly benefit the industry. This, however,is a concept that is far greater in theory than in reality.  I believe that this regulation is somewhat of an unattainable ideal as there seems to be nothing that would allow this on a day to day basis from a practical standpoint.

Here’s why:

  • It was never meant for the appraiser to be paid a customary and reasonable fee.

The term “customary and reasonable fee” is widely used in legislation, medical, insurance, title, etc. – almost all consumer facing industries have some form of customary and reasonable fee language. This is intended to prevent the borrower or service provider from getting ripped off. So, if an appraisal is typically $450 dollars in Rockville, Maryland a lender can’t charge the borrower $1,500 without. Thus the fee must be customary and reasonable, within a normal justifiable range. Let’s say $350 – $600 would be reasonable for the area based on what the lender has previously charged for loans, this has nothing to do with the appraiser. If you listen to a talk that GlobalDMS had during its Global Tech Summit, one of the senators in attendance even admitted to just “throwing it [the language] in there”(The video is no longer available their site, however).

  • Lenders do compete on fee.

Have you ever been on bankrate.com or any other appraisal industry-based site? You will see that all of these have the appraisal fee as one of the options and line items for the quote (side note: I, personally, don’t like the idea because a lot of other fees aren’t included; however, they’re there and need to be dealt with).  Also, remember that the appraisal fee is the only thing that is paid upfront.  Everything else is paid at closing. The appraisal is basically an application fee to see if the borrower actually qualifies for the loan. The appraisal is a big piece of the pie that’s more costly in comparison to the credit and flood, and lenders absorb the cost and pass it on at closing. This is why AVMs are appealing or zillow.com is appealing – even though it’s not accurate, it doesn’t cost an exorbitant amount to get an idea of what the value of the property is. That is particularly important for a mortgage office that’s trying to convince a borrower to go with them as opposed to a competitor. The reality is that a borrower is going to talk to multiple lenders hence the appraisal fee is a factor and the lower, the better. This is why a lot of national lenders have a flat fee either nationally or by state, it makes it easier not only for loan officers to quote fees but also for everyone to streamline the entire appraisal process so that there’s not a lot of back and forth.

  • A fee plus model won’t work.

Some appraisal management companies say they operate on a fee plus model, and let the appraisers charge whatever they want.  The reality is that they do not and cannot, regardless of what you,they, or anyone else might think.  How much is the appraiser making?  Less than what the appraisal management company is charging, and that’s pretty straight forward.  Now, I do admit there are some better models out there. I like our model, in which we allow a vendor to set any fee that they want and then we set a minimum profit per file that you must be eligible for. We don’t assign the file based on fee alone but rather competency and accuracy with a fee set at a minimum. The fee plus model would mean that the appraiser sets their fee at a price, let’s say $350, and the AMC would add onto it with their fee, let’s say $100, as the additional amount of money. This on a one off basis sounds great.  All the same, when you really think about rolling out a national platform with some consistency in pricing it doesn’t make much sense for any lender or AMC to agree to this. That would mean almost every appraisal having a different fee and, on top of that, assigning the appraisal and getting the price before charging the borrower’s credit card which might cause huge business process issue. Furthermore, it would be nearly impossible to sell to a borrower. A loan officer isn’t going to be able to sell “We don’t know what the appraisal fee is yet, but we will find out soon enough!”  Anyone who has been in commission sales knows that will not work, especially when another company can easily say “It’s going to be this exact amount as we don’t do fee increases,”(our model).

  • There’s always a loophole.

Lets be honest here, there are plenty of loopholes in any legislation, and the appraisal legislation has many.  Most appraisal management companies use the old “If you agree it’s a customary and reasonable fee…” but this is a cheap shot at the appraiser as it isn’t really anything other than some added text.  Some companies have improved by allowing the appraisers to set their fee, sometimes on top of displaying the average fee set by a vendor. Despite this, as long as it’s left up to a few pieces of paper stored at your local government office, it’s not going to be respected 100%.

A Solution:

“Customary and reasonable fees” are really a way of the industry saying that they’re being fair, when in reality the appraisers are dealing with hell trying to fight for a fee. The simple solution to this issue is to remove the “customary and reasonable fee” completely and have the state AMC legislation set the appraisal fee for the state, not the county. The fee would then be a mutual agreement upon an appraisal management fee with the board (which should consist of appraisers and AMC owners, perhaps a few lenders and builders, but no realtors). This way, it’s really simple – the appraiser gets paid what is reasonable for the state, the appraisal management company has a built-in profit, and the lender and builder have agreed that it’s reasonable as well. This ensures that at least everyone is heard, which is something that the appraisers have not had in a very long time (possibly ever).  It would also eliminate any loopholes besides those of staff appraisers or mutually agreed upon volume discounts.  The title industry has successfully adopted this concept for set title charges, so why not apply the same within the appraisal industry? The appraisal industry would then have a model that would be sustainable for appraisers and appraisal management companies, which are here to stay.

 

Thank you,

Brian Coester