AppraisalNEWSCAST.com

With appraisal compliance being a must for companies originating mortgages, there has been a spur of Appraisal Management Software that has come out recently for mortgage companies trying to both manage the process internally and outsourcing the process to an appraisal management company. Both software and hiring an appraisal management company are viable options, depending on the business model; however, most of these software programs are overpriced, which makes it difficult to do business and doesn’t make sure an appraisal is compliant or an effective appraisal process is executed.

Software is not a solution but rather an aid to help in the compliance process. Having the right software with the right management team and the right appraisers is the solution. Thinking software is the solution would be like buying Microsoft Word and thinking you will be a bestselling author because you have good software. The software itself is to not to ensure performance, but rather as a tool to support an excellent business process. With all the recent regulation changes, there has been a spur of new start-ups trying to capitalize on this new opportunity. It seems as though with all the extra regulations it would make sense that new technologies would emerge and solve all the lenders challenges associated with ensuring a compliant appraisal process. The truth is, most of the technology required to become compliant has been around for years well before the HVCC Requirements and all the appraisal regulatory requirements.

It looks as though it’s similar to the Dot-Com boom where every company stockpiled IT professionals, only to realize that they overstaffed and then got rid of them all. What I am more surprised of is the success of some of these companies when I don’t get the value they add to the appraisal process or the compliance process for the fee they charge. The truth is most of these portals and systems are a waste of money and are much more of a “buy this because you don’t know any better” type of deal and not the best solution for the client and the business model.

What I have put together is some dos and don’ts for appraisal management software as well as appraisal compliance.

DO - Hire an appraisal management company for your compliance. Appraisal Management companies add tremendous value to the overall appraisal process and can do much more than what any software can. You are essentially getting their technology, ability, and staff for free. They will typically bear all the integration and set-up costs and also have their own software and vendors. They make their money by negotiating a fee with the appraiser and typically will pay the appraiser 70 – 90% of the appraisal fee and use the rest to fund their business.

DON’T - Use any software or management company that requires the appraiser to pay a fee for delivering appraisals. There are several services that require appraisers to pay $6 – $20 per order for delivering the order to the appraisal management company or the client. Delivering the appraisal is the simplest and easiest thing for appraisers to do and paying a fee for this is just making the process more difficult. These services need the money upfront but don’t do anything to pay the appraiser or make sure payment is made. The appraiser is essentially paying to do business and the cost associated with “uploading” the report and delivering to the client do not cost anywhere near $6 – $20 per order.

DON’T - Use an appraisal management company or any software that requires the appraiser to pay a fee for sign-up. Having a vendor sign-up takes about 2 minutes and there are almost no costs associated with this. Any software company or management company charging a vendor to sign-up to begin receiving work is out for your money and not in your best interest. Not all of the appraisers have the money to sign-up and overall, it leaves a bad impression on the appraisers as they have to pay to receive work.

DO - Allow the management company or the mortgage client to pay a small fee for managing the data and for the software itself. Some companies offer subscription based service and others offer a small per appraisal transaction fee. The total fee at MOST should be around $10 per order for both the appraiser and the client.

DON’T - Allow them to charge upfront fees for set-up, programming or anything along that line. The truth is that there is minimal cost associated with setting up a new client and they should be very eager for your business and not your money. When negotiating, tell them that you aren’t 100% sure that you’re even going to use their platform permanently and will not pay the set-up charge as you want to make sure their performance is up to par. If anything you should ask for a free trial or half price so you can get a feel for the system and the way they do business.

DO - Pay for them to integrate your system. Sometimes appraisal management companies or software companies will offer to integrate free in exchange for a contract or longer agreement. If the numbers are close, opt to pay out-of-pocket or a higher per transaction for the specific amount of time and the lump sum later. The reason is because you want to make sure that you are going to like their system and like the way it works before you make any long-term commitments to both the client and the service itself. If they handle the integration like professionals, then it’s a great sign of the quality of the company and they should be great to deal with. If the integrations are costly (over $5,000) and are constantly delayed, this is a direct sign of how they will handle any problems that may occur. The way a company handles special requests is typically a good sign of the experience and overall quality of the business as they aren’t simply “stamping” out everything.

DON’T - Use a system that requires a special plug-in, file format or extension. It seems as though everyone wants to make everything complicated, so there are multiple file formats, extensions and delivery portals that some software and management companies require. These portals would make sense if it was optional and essentially you were delivering from your desktop instead of an e-mail or website; however, some of these systems require the appraiser to buy a special plug-in to deliver the appraisal in a special file format to be delivered successfully. This way of doing business makes it harder and you are essentially putting another barrier between yourself and the last delivery of the product. PDF format and upload or e-mail is the standard format and should be the standard format across the board for all orders. Things like AI Ready, XSite, AVI, XML and other platforms are just going to confuse appraisers and delay the process, because not everyone has the same software or same knowledge on computing. Most of all, you are going to significantly cut your options for qualified appraisers especially in rural areas where you might only have 5 appraisers within a few hundred miles and tell you want an AI Ready, XML File transmitted through your data portal is not going to happen. I know this from personal experience. Again, a report in PDF format delivered through e-mail or by uploading to a website is about as complicated as the delivery process should get.

About Coester Appraisal Group
Headquartered in Gaithersburg, Maryland, Coester Appraisal Group has been providing quality real estate appraisals since 1970. Clients that depend on Coester’s appraisals, BPO’s, AVM’s and property valuation tools include banks, credit unions, mortgage companies, hedge funds, attorneys and government agencies. Their experienced staff provides a quality valuation completed in a timely manner with a correct estimation of market value. Each appraisal is manually reviewed by a staff appraiser for quality and compliance with lender’s underwriter guidelines and is certified HVCC and USPAP compliant. For additional information about the company and its services, please visit their website at www.coesterappraisals.com

About Brian Coester:

Brian was introduced to the appraisal industry at a very young age. He has studied the industry in depth and is an advisor and consultant for mortgage companies for both the primary and secondary market. He has taken Coester Appraisal Group from a local residential appraisal firm completing appraisals in the Washington D.C. metro area to a highly respected national firm with well known clients throughout the country. He is also the chairman of ValueSafe: a Collateral Risk Management company that handles reviews and due diligence for banks and hedge funds. He is a former college football player who studied at the University of Tennessee as well as the University of Maryland College Park where he majored in business and finance. He is currently a practicing martial arts enthusiast and mixed martial arts fighter.

http://www.appraisalnewscast.com

http://www.twitter.com/bcoester

National Appraisal Company Vs. Self Managed Appraisal Software

Set-up Cost

AMC:
Typically Free Set-up, No Monthly Cost or overhead expenses. Only cost typically would be cost of integration(if even needed). Most appraisal management companies are already integrated with key tech companies like Real EC and FNC so it essentially becomes a plug and play.

Self Managed:
Initial Set-up can go from free to $10,000 or as high as $200,000 depending on size of business. Overhead is an issue as costs don’t fluctuate with volume.
Vendors Typically national appraisal firms will have an extensive list of “paneled” appraisers they use frequently. Some may have staff appraisers that work just for the company or contract appraisers that have been working with them for years. Adding or removing appraisers is relatively easy however if they are on staff fit could oppose a problem

If you are just getting started and don’t have a list of quality vendors this can be very time consuming and frustrating experience. If attempting manage a national fee panel it can take several years until relationships are established in all key markets. A benefit is that if you only cover a very small area and only have a few appraisers you can easily manage the panel. Adding or removing appraisers is easy.

Appraisal Cost :

AMC:
Usually the same as what a normal appraiser would charge. Sometimes fees can be higher to cover the cost of paying the appraiser as the company does need to make some money off of the appraisal. Depending on volume fees can often be negotiated to a “flat fee” nationally or at least by property type. This can be greatly beneficial when quoting appraisal fees to borrowers.

Self:
Appraisal fees are what the vendor wants as it is going directly to them. Given that typically your orders will represent only a small percentage of the appraisers business and thus fees can sometimes be a little tough to negotiate. This can be challenging when trying to quote fees in multiple states.

Turnaround:

AMC:

Competitive turnaround, sometimes can be delayed a few hours or a day due to internal review’s and QC Controls. The benefit of having the appraisal reviewed by a staff appraiser before it gets to the underwriter is a value added benefit. Most AMC’s will have a licensed appraiser on staff which can easily cost 100k or more a year.

Self

Usually standard for the industry the only negative is if you panel gets busy you might be stuck waiting longer to get appraisals done and adding more “new” appraisers can be a shot in the dark. Unless a staff appraiser is there to review the appraisals the underwriter sees the appraisal first and will responsible for QC Control as well as panel management due to them being the only person who is qualified to appropriately review the appraisal.

Quality:

AMC:

Appraisal quality can vary from company to company and appraiser to appraiser. A good appraisal management company will ensure the appraisal is done properly and the value of the property is reflective of the subject’s market area and marketability. If there is a problem with the quality of the appraisal the appraisal management company will very often have access to the MLS the appraisers use as well as the ability to review the appraisal from an expert standpoint and communicate potential issues. Most AMC’s will order a second appraisal free of charge if the appraisal is poorly done.

Self:

Quality will be very similar with hit or miss appraisals. Unless a review appraiser is on staff going back to the appraiser to get something changed can be challenging as your not speaking the appraisers language. If there is a second appraisal that needs to be ordered this would be at a direct cost to the company and can become a big expenses on top of the overhead.

Scalability:

AMC:

Most appraisal management companies companies can handle upwards of 5,000 appraisals per month and new vendors can always be added. With technology portals like Real EC and FNC rotating 5 or 6 vendors can be easily done and the scalability is essentially limitless.

Self

This can be as small or as large as needed. The more orders obvious the more staff. If significant volume is done (100 or more). Staff must be added as things get more busy a full office with 30 – 50 people may be necessary which is a direct expense of the company.

How quickly you can switch:

AMC:

Depending on the set-up or service level agreements in place. Switching can take a day or until the contract expires. Either way it can be done relatively easily and with all of the appraisal companies competing for your business you can have the pick of litter.

Self:

This can be overnight but then your stuck with nothing. If volume decreases to the point where layoffs occur and then picks back up your staff may be overloaded and overall quality will suffer. If trying to switch to a third party vendor there can be some lag time and overall frustration with the switch as well as a moral shift since layoffs are occurring.

Coverage

AMC:

Most Appraisal management companies cover the entire united states if the companies is only regional multiple companies can be approved to ensure full coverage.

Self:

To have a panel the covers the entire united states will take a relatively large staff. Unless your volume is over 1,000 per month its not practical to have staff on board to have legitimate full coverage.

Service Level

AMC:

Since you can approve multiple appraisal companies. You can have them compete against each other for work and for quality. Matrix’s can be in place to see who gets the most orders and can cause heavy competition among vendors and thus better service.

Self:

Since this would be your operation the service level would be directly reflective of what type of time and money you invest in the service.

Practicality:

AMC:

For most companies choosing a nationwide appraisal company is the most practical solution. It is relatively easy to implement and can easily be changed or custom fit to meet your companies needs.

Self:

Not practical for must companies as it is a big expenses and doesn’t add much value to the overall operation and workflow process. For smaller companies with only a few appraisers and lower volume it can be very easy to manage and maintain.

Logistics:

AMC:

With technology this is one of the easiest things to do and can very easily be implemented often within 24 hours or even less. For larger operations it could take as long as a month or more but once in full motion will be easy to maintain.

Self:

Setting the entire operation up will be time consuming since you are essentially creating a new company. it can be successfully done however is not going to be something that can be done overnight or even in a few weeks.