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Report and Analysis: Readers Respond (Read Article)

What Appraisers Say
>> “Mr. Kantorovich (quoted in the first story) is accurate in his assessment of the Cuomo deal. Pressure on appraisers will not be eliminated but shifted from the brokers to the AMCs. Quality will suffer further as AMCs require an eight-hour turnaround time and they preset appointments. It is ironic that the investigation began with WAMU and eAppraiseIT and not with brokers but that the results of this deal will benefit WAMU and eAppraiseIT.” - Keith M. Kazanjian, KMK Landmark Appraisals

>> “The proposed changes to the appraisal process are well intentioned but are the equivalent of ‘throwing out the baby with the bath water.’ While the process does need some reforming, this change appears to be an overreaction. Effectively, it will put me out of business.  I have spent over 20 years developing my business which is primarily focused on mortgage brokers.  I object to the inference that, because I have a business relationship with a broker, I would be inclined to compromise my values and professionalism. This proposed new regulation is the death knell for the small independent appraiser.  No longer can I market my business.  No longer can I set my fees. I now have to wait, like the Maytag repairman, for my phone to ring. I will be contacting my associations and members of Congress to see what can be done to salvage the future of many appraisers.”- JR Durette, Durette Appraisals, Inc.

>> “I have been an appraiser for 19 years.  I left the fee side in 2000 in part because of the ups and downs in the real estate cycle and in part because of appraiser pressure. In mid 2003, I left a secure but unfulfilling job with a local city assessor's office to become a staff Appraiser with (a bank). While I am glad to see that the issue of appraiser pressure is finally getting the attention it deserves, from my viewpoint, the deal brokered by Andrew Cuomo ‘throws out the baby with the bath water.’

“I joined this bank because I was assured that pressure from loan officers would not be a problem.  The program the bank has developed over the past four years lets me do my job without any pressure from loan officers or their managers. While there are procedures in place for a loan officer to contest my value, those procedures do not put me in direct contact with either the loan officer or a mortgage broker/borrower.  I have personally been witness to sales renegotiated to my appraised value. Ladies and gentlemen, that is the way the business is supposed to work.

“Our appraisal department model lets me do my job of valuing real estate without fear of retribution. As a staff appraiser, I get first shot at the next assignment, regardless of the value I put on my last appraisal assignment. Hopefully, as time passes in the next few months, cooler and more knowledgeable heads will prevail and realize that staff appraisal departments, if set up correctly, can be part of the solution, not part of the problem.” - Jim Jaworowicz

>> “I lost my job today because of this! I had my own appraisal business for 10 years and closed it almost two years ago to take the manager job of an appraisal department at a local bank. We do honest, ethical appraisals and protect the bank and the investors. Yesterday they fired me and today I had to fire the other four people in the department as our bank is now ‘getting out of the appraisal business.’ This is not going to stop the fraud. They will still get ‘figure-for-a-fee’ appraisers. Now my bank is going to be getting lesser quality appraisals and I lost a very good job.” - Greg Berry

>> “I am deeply discouraged by your characterization of this legislation as a positive development for appraisers. I am self-employed and have built a strong business for myself over the last four years. If I can't go out and sell myself and my services, I will go out of business.  This over-reaction is uncalled for and short-sighted.  If the ‘highlight’ of this legislation bans mortgage brokers from contacting appraisers, I am at a loss.”  -Matt Couch, Couch-Slocum Appraisals, LLC

Good News/Questions

More on AMCs

>> “I have been appraising 17 years and I am very impressed with the crack down on lenders and AMCs. I wonder if there is any provision to prevent AMCs from dictating unrealistic turn times, such as 24-48 hours? I think appraisers should have 10 business days after accepting an order without the constant phone calls, faxes and emails. This is part of the pressure problem that creates sloppy, rush appraisals.

“It seems to me that the amount of business you get is directly related to turn times and this is caused by AMCs that win contracts with the national lenders by price fixing and guaranteed turn times. No AMC should be able to dictate fees.

“AMCs have grown dramatically over the years gaining too much wealth and power off the hard work of the appraiser by cutting into the appraisal fee when it should be a fixed additional expense charged to the lender. It should have nothing to do with the appraisal fee. I learned that third party ordering does not change what is going on. One day I wondered why suddenly I was not a “preferred appraiser” of an AMC that I had been working with for years, doing $50,000 of business in 2005. I was told it is not the AMC I was not preferred by but the loan officer at the bank, whereby it became the policy of the AMC to use the loan officer’s preferred appraisers. I believe some of my appraisals came in lower than the lender needed which resulted in my losing the business. This has happened more than once. I’m not sure how things will get better but I’m hoping that one day I can actually be an appraiser without all the BS.” - Name withheld

>> “Your article addresses my concerns over the empowerment of appraisal management companies and their excessive skimming of appraisal fees. One of my largest clients transferred appraisal assignments to (an AMC). The lender charges an ‘application fee’ of $395 which covers the credit report and appraisal fee. Since there is no set ‘appraisal fee,’ the management company skims almost a third off the top and tells the appraisers to either accept it or find other work. Since they are about 40 percent of my business, I would have to let several appraisers and office staff go if I didn’t accept their lower fees. I pleaded with them to only take 15 percent but they have the power and they called the shots.

“My experience with appraisers who can operate on tighter margins (who can work with AMCs as your story suggests) are shops that have only one or two licensed appraisers and maybe five to 10 trainees who are paid less than 35 percent of the gross fee or just above minimum wage in return for getting their ‘appraisal experience and guidance.’ The trainees do all the work and the shop makes its profit from the quantity of work they provide. These shops do work almost exclusively for management companies that pay $180 for a URAR and simply use the trainees as slave labor and do not promote them to get their license. It’s either that situation or it is an individual with little experience who works out of their bedroom and has basically no overhead.

“Don’t get me wrong, I do not fear competition but this scenario promotes appraisers to cut corners in order to do the volume. I am currently hiring one such trainee from a shop like what I just described and I am amazed by how little this guy knows after three years of ‘appraisal experience.’  My point is that in order to keep our quality high I think we should be able to have a fair competition for higher fees or risk losing good appraisers.

“Lastly, concerning the lender pressure for values, I’ve been in business over 30 years and have not had that happen (at least not from a repeat client) in quite some time. There are quite a few lenders who just don’t do that and I guess I’m lucky that I have the ability to fire any client who makes this an issue.” – Name withheld

>> “While many points of this settlement are laudable, dealing with an AMC is definitely not a pleasant option.  In the past they have been willing to pay, typically, $150 to $175 for an SFR report that they then charge the lender $400 for.  First they take the lion’s share of a typical $350 report (for instance) and then add their ‘management’ fee to the report cost.  And somehow this is a benefit to the borrower. They do absolutely nothing beyond collect the names of appraisers, get appraisers to bid on an assignment for which they often do not have the property address beyond the city it is located in. That property can be a cookie cutter or a very high end custom home. These reports do not require the same degree of work or due diligence. In short, they take a potentially good product and reduce it to a commodity which, in many cases, is done by a trainee and has about the same value as an AVM. The same AVM valuation they profess to be improving upon. 

“If this continues in the direction it is going I see the day five years or so in the future when we will have another complete debacle and appraisals will, once again, be the root source of all the problems. If there are to be AMCs, then their fees, added to the report cost, need to be controlled and fully disclosed to the lender and borrower.” - James Taylor

>> “I think that Kantorovich's comments are echoed by all of us in fear of having to deal with appraisal management companies. My experience with the AMCs is terrible. I was doing appraisals, full fee for (a major lender) until they went with an AMC. The AMC offered me $250 to do the same appraisal that I was getting $400 for without them. I turned them down and had to do some very aggressive marketing to replace them. My loss of business in that period of time was well over $20,000. I don't want to lose control of my business and take a financial loss so that some AMC can increase their profits for doing absolutely nothing! 

“There has to be another way for all of this to work.  Maybe if banks and mortgage brokers should be licensed like appraisers are, and attend the same USPAP classes like we do and stand to be disciplined like we do, then maybe our present system might work. I think Cuomo's appraiser independence agreement should be called the ‘Appraiser's Loss of Freedom Act!’  - Jim Meeker, Northwest Home Appraisals

>> “One thing you failed to comment on was the elimination of appraisal management companies associated with lenders. The legislation specifically calls for the closure of these companies. Why was this overlooked in your article? What I read seems really clear; that no ownership what-so-ever of the management company shall be associated with the lender. These companies will have to be completely separate. Further, the legislation seems clear that the management companies should be shut down because as everyone knows they are skimming fees and not disclosing it to customers. They have sacrificed quality in search of making a greater profit. Further, they make their fees based on values- if the home is over $500K, the fee increases. This is a violation of every appraiser’s certification.”– Name withheld

“Large appraisal management companies are only going to be more of the same but with more annoying rules and BS. They cannot have any financial stake in the appraisal process or else they will drive down fees to maximize profits for their own company. Charging a client $750 for an appraisal and paying the appraiser $200 to do the work is NOT what we are looking for. We need competition in the marketplace, not competition inside a management company that has a monopoly on the all available work.”- W.R. Buchanan

Real Estate Agents?

>> “What about real estate agents? On refinance loans, the pressure does come from lenders to hit a value and this legislation appears to target that source. But the one key source of lender pressure that has not been mentioned or addressed is real estate agents. When an agent steers his/her client/purchaser to a bank or broker, the last thing the agent wants to hear is that the value is coming in low. It can be especially embarrassing for a ‘buyer's agent.’  So what happens next?  The agent pressures the lender to make sure the appraiser will play ball or the agent will find a lender who has better control of his appraiser. If the lender supports his appraiser, then the agent will find another lender.  Thus, it’s the agents who are the real source of lender pressure on purchases.

“I was taken off a list by (a lender) because I came in low on a townhouse. The agent, a good producer in the office, wanted me to go to a golf course community to get comparables when there were two in the neighborhood that supported a lower value than the sale price. The in-house lender sent me an email stating that if I could not get the value, she could not use me because the agents in her office would not use her. Needless to say, that lender has not used me since. 

“Banks and lender broker business are connected to the real estate agents. If agents aren't happy with a bank or broker, they will find one who can make them happy. When a house is over-appraised at the point of purchase, it’s all down hill from there as it spills over into the refinance loans. This legislation, which I consider a dramatic over-reach, address the middle and end players but does nothing to address the primary source of value pressure- real estate agents.  In order to be on an agents ‘team’, which includes lenders and appraisers, you have to know how to play team ball and know how to make the coach successful. Why do you think appraisers actually market to real estate agents? They want to be a starter on the agent's team. Can you imagine the conflict that would take place if someone actually challenged and included the agents in lender pressure and the home lending fiasco we have now?” - Randy Bennett, Bennett Appraisal Group

More Dark Side
>> “Unfortunately, I must agree with the comments expressed in the “Dark Side” section of Fannie/Freddie, Cuomo Agree (WorkingRE.com-sidebar). By forcing appraisers to work solely with middle-men/management companies, our fees will be substantially less, which will then lead to it becoming no longer a viable income-earning profession. Who wants to work the long hours we do for peanuts? That will result in the good/professional appraisers having to exit the industry and the quality of appraisals will subsequently decline, thereby voiding the intention of the legislation. 

“The solution is so simple to me; how about the lenders improve their underwriting departments? I can spot a fraudulent appraisal very quickly by taking a five-minute scan of the local MLS. If we could simply expose and remove these appraisers and their related brokers, the industry would greatly improve. Why turn appraising into an industry where customer service, marketing, and the ability to earn a decent living are rendered useless? I am very concerned and disheartened that my appraising career might be taken away by a politician looking to make a name for himself and Fannie Mae/Freddie Mac looking to avoid an investigation into their practices. This is a shame.”  -Greg Schnetz, Parkside Appraisal Services, Inc.

>> “The article makes it look like appraisers are happy with the new rules. They are going to be real happy when no business comes in. At least the mortgage brokers are business minded enough to know that it is an issue.” - Phil Kantorovich

>> “The proposed rules for ordering appraisals will be a disaster. Appraisers who have spent their whole careers building a good reputation and developing a business will lose their business overnight by edict. Fees will be cut dramatically by appraisal management companies. The only people who will benefit will be incompetent appraisers who now have little business. This proposal amounts to the socialism of a profession, i.e. a redistribution of business from those who have earned it to those who have not, without solving the problem of lender pressure on appraisers. Many appraisers get business and referrals from many sources because they are competent and honest. That will disappear with these rules, which will essentially destroy the appraisal profession.” – Jeff Smith, Pro/Appraisal

>>”I am very worried about being able to continue supporting my family if I have no control. I spent years building up my business and now to have someone say, 'oh sorry we are now going to control how much business you get' is just wrong! What's going to happen when we appraisers go into foreclosure on our homes because of their decision? I agree that the brokers and appraisers should individually be reprimanded. There are honest, hard-working appraisers who are now going to be punished when all they've done is work hard and be honest.” -  Stacey Hensley Northcutt – Divine Appraisal Services

>> “‘Appraisers have much to look forward to.’ Are you kidding? AMCs have much to look forward to! This will create a secret price war among appraisers nationwide, with the AMCs benefiting. The liability is way too high to be paid the peanuts offered by AMCs. My income has plummeted over the last four years because I am ‘honest.’ The dishonest with the deep pockets will now benefit. Appraisers are the scapegoats of Fannie Mae's deal with the government. The lowly, foolish appraisal industry with no backbone to organize and form a union, now will have their income lowered to the level of a fast food worker. I operate the leanest operation possible and can barely survive with increasing costs of energy, insurance, software, classes and state licensing fees. Appraisal fees are the same as 10 years ago. Can you tell me what profession is paid the same as they were 10 years ago? It is a joke. The majority of appraisals I've reviewed are a joke. Now once again the joke is on me.”  - Name withheld  

>> “The solution to all of this hubbub is to license everyone (brokers, agents, minions, secretaries, etc.) on the loan generation side of the equation and make them keep up their licenses the same way appraisers have to, with continuing education, periodic tests for upgrades in license status, significant licensing fees and of course E&O insurance. That way everyone has the same stake in their businesses and would be less likely to broker bad loans for fear of license revocation and subsequent loss of their livelihood. - Randy Buchanan

>> “The news that Freddie and Fannie want real values is refreshing. However, some of the news I find downright scary. Allowing independent AMCs to control the appraisal process is crazy.  I received an email this week asking me to reduce my fees to $170 for a full appraisal with a turn time of three days. Their claim is that we must all work together in a time of crisis. Do they lower their fees? Not according to the banks. They are asking the appraiser to bolster their bottom line. They got the work, so they will put a gun to our heads. Cheap and fast is not the way to go. We did cheap and fast. Read the newspapers about the result. This is not the way to go.

“The other point that kills me is this: say an appraiser is banned from every bank. Now he/she can go the AMC, sign up for cheap and get a ton of work. AMCs setting the fees is price fixing.  By telling us when an appointment is scheduled we have become employees with no benefits. The AMCs want the benefits of paying us on a 1099 but treat us like employees rather than independent contractors. Most states find this illegal. If Frannie and Freddie are serious about getting it right, we need a realistic time to inspect the property, do the research and report a credible value.”  – RJ (Name withheld)

>>The following letter was written and submitted to the various agencies by New York appraiser Ken Rossman. 

I applaud the effort, undertaken by Attorney General Cuomo, OFHEO, Fannie Mae and Freddie Mac.

It has been long overdue, and had it been in place (with a few key modifications) much of the financial meltdown that is currently wreaking havoc across the country would likely have been substantially avoided.

Unfortunately, unless addressed forthwith, a huge unintended consequence will certainly drive more lenders to use independent (or thinly veiled) appraisal management companies which will result in a further weakening of an already severely damaged mortgage industry.

I have been a real estate appraiser for over 35 years. When I first became an appraiser, most appraisal work for origination collateralization purposes was controlled by banks and large mortgage banking firms. Getting on the approved fee panels of such entities was often a grueling process. One had to possess significant experience, demonstrate a deep knowledge of the appraisal process which included providing samples of a variety of different types of appraisals as well as proof of attending numerous appraisal educational courses and seminars.

Once on the approved panel, your work was carefully scrutinized by knowledgeable review appraisers. The review process never ended. When your work was questioned, it was by a seasoned reviewer who more often than not asked legitimate questions that typically only strengthened the reliability of the appraisal. As long as you continued to deliver well documented, adequately verified appraisals, you remained on the list.

Then in the mid 1980's, mortgage brokers came onto the scene. In the beginning, everything was fine - the brokers ordered appraisals through the bank or mortgage banker and the appraisals were still reviewed by the bank's review/quality control division. By the late 1980's, two significant changes began to take place - the brokers began to demand that they take control of appraisal ordering.

Eventually, over the course of several years, many of the banks and mortgage bankers caved in to the broker's demands, because of the large volume of business the brokers controlled and the greed on the part of the banks to get their share. Around 1995 or so, the second shift began with the lenders disbanding their quality control/review divisions, and hiring AMC's (appraisal management company's) to take their place.

In my opinion, AMC's have done as much or more to create problems in the mortgage industry as mortgage brokers. AMC's have drastically lowered the bar, allowing appraisers with minimal experience and no supervision to compete with those who possess many years of experience and far superior geographical competence. AMC's most often distribute their assignments strictly on the basis of who is willing to accept the lowest fees (particularly in major competitive markets) which in effect forces appraisers to cut corners, often resulting in grossly substandard appraisals. Many appraisers who routinely work for AMC's will take as much work as they can get in an effort to make ends meet and put food on the table.

I know of appraisers who do as many as four to six appraisals a day making as little as $125 to $150 per appraisal. It is a physical impossibility to consistently do that much work and not cut corners. Such appraisers routinely eliminate many facets of USPAP required due diligence. They will often forgo verification of the comparable sales, relying solely on public record and published MLS information. This means they would be unaware of any seller concessions that could significantly alter the true price that was actually paid. They will often use MLS photos instead of physically inspecting the comparable sales which could lead to a multitude of errors involving external obsolescence (proximity to commercial/industrial property) or positive locational influences such as backing/abutting parkland, golf/water view, etc.

Other AMC related problems include unreasonable and arbitrary turn times between order and delivery. Speed has become so important to the mortgage industry that reasonable time for due diligence is often not allowed. Rather than judge an appraiser on a balance between quality work and efficiency, the speed has taken over as a number one priority so that due diligence necessarily suffers. This pressure is typically applied by appraisal management companies, not by lenders or mortgage brokers. And the pressure for speed is applied both contractually and through withholding of future work.

It would be very beneficial to the public trust for appraisers to produce high quality, well documented, USPAP compliant appraisals. A viable alternative to the harmful unintended consequences that would result from pushing more and more business to AMC's would be for the banks and large mortgage bankers to put back in place an appraiser fee panel overseen by quality control (reviewers) on straight salary with no performance bonuses and completely insulated from the sales division.

This is essentially the way it was done before the advent of AMC's and Mortgage Brokers. Appraisers would have to be qualified to get on the panel and consistently deliver quality work to stay on it. - Ken Rossman

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