Tuesday, May 29, 2012

White Paper Argues for AMCs to Pay Appraisers Full Fees

Competition can lead to low prices, but sometimes when prices get too low, someone ends up paying. This is an issue the appraisal industry is facing, where appraisal management companies (AMCs) compete for clients by lowering the cost of appraisals, leading to less compensation for the contracted appraisers. In a white paper, Jeff Schurman, executive director of Leading Causes and Rick Grant, president and CEO of RGA Public Relations, listed and explained 20 benefits for AMCs if they pay appraisers full fees. “One generally-held belief is that if the AMC doesn’t provide mortgage lenders cheap appraisals delivered fast, the other guy will. The other is that they must demand discounted appraisal fees to keep client fees low. Otherwise, clients won’t see the value added by the AMC industry,” the white paper stated, which focuses on the latter of the two beliefs. While it can be argued that appraisers need to simply stop accepting the low fees, the paper explained that appraisers know if they pass on the offer, another appraiser will accept it. “Therefore, they agree to work with AMCs and harbor resentment of the terms of the deal,” the paper stated. The first benefit for paying full fees to appraisers as stated in the white paper is paying full fees would remove 95 percent of the appraisal industry’s problem with AMCs and lead the appraiser to view AMCs as legitimate business partners. Another benefit of paying the full fee is it would increase the supply of appraisers. Currently, the industry is lacking new entrants and the average appraiser is now 50 years old. After all, the paper asks, why would a young person enter an industry to make what many say amounts to minimum wage? With organizations such as the Consumer Financial Protection Bureau seeking to identify industry problems, the paper said there have been signs that disgruntled appraisers are willing to cooperate with federal and state regulators to make the environment more difficult for AMCs to negotiate, and appraisers paid a full fee are less likely to be complicit. Even if 20 benefits can be found for AMCs to pay full fees, it is easier said then done. The paper explained it is hard to sell the full fee model due to reasons such as fear from AMCs of losing clients to competitors who stick to the old model and such standardization in the industry goes against the free market competitive system in which buyers and sellers have freedom to negotiate fees. Twenty benefits for AMCs Listed in the White Paper 1. Removes the single-largest barrier to acceptance of AMC as legitimate business partners. 2. Increases the supply of appraisers willing to work with AMCs. 3. Encourages new appraisers to enter the appraisal profession. 4. Leads to better control of appraisal quality. 5. Lowers costs for recruiting, quality control, and rework. 6. Enables AMCs to gain market share. 7. Provides AMCs rationale to charge lenders for the actual value the AMC brings to the transaction. 8. Enables AMCs to provide clients quantifiable means with which to compare AMC alternatives. 9. Reduces third-party risks described in numerous FFIEC Financial Institution Letters and agency guidelines. 10. Promotes less contentious treatment of AMCs. 11. Takes the subjective “customary and reasonable” fee requirement in the Dodd-Frank bill off the table. 12. Paves the way for nationalizing AMC regulation. 13. Provides clients better overall service quality. 14. Preempts external efforts of factions to force AMCs to pay up. 15. Is the most ethical thing to do in a fair and equitable society. 16. Allows for significantly improved vendor relations between the AMC and the appraiser. 17. Reduces the risk that disgruntled appraisers will draw the attention of federal regulators. 18. Provides joint marketing opportunities because appraisers will see the AMC as worth promoting. 19. Opens the door to a better borrower experience because the appraiser doesn’t enter the home angry. 20. Opens the door for joint publicity efforts because appraisers will feel like partners. By: Esther Cho

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