13 Mar Appraisers and Management Companies–An Uneasy Relationship
Appraiser’s and Management Companies: Co-operation or not? The new reality for real estate appraisers is they have to deal with management companies. Over the past five years, these companies have secured about ninety percent of all appraisal volume. This was not always the case.
In past years, appraisers, managed their own volume and accounts directly with lenders and mortgage brokers. This gave the appraiser more control over his or her appraisals, and effectively gave them much more management control with their business. Although this took more time away from their appraising; on the other hand, he gave them a sense of control, and allowed for greater freedom and flexibility in their business practices.
Most appraisers do not like management companies. These can be in personal, and the inflexible in terms of what they ask and require of appraisers. In addition, the fee structure for most residential and commercial appraisals is rigid and inflexible. Appraisers have complained for years to the governing agencies that management companies take a high percentage of the fee for doing very little management.
The fee structure is typically 60 percent for the appraiser and 40 percent for the management firm. However, these firms do not do forth percent of the work. Essentially, they are the middleman, the interface between the lenders and brokers and the appraiser. Their function is really nonessential. All they really do is give the appraiser work and cut a large percentage of fee.
They also pushed turnaround times for appraisers to a new level. This tends to alienate the appraiser from the management company. This causes a lot of stress and friction in the appraiser’s business because they are not allowed the flexibility in turnaround times that they are used to. Management companies also apply incidental costs to the appraiser.
These include a ten dollar fee for using web-based portals for appraisers to send in their finished product. Management firms also push exacting appraisals. These are appraisals that in days past would have passed any kind of review or underwriting. However, in today’s market these appraisals are highly suspect to the management review teams.
This causes delays and hassles for the appraiser to finish the appraisal. Appraisers must waste precious time fixing problems that are created by the management teams. There are approximately 200 appraisal firms nationwide. These were created as a result of Dodd/Frank legislation which allowed the largest banks to be in control and micromanage the process of appraising.
Ever since the 2008 financial crisis, appraisers, it seems, have had an uphill battle against the largest financial institutions. This has resulted in many appraisers leaving the profession, or at least downsizing their business to more reasonable and manageable standards. There is a lot of anger among appraisers, however, very little recourse in remedy the problem at hand. There are organizations of appraisers that exclusively work on this problem.
They are trying to get consensus among appraisers as to how to approach the problem. They use statewide legislative tools and initiatives to try make changes in their industry. There has been slow progress, but at least there has been some progress. In several states there are currently initiatives in the legislative body to make changes to the way management firms interface with either single appraisers, or appraisal firms. progress is very slow and uncertain.
There is pushback from the largest lenders and some of the larger management firms. They now wish to lose control of what they’ve gained. The status quo seems to be just fine for them, but it is pushing the little guy, the smalltime appraiser to the margins of business. It is not practical for to only use the services of management firms. They must try and recruit or make new efforts to find different business and different clientele.
This is harder than it seems, as the management companies have a firm grip on most of the appraisals that are completed in this country. They do not seem to care to negotiate with appraisers. Appraisers have very little clout, and management firms know this. Until this is rectified, the appraisal profession will continue to be downgraded, and until enough appraisers leave the profession to cause alarm in the lending community.
At that point, there will be discussion about going forward. But not to let happens. That’s what is an appraiser supposed to do with low fees and unreasonable turnaround times, and the management company’s insistence on complying with unreasonable standards. Many appraisers have opted to take an early retirement from real estate appraising. This is a reasonable option, if one is older in years and has been appraising for many years.
However, this is not the case with many appraisers. Many appraisers have financial obligations, families to support, and a business practice that has built up over the years. These cannot retire, and have chosen to either comply with the management company’s grip on the appraisal industry or fight the process. This pushes the appraiser at both ends of the spectrum. While fees get lower and lower, appraisal turnaround times, get higher and higher.
Management companies have no loyalty toward any appraiser. In past years, mortgage brokers and lenders had at least a tacit relationship with the appraiser of their choice. This would include some level of friendship, and an honest understanding of the appraiser’s business, and respect for the appraiser and what they do. These were considered to be the good old days by appraisers. You can talk to your lender or broker directly and address any questions they may have. You got the sense of respect for them, and they respected you.