Jensia, it is respectful and a wonderful way to honor your brother's service. I wish him well.

Mark, another thoughtful and excellant analysis of one appraisal business model! It is this kind of dialogue that will move the discussion further along. The model that you describe today, including the cost of the 'secretary' is to me the more intellectually honest analysis of the situation. A business owner has to include all costs to truly know where he stands and from there make good decisions about where he wants to be. As you probably know, the model you describe is the most expensive an appraisal business owner can build; one producer, one support staff. I've run my business in that model for six years, so I'm very familiar with it. I used it for a period when our younger son was in college and we wanted to support the baseball team of that university which was paying a significant part of his tuition...five figure stuff! Most of that period I reduced myself to less than a 40 hour week...as we needed mostly three day weekends to travel around to the various game locations to support the University and the team. I also threw in another wrinkle. The staff person was a young lady who was working her way through high school and then college. I wanted to help her by providing a part time job where she could set her own hours and schedule as each semester dictated. I knew it was inefficient and reduced my profit, but I had other objectives I needed the business to achieve. As soon as those objectives were achieved, I moved on to another model. That's the great thing about owning our own business, and the appraisal business in particular. It can be so flexible! I suspect you are doing the same. Good for you! We'll get to those business model implications later in this AMC series. They are a critical part of the discussion. But for now keep two points in mind. I stated at the beginning that there would be no spin. There isn't and won't be. But I'm giving my perspective from my business and my experience. That experience includes several business models I've been through (and are continuing to go through) and it includes the particular market I'm in: Houston, TX which has a very efficient county data base, one of the top MLS systems in the country, with one of the top professional Realtor Associations in the country. Those factors help me tremendously! The second point is your reference at the end that suggest I support the present fee structure. I do not. If you'll refer to the first couple of posts in this series, you'll note that I identified two problems I see in the present AMC business model. One of those was the haircut to the appraiser that prevails. We just haven't gotten to that yet...however you are helping tremendously by your last two comments breaking down your costs. The problem you personally have has solutions...if the market you are in allows for them and I suspect it would. But that's your choice and your decision...again, one of the great benefits to owning an appraisal business: within the restrictions of your market you can build whatever business model best suits your objectives.

Hello Mark. I pleased to see someone take the revenues down through the expenses and produce an estimate of the 'hourly wage'. It shows me that you take a hard look at your business to determine what's best for you. I try to expose all appraisers to that type of analysis. Good for you! Yes, I do know the difference between Gross and Net. There really are several Nets, but my example was using Gross Revenue to the Appraisal Business...that's the $245 that is a typical 1004MC from the typical AMC in my market. A few AMCs are lower...$210-225, but the typical now is $245. Clearly its different in your market. That's one of the keys we stress here...everyone's different, every market is different. So adjust my examples to your situation. However, my examples show the Gross Revenue to the Appraisal Business...I don't attempt to bring that down to a Net Earnings Before Taxes or Net After Tax because everyone handles their expenses differently. I thought my example was clear enough, but I see your point. When I used the word "nets" you could be led estray...expecially if you want to be! Your point of one appraisal per day to base your analysis upon is a good point. At that level of volume and efficiencies achieved (implied in your expense and duties noted.) AMC pricing makes no sense at all. Even if the fee is $350 (the One Off fee in my market) the average hourly net in your example is $31.25. That's $65,000 per year. Is that enough? I've done surveys of Appraisal Business Owners recently in which the data clearly shows that productivity increases significantly with volume. That's a point that we intend to discuss later in this series on AMCs....they do allow Appraisal Businesses to achieve significant productivity which can then be applied to the One Off Market. As to your questioning of my purposes, even ethics in writing this series....I've been quite open about myself and my business...when I began writing Runt Rants years ago, and I reviewed those facts again at the begining of this series. All readers know exactly where I'm coming from, and they know more about my business than I know of any of the commenters here. That's appropriate. Readers deserve to know the background of the writer. If I were paid by AMCs or the TAVMA as you suggest 'most likely', I'd have to inform the reader of that fact in order to meet my personal ethical standards. Yet you suggest that I am 'more like a mole or double agent' subversisely trying to influence with 'subtle, abstruse, deceiving, propaganda.' That last gave me a hearty laugh....I plead guilty to abstruse. Subtle...those who work with me wouldn't likely associate that adjective with me any longer. Deceiving suggests intent to deceive, and again most who work with me wouldn't associate that with me...brutally honest is more likely to be used...and deceiving would be an ethical breach which I couldn't condone, nor would the Heartless Editor here. But I don't take those slurs personally...I'm glad you took the time to share your views on the revenue and expenses of a sole proprietor appraisal business operator.

Most of us have examples of such instances. In some markets...like the one you describe it no doubt occurs much more frequently. In my view the centralization of the lending and the appraisal order management encourages that happening. You note it so well in your comment! The local lenders can't find appraisers, and when they do, my guess is they come to you and they know they'll have to pay a fair fee because the property and market is difficult. In a centralized management structure they often don't know that detail and rely on 'diversification' of their portfolio to protect themselves. Doesn't always work. Certainly didn't in this credit crisis!

Thanks for the comments...they add to the discussion. I agree with points made....but keep in mind a couple of things.... First, AMCs don't typically charge the borrower. They charge the lender/broker who is their customer/client. It's the lender/broker who charges the borrower and that charge is reflected within the HUD1. Second, it is risky business to assume that all of your competition is delivering inferior product. Better to assume they are delivering acceptable product and service and find ways to improve your product and service. Not all providers of appraisals to AMCs are 'form fillers'. Some just have a business model that matches serving that niche market. The appraiser who has an office in his home and works alone certainly can create a fine little business to support his family serving the AMC market. That represents a significant percentage of appraisers in the business today!

Hello Lou. Good to see your name in print. I appreciate your taking the time to comment and hope you will continue to do so as this topic unfolds. We do indeed differ on the 'need for AMCs existence.' I see them as a natural evolution of the larger forces of change that have been acting upon us over the last thirty years. But we do agree on the 'self serving', 'blatantly conflicted', 'suspicions of pernicious intent'. I do intend to discuss those elements. I shall try to make the case that those attributes are an outgrowth of the Oligolopy nature of that market. The Oligolopy creation was intentional and the attributes were at least recognized at inception, and more likely intended objectives...conscious or not. Your noted experience with them in the 1990's was similar to mine. I've noted before that I refused to do business with them then for many of the same reasons you list. They changed/evolved/improved sufficiently later for me to reconsider. By now Acorn is an expert in the field. I hope I've established that credential so that my observations can be taken seriously by those who are reading...just as you have always done. I think you'll see that my defining the industry as an Oligolopy is not too polite. It is not intended. Oligolopies are insidious, rather they can be. There are elements in today's market that will be discussed that will point out those elements and practices. Elements that damage the long run health of our communities and economies if not corrected. My contention is that AMCs are not the Anti Christ of the lending process. But some of their business model practices are damaging and need attention. That's what I'll be trying to do...focus attention on what's really going on. I'll look forward to your thinking and disagreement. You always make me reconsider.

trichards, it's good to have your perspective aired in this discussion. There are AMCs that pay much higher fees. You appear to be one of them. You mention the Broker market and I assume you are referring to Mortgage Brokers. Yes, that's a different, other niche in the industry with it's own set of objectives and incentives. Acorn moved away from the majority of that market several years ago due to the inefficiencies they generally represented. Their ordering and communication systems were cumbersome, they required more 'hand holding' than financial institutions and AMCs, and they occasionally tried to influence value. We still serve that market, but have culled the list to those that are efficient. The fee usually not an issue with the mortgage brokers in our experience as they simply collect the fee from the applicant. However, I can certainly see it as an obstacle when you are competing against a larger AMC for the business post HVCC. There are no benefits to the mortgage broker for paying the higher appraisal fee, are there? That would be a tough sale. What I'm trying to establish first is the value and importance to the local and national economy to have a healthy Independent Appraiser Profession. Once we've established that, then we can begin to address the factors that threaten that Profession. The AMC haircut is one of those factors in my opinion. I'm for free enterprise and efficient markets. I want all contributors to the financial transaction to make a profit. What I'm seeing and you are adding your experience and different perspective to is that the present structure of the market enables the large AMCs to operate as an Oligopoly Participant, creating undue influence on the market and pricing, which results in harm over the long run to the interests of all. The system as it operates today and as it has operated for a number of years is not supportive of the long run health of the first and second loan origination markets. This seems to be a year when reasoned discussion might influence change for the better.

RobB, yours is a good listing of the many issues that we have not addressed yet in this series. We do have plans to highlight many of them as this discussion continues. The cost to the consumer is a part of the issue that I've tried to get data on, but have suceeded only in getting anecdotal indicators. I don't know where data on HUD1s are amassed and released. The various snips I've received when asked suggest the consumer is billed 200-300 percent of what the field appraiser is paid for the appraisal, but snips don't prove the point. The move to un bundle the fees on HUD1s will help...but unless we can get the data from somewhere (HUD/FHA?) we can't make a meaningful point. Appraisers as an agent of due diligence is what I tried to note when I spoke of the affect of centralization of the lending function. Like you, I believe that is a fundamental shift in the process over the last several decades that should be discussed and acknowledged. The multiplier affect is one I don't intend to address. It's there no doubt, but not a significant impact on our communities economies...unfortunately, we are a very small clog in that engine. Our impact instead is on soundness of the underlying collateral which fuels the massive real estate lending market. We are also in full agreement on the transformation of the market into two distinct operations. I introduced the idea of the large AMCs operating as an oligoply, and the 'one off' sector operating more as a fully competitive market. That has major implications in my view, and I believe in your view also. It is a two tier market as you note and the implications need to be addressed. I have plans to address that issue and I hope you'll provide a critique and add your views to that topic. You view that the result of the tiered affect has major impacts on the Appraisal Business Model is supported by Acorn's experience. I've noted that in prior comments...I describe it as different rhythms to those sectors, just as there is a different rhythm to commercial appraisal. We agree that each market is largely unique, and we agree that the centralization of the lending process and the growth of the AMCs have the incentive to treat all markets as identical, or substantially so. The natural tendency towards efficiency at the centralized lender and AMC works to the detriment of the necessary and important nuances that Appraisal Businesses and appraisers must often consider at the local level. Finally, you make a very important point when you comment that the positives that Acorn lists from experience with AMCs does not match your view in your market. You note that the differences are likely due to the markets that we are in. Exactly! I can only report Acorn's view. That's the one I know and live. I expect and recognize as you do that my experience will be different than yours if our markets and our business models are different. That doesn't make your view wrong. It just makes it different! What I'm trying to do in this year's Runt Rants is to get the real issues out in front of all of us and discuss their implications on the health of the local communities ... which in sum is the health of our countries economy, which now directly impacts the global economy. I hope you'll stick around and add to the discussion. I think we both see the importance of that discussion.

Laura, I had considered naming names in my past and future posts on the AMC subject, but don't feel that is proper. I'd love to know who those full fee AMCs are, we have identified only one that is our client, but we'll just have to find them in the market, just like all others. As to how to affect change....it is in progress now and has been accelerated in the last two years. HVCC, Modified HVCC, HB 1728, the various States enacting AMC regulation as I type. Change is certainly happening right before our eyes! That's the theme I've selected here on Runt Rants this year, one that AppraisalScoop is giving space to also. Note the Coester Survey which Scoop linked, note the TAVMA column which Scoop also linked, and Ms. Platt's eloquent response to TAVMA which the Scoop featured. Appraisers have influenced the change that we are seeing, sometimes not in the direction they had planned (HVCC certain elements?), but we are influencing. Stay tuned. Scoop is gonna be a factor I think!

JS, I choose the Houston mareket to be in the appraisal business because that is where my home is...it wasn't due to smarts. If I were in a less populated market I'd likely be in another business. What you read in my Rants is my experience...no one else's unless I state otherwise. That's the premise that the Heartless Editor accepted years ago when he allowed me to Rant here. Rural appraisal is much different than metro, particularly homegenous metro. We have both in our market as do other metros. To say that one is more difficult than the other is to assume that the experienced appraiser hasn't adapted to their market and learned those elements of appraisal that apply to that market. That's not my experience. Appraisers learn, adapt, become local experts. We have one in Acorn today that came from Ohio, darn experienced there, is learning here. The history of my Rants hopefully will support my respect for each and all appraisers in all markets. Its a wonderful profession filled with competent and well meaning entreprenuers in my experience. You needn't refer to my Zaio experience in the past tense. We are still around, but in control.

The number of appraisers leaving the profession is significant. The AMC Oligopoly status, the resulting two tier pricing structure has certainly contributed to that exodus. But so has the decline in business as a result of the freeze up of residential lending resulting from the recession. In addition, many appraisers entered the profession in wake of the S&L Crisis twenty to twenty five years ago. That bulge is reaching retirement age. Other factors keep new entrants from coming in; the limited use of trainees in revenue generating activties, the cost of mentoring, even the elimination of licensed appraisers from the FHA panel hurts. The sunset bill might be a factor in fees increasing. But Acorn's experience is that it's the FHA modified HVCC and the language for 'one off' that is the major factor. More on that later.

Good points you make Fredrick. AMCs did a sort of culling when HVCC was implimented for Fannie and Freddie work May 1, 2009. Volume went up significantly...maybe 15%...and our contacts with the majors indicated that they weren't adding to their panels. Instead they reported they'd stick with the panels that had supported them in the past. I agree that it is getting increasingly more difficut to run a profitable multi appraiser business with only AMC clients at the second tier pricing. We've done all we think we can to achieve efficiencies at Acorn...further cost increases just eat into profits now. We do differ in the quality issue of those sole proprietors. I'm afraid it's not a quality issue but a cost structure issue. That back bedroom with a broadband connection is efficient. I suspect the typical sole proprietor was trained at a multi appraiser firm and spun off once he/she gained the knowledge, experience and tools. Quality remained. We have two such examples that have left Acorn in the last year.

Glad you responded trichard. Not all AMCs are the same Just as all appraisal businesses are different. Acorn has generally found AMC staffs to be educated but when they don't know something they are open to learning. Next week we'll talk about the advantages AMCs bring to the market and what they could improve to better serve the market. Hopefully trichard will share his views. Sent on the Sprint® Now Network from my BlackBerry®

The alamode survey was correctly announced as the results of 'one off' fee averages down to the county level. Acorn reviewed that result for the counties which we served and found it to be quite accurate. One off fees are defined as the fee charged to lenders or brokers who order appraisals directly from the appraisal business. One off fees are precisly what FHA defined as the standard they expected to be applied in their adoption of the 'modified HVCC' implimented in Feb 2010. The alamode survey sets a bench mark which will be updated monthly according to the first release. It is a significant contribution to the Profession in that it factly states what one off fees in each market are. The TAVMA challenges that survey as not market. However, it is market as that market is defined. There is also the AMC market...defined as the fee paid by the average AMC for appraisal products. That is certainly a legimate market definition, and it does represent the majority of the first and second mortgage appraisal orders. Appraisal Scoop recently noted the Coester Survey (published by Coester, an AMC) in which the findings were used to dispute the assertion that the average AMC takes a significant haircut of the appraisal fee. Appraisal Scoop published a rebuttal to that analysis as not reflective of the AMC market. Ms. Platt has done the same with her letter to TAVMA. Good for you Ms. Platt! The facts are that there are two markets in which independent fee appraisal businesses operate: the local and regional market...the one off market...and the larger AMCs who represent the major national lenders which process the majority of the appraisal orders. The fee structure (from the appraisal business providing the actual appraisal) in those two markets has generally been marketedly different; with the typical AMC fee being 30-35 percent lower. There are reasons for those differences, but there should be no disputing that the differnces exist. The alamode monthly survey will help us to document those differences. Thank you alamode, thank you Ms. Platt!

Sus, I feel your pain.... Sad and pleased to say that I think they have been and are listening. For several years running October Research published surveys of appraisers who each year complained about value pressure from the client. Each year the percentage rose higher and higher. Mr. Cuomo picked up on that and a few other points and took advantage of a weakened Fannie and Freddie to produce the HVCC agreement. Big feather in his hat! When Appraisal Scoop ran the Black Listing Series a couple of years ago the author got calls from a Mortgage Bankers Association subcommittee who were then working on a position paper on Do Not Use Lists. Some of the ideas expressed by commenters in Appraisal Scoop were included or influenced the committee recommendations. Even Cuomo staff members contacted that author for views on Black Listing as they developed their lawsuit against a certain financial servicers provider. More recently FHA took notice of appraiser complaints of low AMC fees and came out with 'reasonable and customary' last summer when floating their 'modified HVCC'. By the fall Valuation 2009 FHA talking heads announced that the language was being removed. Lots, I mean LOTS, of comments from appraisers attending about the AMC haircut. Then, this year, the FHA announcement of the modified HVCC has the language back in. Those with POWER and INFLUENCE have been listening, and I think they will be listening to this discussion and others which are popping up around the internet. I personally think we appraisers have an opportunity this year to influence change in our favor.

Thanks First! That additional support and commentary needed can be viewed as a by product of the consolidation of the lending decision making out of the local market and into regional and national HQ. That's a point I tried to make this week. Decades ago the decision maker was a local loan officer. He knew the community, the market, the people. Likely coached your kids on their junior sports teams. Not today! So the appraiser has had to become more of a story teller, filling in the local factors that the distant guy doesn't know, can't know. I see that as more reliance upon the appraiser...who should become a more valued member of the client's 'team'. Of course, it doesn't always work out that way! LOL

J, I like a business owner who can speak to efficiency and inefficiency...that is at the core of this subject, and it's at the core of each of us understanding how our business works. Acorn's view is a bit different than yours. Not that yours is wrong....I believe you! But Acorn built its business model for the AMC market and took years to hone it. Production time is not much different in our market and our business. Generally we set our internal SOWs to the toughest standard of our clients and operate there. We want to handle each assignment (the vanilla ones) roughly the same way each time. That is to achieve efficiency. We too are in a major market area, and the additional efficiencies that good AMCs provide (the subjec of next week) do help us with all of our clients. But it's a complex soup we make, each of us, and there is room for many different successful models.

Caterina, I really didn't view Coester's survey as lacking credibility....from their perspective. All but one area of their results was within reasonable bounds of Acorn's experience...with the lone exception being the fee thing. The fee thing could be explained if they happened to be an AMC that provided market fees to their appraisal panel. Acorn has one of those as a client...1 out of 18, or 5.6% of our AMC clients pay the appraiser market fees. If Coester operates like that one, then the results would be expected. That make sense? What I dispute, and the reason I published a response was the suggestion that the Coester surey on fees 'debunked' the position that AMCs take significant haircuts from the field appraiser's fee. That's not correct in Acorn's experience, and it is not correct in every appraiser I have talked to...and I've talked to hundreds, if not thousands on this topic.

There have been significant changes to the Zaio situation in the last 18 months Brian. The press release you highlighted is from Zaio Corporation, the Canadian Company. It represents their venture into the social networking niche, one that has good potential. The original zone owners in Zaio took control of the Z concept for the USA in May of 2009. We formed Zone Data Systems LLC, aka ZDS, to manage that business. ZDS is the entity that will bring Z products and tradtional products to the US market. Zaio Corporation's intro into the social networking niche is one of many who have begun to explore that emerging market. Many forward thinking businesses, like your own AppraisalScoop are testing those same waters. ZDS as part of it's agreement with Zaio will provide appraisal services to those individuals and communities that are referred through Zaio's venture. I'm personally intrigued by the concept. I plan to suggest the site to my own Homeowners Association and MUD as a better and more feature laden alternative to what we are using now.

David, you raise a very good point. I have read about the mental affects of service in war zones. It was particulary ignored in the Viet Nam era, but is receiving more attention today. Still not enough apparently. I've never been in combat, but I am absolutely convinced that had I been, I would be one of those mental casualties. I'm taking your thought to heart and will see what I can do in my small way to help recognize and support those individuals. They too have given so that I might enjoy my privileges.