Some lenders and appraisal management companies (AMCs) are thinking about appraisal quality control from a self-defeating perspective. They believe that the appraisal quality control process starts after the appraiser delivers the report. If that’s when your appraisal quality control operation begins, you’re simply too late.
I contend the most impactful parts of the appraisal quality control (QC) process occur before you’ve even engaged the appraiser. The system you have in place to manage and grow your vendor relationships is very important. Ironically, the keys to a successful QC operation have nothing to do with the specific appraiser’s work. It’s your internal process that matters most.
Don’t be penny wise and pound foolish: Pay your appraisers well
When it comes to appraisals, as with most anything else in life, you get what you pay for. Not only is it required by law to pay your appraisers a “customary and reasonable” fee, the fees you pay help ensure the quality of your end result.
Often, when I talk with lenders or AMCs that are having difficulties with appraisal QC, finding appraisers, or with reputation hits from complaining appraisers, we find they’re not paying appraisers as well as others are paying in the market.
It’s just how the world works. Just like most other service providers, appraisers are naturally incentivized to provide better, faster service to their higher paying clients. If you pay at the bottom of the pay scale, you’re likely to attract appraisers that don’t have as much work on their plates as other appraisers. We all know the market is hot in most locations right now, so appraisers that aren’t as busy as others are probably not the cream of the crop.
If you are paying low appraisal fees, you might get lucky with an excellent appraiser on a particular assignment, but your service will always take a back seat to their better paying clients. If you have questions or need follow up, the appraiser will most likely get back to you after they’ve helped their other clients. The savings you realize from paying the lower appraisal fees just aren’t worth the costs.
Scrimping on appraisal fees is not a wise thing to do. The regulatory requirements are real and there have already been hefty fines and badly damaged reputations from violations of the “customary and reasonable” appraisal fee laws in Dodd-Frank, so the risk isn’t worth the savings. The highest quality appraisal is in your best interest, your borrower’s best interest, and it can dramatically reduce your portfolio risk and your buyback rates.
Treat your appraisers like gold
Appraiser relationships are invaluable, and many lenders and AMCs are hiring entire teams of full time employees to make sure their vendor relationships are excellent. Why? Here are three reasons:
1.) There are fewer appraisers, so you need great relationships to get deals done quickly. For a variety of reasons, there aren’t as many appraisers around as there used to be. Basic laws of supply and demand mean appraisal fees and turn times vary widely on a per-county basis. When you look at incredibly hot markets like Denver, good relationships with great appraisers will mean the difference between waiting a few days for the appraisal, and waiting five weeks and still not finding an appraiser to take the assignment.
2.) Markets shift quickly, so you’ve got to be building your team all the time. To really grow your loan portfolio, it’s important you can act quickly in markets that are seeing a spike in purchases or refis. If you can’t close a refi because you can’t get the appraisal done, the borrower will just go to the next lender with good enough relationships to keep appraisals coming in the door. If you wait until the market is hot and the appraisal turn times are long to start building your relationships, those great appraisers are already busy and don’t have time to deal with you at the moment. You’ll lose out on every spike cycle because you’re behind the eight ball.
3.) Appraisers talk. Anyone who has spent any time in online forums or realty offices knows that appraisers frequently communicate with each other and the rest of the industry. Sometimes their public complaints are absolutely justified or unavoidable, but often the incidents they complain about are easy to avoid. If you mistreat an appraiser intentionally or unintentionally, they can easily influence their colleagues with complaints. If the market’s busy and they can be choosey with clients, your orders will go to the back of all their friends’ work queues, as well.
A proactive vendor relationship management process can go a long way to ensuring you’ve always got the highest quality appraisers, eager to do your assignments and deliver excellent service to you and your borrowers.
State your requirements up front
Your institution probably has minimum requirements for appraisals and they probably vary by the investor, the appraisal product, the neighborhood, or a variety of other factors. For example, do you always require interior photos of all rooms? Do you always require the removal of all religious artifacts from photos? If you can provide all of these requirements up front when you send the assignment offer to the appraiser, you can avoid wasting everyone’s time after the report is delivered.
After the appraiser has delivered the report to you, it’s always more difficult to get revisions to it than to ask for the right thing at the beginning of the process.
Many appraisal management systems will have an automated way to handle this so that for every type of appraisal report you order, the specific requirements are included with the original message to the appraiser. Some even go a step further and will double check the report automatically for you, as a prerequisite for delivery. It’s much easier for the appraiser to add what you need right before they deliver it to you than it is to chase them down later and ask for something they haven’t thought about in days.
When it’s time to run QC on the finished report, do it right
The number one complaint appraisers have about their clients’ quality control process is that the requests they receive are vague, uninformed or unnecessary. Nothing irritates appraisers more than asking for explanations that are already provided in report addenda or asking questions that make it clear the reviewer isn’t familiar with the appraisal process.
Remember, the education and training requirements of appraisers can be tougher than those of a commercial pilot (See Rick Sagoo’s article, “Are You Licensed”). Excellent appraisers are highly educated experts and should be treated as such. Hiring non-skilled people to “review” their work is a recipe for bad relationships.
Highly skilled appraisal report reviewers may be more expensive than interns with checklists, but they will pay for themselves many times over by dramatically improving your vendor relationships and reducing your portfolio risk with the highest quality appraisals.
Great relationships are the key to your success
As markets heat up and the appraiser population shrinks, your relationships will be more important than ever. With good appraisers, you can have better borrower relationships and a better position to expand your business. Plus, you will spend less time and effort in your quality control process on delivered reports. It’s time to look at your appraiser panel as part of your team, and recruit and retain the very best.
About The Author
Eric Thompson is a Senior Consultant at Mercury Network, an online vendor management platform used by more than 700 lenders and AMCs. Eric has been in the industry for over fifteen years with a wide range of experience from appraiser training to owning and operating a successful appraisal management company. His appraisal management and compliance expertise spans smaller community banks and credit unions to the largest lenders and AMCs in the country. He consults with Mercury Network clients on appraisal workflow, compliance, and efficiency issues and he can be reached at Eric.Thompson@MercuryVMP.com.