Third Party Blues
- Hybrid Assignments, the Consequences - February 7, 2019
- Bankers Concerned About Appraisals - October 18, 2017
- Third Party Blues - July 19, 2017
What is the significant part of significant contribution?
Most lenders would rather not do the work of cultivating and curating a panel of appraisers. This is largely why AMCs exist.
AMCs, in turn, quietly off-load some of their activities to other subcontracted entities. Some AMCs contract out state licensing and registration compliance responsibilities to outside concerns. A few use portals to send out engagements to their panel of appraisers. Others farm out payroll and invoicing. Still others outsource their QC work.
This begs the question: What exactly do some AMC’s provide…directly?
Some appraisers, too, don’t seem to be interested in running all aspects of their businesses. Some engage others to take comp photos or rely on photos already stored and ready for purchase (i.e. CoStar). There are companies out there that will provide inspections. They send someone out to observe the subject property, obtain images and offer opinions on the home’s condition. Like everything thing else in this world…there’s an app for that.
What is the significant part of significant contribution?
USPAP does not include a definition of significant appraisal assistance. However, aspects of this phrase can be explored to clarify its meaning.
First, the adjective significant means that the contribution must be of substance to the development of the assignment results. In other words, the individual must contribute to the valuation analysis in a noteworthy way. An individual who merely collects or provides data for use in the analysis does not provide significant appraisal assistance.
Secondly, the reference to the term appraisal assistance means that the contribution is related to the appraisal process or requires appraiser competency. One misconception is that non- appraisers who provide assistance should be identified in the certification. This is incorrect because the certification requirements in USPAP apply only to appraisers. Thus, only appraisers sign the certification or are identified as providing significant appraisal assistance.
For example, the use of an environmental expert to determine wetland boundaries would not be considered significant real property appraisal assistance.
Examples of contributions made by appraisers that constitute significant real property appraisal assistance include the identification of comparable properties and data, inspection of the subject property and comparables, estimating accrued depreciation, or forecasting income and expenses.
The problem for appraisers is this:
If you rely upon someone else to inspect the subject property — whether a complete interior inspection or a simple curbside visit; this is considered to be significant contribution.
Does it matter whether or not that the “inspector” holds a license as an appraiser? No. The original, signing appraiser is relying on the work of someone else. The simple litmus test is whether the work performed by a third party was so integral to the assignment that the appraiser couldn’t complete the report without their help.
What about someone who just takes pictures? This has been going on in appraising for as long as I can remember. An appraiser sends out a photographer to capture images of the subject and/or the comparables. Is this a violation of USPAP? It can be. It depends upon the level of disclosure.
First, many, if not most assignments require the signing appraiser to make a personal inspection of the subject and comparables.
From the URAR Scope:
The appraiser must, at a minimum: (1) perform a complete visual inspection of the interior and exterior areas of the subject property, (2) inspect the neighborhood, (3) inspect each of the comparable sales from at least the street, (4) research, verify, and analyze data from reliable public and/or private sources, and (5) report his or her analysis, opinions, and conclusions in this appraisal report.
It doesn’t say to use a surrogate, Google Earth, or MLS images. If you have to see it yourself; why send someone else?
As for AMCs who not only permit third party inspections but promote them, they have a problem.
Under Qualifications for Registration:
(6) a certification that the applicant will utilize Illinois licensed appraisers to provide appraisal services within the State of Illinois;
It doesn’t say surrogates, does it?
By Brian Weaver, Coordinator Editor of IllinoisAppraiser, Appraisal Management Company Coordinator for the Illinois Department of Financial and Professional Regulation (IDFPR)
Source Illinois Appraiser Newsletters – Volume 10, Issue 2 – May 2017
I believe Mr. Weaver just squashed any notion of using a 3rd party inspector for the subject observation. Thank you Mr. Weaver for pointing out in writing what appraisers already knew. I wrote an article a few weeks ago that touched on this very same topic in response to an article written by Alan Hummel with First American. Enough Already, Nobody is Listening
Been saying this for many years now; I’ll fall over backwards in my chair if a lender ever gets the 10k/20k daily fine for violation of appraiser independence. And I’ve added another one; I’ll fall over and spill coffee, if Mercury network and the other software platform providers force a clear disclosure for which appraisal groups do use outsourced services and who does not. Outsourced services nullified everything to do with ratings matrix, turn time comparisons, and a long list of other previously available performance measurement tools. My most effective marketing tool is simply to brag that I do it all myself and refuse outsourced service assistance. Now, how to convince companies like Mercury to allow me to have a little checkbox which clearly identifies to clients I’m not a cheater, I’m not a corner cutter, and I don’t use unlicensed inspection assistants. You’d think a company like Mercury would be all over that but quite the opposite in fact, they’re scared pantsless to even consider putting forward such a straightforward disclosure point for appraisers.
“What exactly do some AMC’s provide…directly?”
Great question! Let me think…hmm…. nothing comes to mind…. nope nothing!
Amc’s and ethics? A tough cookie to bust.
This is your new favorite amc greeting card.
Thanks for posting, but this isn’t new and wasn’t published in July as stated at the top of the post. This was posted in the may newsletter.
You’re welcome. You probably didn’t see the article on our site. Otherwise, you would have seen that we posted the published date, the issue and and volume numbers at the bottom of the article.
If you click on the link above it takes you to your site. Headline is title of the idfpr newsletter and today’s date.
Yes because it was published on AppraisersBlogs today. So we published it today on our website but we made sure to reference the newsletter by including the date, volume & issue numbers at the bottom of the article. Sorry for the confusion.
And yes I saw the bottom
Here’s how to eliminate AMCs. We all demand payment before the report is sent.
There is no greater objection than absence.
CO put out this ambiguous disclosure about the FNMA inspector rule change. It’s all smoke and mirrors, and if you have a conversation with homeowners about how they’re lucky to get you and not the other guys who use unlicensed inspectors, they’re always fully shocked, 100% of the time. People whom actually have money on the line can not even fathom how companies could take risks like that.
Hello group! I just wanted to put my scenario out there and see what others would advise. I currently work for an AMC as a trainee however within 2 months I will be taking my certified exam. Although I know that my fee split will increase once on certified, seen half of my fee eating up by the AMC always grinds my gears. Ultimately I want to go for my general certification I’m just contemplating when I should take that step. And also how would one transition out of an AMC? Supposing I do not directly go work for a company that offers commercial appraisals.
Feel free to message me directly
The concept of splitting the fee in the first place does not compute. It’s your signature, your work, your insurance, your business. The amc’s confused the appraisal fee for the management fee, but that is easily corrected by the appraisers themselves. Or at least it will be that way when you strike out as true 1099 with an EIN#. Get away from amc’s and you’ll be fine. For how to transition that’s easy, I’ve built 2 small appraisal businesses with a fax and a flyer, that’s all it takes, sub fax for email these days I guess. All it takes is one good client, and the best tip anyone can give is exhaust every direct lender lead before you even consider prioritizing an amc over a direct assignment lender. It’s a simple analysis, why share when you can keep 100%?
Baggs, the idea of ‘splitting the fee’ was never intended. AMCs got their start long before USPAP (LSI and and their founding staff that later became ATM come to mind).
They took “A fee” from the amount they contracted with their clients for. Appraisers were typically paid 10% less than going rate for the convenience of not having to do any marketing; and a reliable payment source. It actually worked well for a couple years. (circa 1990-1992). The appraiser received a reduced fee but not a split or variable fee.
Post HVCC World “A fee” became “The fee”. It also became a ‘split fee.’ Both meaning a portion of the actual appraisal fee now rather than a separate service fee.
Once that fee was disassociated with the actual tasks of appraisal management and became a variable or CONTINGENT fee for the AMC, it was an easy matter to start whittling away at it and usurping a greater percentage of it unrelated to actual management overhead.
Was this fee split before collection, or after. The split fee had no responsibility without the measurer-photographer suffering fee collection and liability.
Years ago I sub’ed out work to hard money lenders, guaranteeing the fees. That was how I expanded my business and the hard money guys knew the subs. The hard money guys all paid well, some in front some, you trusted.
Most appraisers started out from other jobs, not from schools. Bank tellers, carpenters, plumbers, construction specialties aided greatly in sales research, verifying, cost analyst, before measuring.
The early appraisers all came as bankers, economists, bookkeepers, etc.
They formed protective society’s to keep lender-bosses from holding them liable and firing them
Today our clients expect our insurance to protect them and make their loans invest able.
They know most appraisers are worthless having to pay insurance premiums to guarantee income.
WHERE WE COME FROM? WHERE WE ARE GOING? This remains the big questions only we can direct.
Don, the ‘split’ is the split. Period. LSI used to pay us $250,000 a month (multi state appraisal firm). Our fees (gross fees) were 90% of mid-normal range. The in house appraisers got about 50% to 60% of that and never had a shortage of work.
After ATM (including some original LSI founders) split off and started their own firm out of San Diego the price competition and undercutting got so bad that gross fees dropped down to around 60% of normal and I left the firm along with about half the in house appraisers (I was salaried at the time).ALL of our staff came from other backgrounds. One of ‘my’ trainees was a (refugee) nuclear engineer and another was a retired (refugee) Iranian Air Force General. Educated non banking folks. Almost all had formal educations far more advanced than my own. Only two remain that I know of (In CA)-both are now ARs. Some of the best people I ever had the pleasure of working with.
Related to third party, but not related to amc’s. This is what I’m on about lately; the continued increase in investment purchasers. Certainly when this much stock goes out of circulation it will have lasting negative effects. If you sell, please do not sell to investors. Today from drudge: https://www.wsj.com/articles/meet-your-new-landlord-wall-street-1500647417
the relationship between AMC and appraiser is exploitative; our licenses, training, expenses such as E & O and data have all gone up while they have no obligation to disclose to the appraiser what they are making off our businesses!
Great article Brian,
Doesn’t it strike you as counter productive for USPAP to require a half page definition for the term ‘significant assistance”?
The only reason we arrive at conditions like this is that both most regulators (other than yourself Sir!) as well as the authors of the bi annual special interest papers called USPAP, suffer from headuptheirassitus.
1. Head, meaning that portion of the anatomy attributed to be the center of thought;
2. Up, a direction. Typically in a vertical orientation.
3. Their, a possessory description concerning ownership
4. Ass, an area not originally intended for the storage or optimal performance of the cranial content or container
5. Itus, A pseudo medical-latin sounding suffix to help focus attention on the real problem.
Mike, I think I read that word in WEBSTER’S. Did microsoft’s speller accept it?
I may have mistakenly used the colloquial American-English version. I think the Queen’s English spelling is ‘headuptheirarseitus’. I apologize for any possible confusion that may have
We appraisers are always trying to be brief and concise. Next time Mr. Ford, you can say the same thing as above by just calling it what it is: Anal Cranial Inversion!
Have a nice day!
Well said RealRose, (but I’m rarely accused of brevity).