In the last issue, the most popular article by far was "Preventing the AMC fee cut". This issue, we're looking at the bigger market and the role that an "un-AMC" may be able to play in keeping a larger share in your own pocket.
The surveys we've done show that the average appraiser, regardless of software, reports a volume between 220 and 240 appraisals a year, or roughly an average of one appraisal per business day. Our own traffic statistics indicate 232 appraisals per year for the average WinTOTAL user, and our server volume suggests a total WinTOTAL-generated appraisal production this past year of approximately 9 million appraisal reports. (pq)
With WinTOTAL commanding a market share of approximately 50% of the market, that would point at an annual appraisal volume somewhere around 18 million reports a year. Other appraisal volume statistics, derived from our own server traffic, AMC volume, historical loan application-to-appraisal ratios, and non-lender transaction ratios, also correlate to national volumes in the 18, 19, and 20 million reports per year range.
For the sake of this analysis, we'll take the conservative approach and use the lower figure of 18 million lender and non-lender appraisals a year. Dividing an approximation of 230 reports per year into the 18 million annual market size figure would indicate an actual working population of appraisers in the range of 78,000 individuals. Again, that number correlates well with available data.
Even though the ASC reports 120,000 appraisers, our monthly postal mailings indicate an active "USPS mail deliverable" appraisal population right at the 80,000 mark.
Our XSite and Mercury Network systems also contain solid data regarding typical appraisal fees. Time and time again, the median fee (where half of all fees are above and half are below) has stayed at $350 per appraisal. The average fee, by contrast, has actually climbed slightly the past three years, as the number of higher-end products and narrative reports skew the results upward, with the average appraisal fee having gone from $340 in late 2005 to just over $360 last month.
Using those fees and the average volume of 230 reports per year, the average appraiser would be producing just over $80,000 a year in gross billings, before taxes and business expenses, and of course before adjusting for locational variations in fees (east and west coast fees tend to be higher, and central and southern fees lower). This is again consistent with anecdotal and surveyed evidence.
Overall therefore, using the median and average fees, the annual gross billings of the appraisal industry would be placed in the range of $6.3 to $6.5 billion.
Obviously, everybody wants a bigger slice of that non-trivial $6.5B pie. Appraisers want to keep as much as possible, and AMCs see an opportunity to get more of it. AVM and BPO providers want part of it too. You can't really blame them for trying. You'd do the same, wouldn't you?
However, as AMCs, AVMs, and BPO providers expand and collect a larger slice of that pie, there's the political aspect of shifting of revenues out of local markets. If you look at key states like Florida or California, for example, the shifting of appraisal revenues from local small businesses to out-of-state entities is potentially the same impact on the state's economy - hundreds of millions of dollars per year - as losing a military base, or a very large factory. Placed in that context, it becomes a winnable political battle with an eager media component.
But that's only part of the issue and is an inherently defensive play. What about looking at ways to grow the pie as a whole, or carving off and "owning" portions of it via better marketing and service offerings?
You have to think offensively in marketing, about what you're going to do, rather than as a victim in terms of what's being done to you. Lo and behold, when you do that, you become more competitive and your clients are happier too.
SUPPLY AND DEMAND ON THE AMC SIDE
Many appraisers view AMCs as the enemy, and even though you might think we do too, we really don't. They're in business and have their own legitimate objectives. We have plug-ins that help you streamline your deliveries to virtually every AMC, and in working with them we see firsthand that they're just doing a job like everyone else. They work hard at making their clients happy. Their clients choose them not by accident or collusion, but by what they offer to solve the client's problems.
Most AMCs are staffed at the senior level by ex-appraisers and actually don't have a negative view toward independent fee appraisers at all, though at times they do want to pull their hair out when dealing with a large fee panel. It can be difficult and labor intensive to communicate with and manage a large group of often-prickly appraisers.
Deep down, you know that. Lender pressure and coercion aside, appraisers are generally a critical, cynical bunch not known for their cheery disposition. I say that because I'm one of you, and honesty is necessary when evaluating when and how you could be losing clients to competitors - whether it's to AMCs, AVMs, BPOs, or other local appraisal firms.
AMCs endure that love-hate relationship with appraisers for good reason. Though most AMCs offer a variety of services, they make the majority of their money on appraisals. Of course, they charge a pretty penny on each appraisal, and they take it out of your fee - and sometimes even mark it up further. How can they "get away with that"? It's all due to basic supply and demand.
Lenders, large and small, are seeking workflow efficiencies. Though it may seem counterintuitive, they're willing to spend more time and money improving workflow when things are slow. They tend to throw people at a problem when there's a boom and cash flow is plentiful, and then look for cost savings through technology and process improvements when things slow down.
And now more than ever, they're looking at streamlining appraisal ordering and management, as well as implementing physical and virtual firewalls that can help prevent the coercion and pressure that spawned the mortgage crisis and thereby regulations such as the HVCC.
Can they be efficient, and insulate valuations from influence, when dealing with hundreds or thousands of independent appraisers? They can, but it takes work. Imagine not only tracking down and placing orders with many individual appraisers, but calling to follow up on the status as closings draw near. Or, just imagine receiving thousands of PDFs by e-mail. How many are all called "URAR.PDF"?
Most lenders have neither the time nor the technical know-how to build systems that manage and simplify that process for them. There's the demand.
So, they pitch the problem over the fence to a single source that promises to make it all go away. And there's the supply: AMCs.
ADAPTING AND COMPETING
We think the best way to keep the majority of that $6.5 billion pie in your pockets is simple: Utilize the XSites Network to offer lenders the economies of scale and efficiencies that AMCs do, without the same fee cut sliced off the top. It's not the exact same as an AMC, but it doesn't have to be. There are natural niches in the valuation market for all the players: independent fee appraisers contracting directly with lenders and non-lender clients, semi-managed technology-centric solutions like the XSites Network, and fully-managed labor-centric solutions like AMCs.
For most lenders, the XSites Network offers exactly what they need: rules-based automated reviews, in-house management consoles, and access to collateral analytics in real time, along with the protections of new double-blind communications firewalls and auto-assignment features that protect them from regulatory liability. It can even shunt an appraisal order on to a traditional AMC when the lender's rules dictate that a fully managed solution be applied to a particular report. They get the best of both worlds. And you keep a client, and your fee.
And, it's a proven system. Over 235,000 accounts have been created by clients ordering, managing, and receiving millions of appraisals. It's not wishful thinking. It's real.
That "middle ground" of lenders who don't have the systems, time, or desire to do it on their own, but also don't want to shift work to an unknown panel of appraisers via a national AMC - and who would gain maximum efficiency by working through the XSites Network and their current list of approved appraisers - is the target market.
You're in contact with those lenders' loan officers and managers every day. Right now, call and ask them what they need. If you can capture their work on your own and be a pseudo-AMC yourself, more power to you. If you can't do that, and you get them to use the XSites Network, then you've helped yourself too.
Or, you can always do nothing and not talk to them at all. But at some point, someone else will. How much of that $6.5 billion pie are you willing to risk losing to them by doing nothing?