FBN recently spoke with Mark Guard, owner of Guardian Appraisal Services in Flagstaff. Guard has been in business for many years, and seen his industry change significantly since the start of the recession. While lending agencies are changing the way they do business, most people believe honest appraisers are more important to property owners than ever before.
What is your business philosophy?
Honesty, integrity and knowledge.
As an appraiser I am tasked with providing an independent opinion of value. This is not always an easy assignment since everyone has an opinion and everyone’s house is his or her castle. I try to be honest with people when it comes to valuing their house explaining why certain sales can and can’t be used. By not being swayed, by maintaining my integrity, clients know that they will always get an appraisal that is fair and accurate. Providing a thorough, accurate appraisal is done with the understanding and knowledge of the market (and sub-markets).
How has business changed during the past 4 years?
The volume of appraisals has declined significantly. This is due to the decline in sales, the low number of refinances (many homeowners are “upside down” and can’t take advantage of the lower rates) and increased competition from out of area appraisers.
Also, the appraisal industry has changed significantly due to federal regulation and the influence of the large banks / lenders. It isn’t a short explanation.
Even before the market started to correct itself large banks and lenders were creating Appraisal Management Companies (AMC), a sort of middleman that ordered appraisals for the lenders and supposedly maintained a level of quality. However, AMCs owned by larger lenders immediately started to pay appraisers less. This was justified by claiming they deserved a cut because they were providing work to the appraiser. The work was already there, it was just that a middleman was now involved. Quality declined since appraisers willing to accept the lower fee would often cut corners in order to maintain profitability. The good thing was that not all lenders used AMCs and there was plenty of other full fee business.
Then federal regulation of lenders such as the HVCC and Dodd-Frank bill, which were supposed to protect consumers, mandated that lenders had to have a firewall between them and the appraiser, ie: an AMC. Some lenders chose to do this in-house. Unfortunately, most independent lenders had to start using AMCs and a large number of these companies “popped up” quickly. Independent lenders did not want to charge the consumer a higher price for the appraisal and the AMCs wanted to make a profit so appraisers were paid less.
These factors resulted in less profitability and in some cases lower quality appraisals. Unfortunately I do not have enough space to explain all the impact these and other factors have had on the appraisal industry.
The interesting thing is that it was really unnecessary. Lenders should have been told to stop pressuring appraisers or they would be punished. Instead, a burdensome, inefficient, inept system was created.
How do you see your business evolving in 5 years?
I believe that there will still be a demand for traditional appraisals but the volume will be lower. Lenders are trying to move toward assisted, automated appraisals. These products will be based on a statistical data that is “fine tuned” by an appraiser. The fees for these products will be lower.
What do you do to stay current as a businessperson?
Trade publications and newspapers both printed media and Internet are great sources. Continuing education is a requirement in my profession but I also try to keep up with advances in technology and software.
What is something about your business people would find surprising?
All appraisals are completed the same way. Whether it is a sale or a refinance, a million dollar property or a manufactured house. That is not to say all appraisals take the same amount of time. Some appraisals are more complex, requiring more research and explanation.