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Are You a Tier 1 or Tier 2 Appraiser?
by Richard Hagar, SRA
Nordstrom or Walmart? Mercedes or Yugo? Are you a Tier 1 or Tier 2 appraiser? Appraisers have two different business models to choose from.
I have seen that many lenders classify appraisers into two or three different tiers based on their perception of the quality of your product. Which tier are you? The amount of business you have and the amount you are paid is very likely based on how lenders classify you.
There is a lot of appraisal business right now and lenders are begging for high-quality appraisals. Many firms are buried in business, quoting three-plus weeks out in turn time, with high fees; here in the Northwest we are earning $550 for a standard home. If your company is not busy or you are making far less than this, here are some tips.
The two most common questions lenders ask in the training sessions I conduct for them nationwide are:
- How does my institution find good appraisers? And, even though we are paying high fees, why are we still not receiving high quality work? Do you have any suggestions on how we can solve this problem? Ouch!
- When I share what lenders say with a class full of appraisers, they often reply: if lenders would pay reasonable fees, I’d provide better appraisals! Ouch again!
While we all understand the feeling, that is not how business in America works. So let’s rephrase what the lenders are hearing: Pay me more money and then I’ll provide a good product. Wow! Imagine a TV ad where Apple states: Send us $250 for this new IPhone- it’s a super phone but if you want one that is assembled correctly and will serve its purpose, then you will have to send us $500. That sounds ludicrous, doesn’t it? But it’s exactly how many appraisers argue for increased fees.
Appraisers, do you walk into a discount clothing store, pick up a suit and tell the sales person that you are willing to pay more if only they could alter it into a high-quality suit? Probably not. More than likely, you’d skip the store with the poor merchandise and head to Nordstrom to buy the superior quality suit you want and avoid negotiating with the discount store… right!? If appraisers want higher fees, they first have to prove they are capable of providing a superior product and service. Superior product first, increased fees second, not the other way around.
Which “Tier” are You?
Are you a Tier 1 or Tier 2 appraiser? From my non-scientific analysis, Tier 1 appraisers in most every part of the country are commanding near $450 or more in fees, while Tier 2 appraisers are paid significantly less. At this moment, if you are saying: Richard, you don’t understand the pressure for low fees in my area, you’d be wrong. Our firm has the same competitive pressures and issues that you face. Believe me, from what I have heard from them, many Lenders are desperate for good appraisers and are willing to pay top dollar for appraisers capable of Tier 1 work. Imagine how bumping up your fee even $25 or $50 per appraisal might change your attitude!
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Low Fee Work
It’s true that certain unscrupulous lenders and AMCs use Tier 2 or 3 appraisers for simple form-filling assignments where they don’t really care about the value or quality. They consider an appraisal a mandated bucket-filler for getting the loan approved. Tier 2 appraisers are quick, cheap and disposable. Use them, abuse them, pay them as little as possible, and when their work is hard-stopped by Fannie Mae’s Collateral Underwriter system, toss them aside and find another. Tier 2 appraisers are disposable pawns in their greedy chess game. This is why some appraisers are consistently paid poorly.
When good clients discover that you have a superior product, they will elevate you to Tier 1 status and will be willing to pay more. Tier 1 appraisers require fewer call-backs, need fewer corrections and provide proof of adjustments within the report. Their reports put the lender at ease, answer questions before they are asked and look professional. Now I’m not saying clients are likely to tell you that you are a Tier 1 appraiser and volunteer to pay you more. Like any shopper, they try to obtain the same product for a lower fee, it’s the American way. You need to prove you are worth it and then you need to ask for what you are worth.
Hooked on Quality
Drug dealers are known for willing to give products away for free, just to get users hooked. Once hooked, they charge the maximum and the drug users will pay or face withdrawal pain. Have you tried getting a client hooked on your appraisal product before demanding more pay, or are you just demanding more pay without proving your own value? Get the client hooked on your product. After a time, they will forget the competitor’s phone number and call you for the difficult assignments as well as the easy appraisal work. Increasing fees is easier now because you’ve earned their trust and respect for your product.
Many appraisers try to compete on price- the Walmart strategy. Trying to compete with cheap fees is a race to the bottom. How many remember White Front, Kmart, Value Mart? These were stores that tried to compete on price. They no longer exist. There only can be one at the bottom and it’s the same for the appraisal business. There used to be 159,000(ish) active appraisers in the U.S., today there are less than 80,000. I predict there will be fewer than 74,000 by the end of the year. Why have so many left the business? They lived in Tier 2 hell: blacklisted by lenders and Fannie Mae, disciplined by their state, drawn into lawsuits from borrowers and/or working for low-fee AMCs that eventually drove them out of business.
At this point in the history of our profession, appraisers must consider their business model. Are you going to accept lower fees in a race to the bottom, where there can be only one winner, or are you going to supply a better product than most everyone else? It’s your business model and your choice as to your income.
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Being Tier 1
My suggestion is to try to be better than average, typical, or similar to other appraisers. Shoot for Tier 1-level quality and supply a report that accurately describes the neighborhood, market, subject, and comparable. Make market-based adjustments and include proof of the adjustments in the report. Stop using MLS photographs, it makes you look lazy.Take a live class or webinar on how to determine supportable adjustments; there are more than 25 different methods including mass analysis, single-line regression, matched pair, and capitalization of rent. Have you even tried one or two different methods or are you still using some worn out adjustment sheet your trainer gave you 20 years ago?
Provide a superior product with a polite, service-oriented business at a competitive rate. As appraisers continue to leave the business, now is the time to raise your quality and be the “go to” appraiser. Once you have them hooked on your product, increase your fees- you’ll be worth it and they’ll be glad to pay it.
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by Sam Li
I appreciate what you said about finding an appraisal service that charges lower fees. Selling medical equipment is a complicated process, so it’s important to find an accurate appraiser. If I were to need such a service, I would make sure to find the best medical appraiser in my general area.
-by O'Connor & Associates
Had an interesting time reading this. Thanks for the information. sounds so great and helpful. Kudos!
-by Ed Holthouse
Richard, Richard, Richard… when are you guys going to quit preaching to yourselves and start telling us it how it really is! What a bunch of crap. Lenders don’t give a holly crap about quality work, they just want to make loans and pass their junk onto the secondary market in hopes that it sticks. I was just recently demoted from a Tier 2 to a Tier 4 by the largest bank in America for refusing to change something in one of my reports that would have been truly misleading. But may I digress, the reason I was a Tier 2 and not a Tier 1 was because we refuses to discount our fees. So your article should have stated that a Tier 1 is the “fast and cheap” guy that does whatever the client wants, right or wrong, not that mythical gobbledie goop you stated in your article. Tier 1 appraiser get $375 an appraisal where a Tier 2 appraiser gets $550. So if you want to be a Tier 1, go for broke, not me. Furthermore, one of my appraisers is currently being black balled by a regional lender and threatened with panel removal for doing exactly what you told us to do (in an email) on the private vs public road issue. Evan after we supplied overwhelming evidence to the contrary and even after one of their underwriters confirmed what we were doing was correct. So quit all of this BS about lenders getting “hooked” on quality. Nothing has changed in the past 10 years. The real estate brokers and lenders just won’t put up with it. So get real, for god sakes!
-by Mike Miller
50% or more of our reporting is “fluff” the AMCs or Lender want. I am taking this opportunity to advocate for………A much shorter URAR form, with some required check boxes and discussions removed, and less addenda the Lender should already have or be able to obtain more cheaply. There are so many data services available. Let the AMC or Lender spend $10 to $30 retrieving and providing data for the report, providing a legal description of the what the heck they require us to value, an overview of the market conditions and an aerial photo. We can review what they provide and agree/disagree with information in the data they provide. 10 to 15 minutes to do that and scan it back into the addenda. Then we can provide them the physical inspection data, the “correct and best” comps, a summary of how we arrived at our opinion of value and actually just provide a narrow range of value. Let the geniuses at the lender offices decide how much to loan on the property. They can base that on all we provided plus the borrower’s credit scores and history. Let them decide if they should lend on the low end of the value range or on the high end. Maybe the Appraisal Institute can offer several classes for us to learn how value of real estate is EXACTLY a specific dollar amount. And hopefully, some Lender’s can have their reps tell us why a 2% to 4% lower value estimate than they were hoping for or the sales contract displayed actually killed their deal. We need shorter forms, more responsibility on the lenders to provide initial data, less requirement to explain our findings on a 5th grade level, and no requirement to explain why a 3 car attached garage adds more value than a 1 car attached garage, and a reporting requirement of only a narrow range of value. I would rather do 2 or 3 assignments a day, at a lower fee, getting the value estimates right, than to do one a day at the current fees and sending in a 45 page report where I only spent 50% of my time pegging the value range and 50% of my time checking and rechecking my report to make sure I didn’t forget to mention some trivial aspect or bit of info that had no effect on my value estimate. I don’t know all the answers, but I do know my value estimates are just as good with 10 to 15 page reports as they are with 45 page reports.
-by Annemieke Roell
I fullyy agree with Rachel as well. But I also realize that there is a big disconnect between the quality of education that is widely available and the knowledge base many appraisers have to produce high quality appraisals. Not every appraiser has the ability to travel all over the country for quality education and the material that is approved by the AQB for non AI schools is mediocre at best.
-by Jo Ann Meyer Stratton, IFA, SRA
I agree with Rachel. Great article Richard. We are professionals and we need to provide professional reports with clear explanations. enough information and data so that reader that has never been west of the Hudson River can understand the Market in Arizona. Definitely agree with Rachel’s comment to exceed expectations and always provide a Tier 1+ report. Thank you Richard for writing this article!
-by Tom D
walmart killed all the little guys, now it’s minimum wage. the quality of the person decides the quality of the work, fee is secondary. unfortunately there is no freedom in this business to get your worth in income anymore. someone here please tell me that you are getting paid what you think you should be getting. tier 1 or tier 2 means nothing to this once great profession when the pay is tier 10. i get decent fees, but i now have outrageous expenses and no way to make a profit anymore. by the way, i am a happy appraiser, poor but at least working. i also refused the low paying amc’s when they started, tells you how old i am.
-by Mike Miller
Tom D, I certainly am not going to judge your comment. However, I am a certified Appraiser, but also a CPA that had been in the real estate business for over 35 years. I am not happy with the demise of the mom and pop stores or local enterprises. But, I did accounting work for those local businesses for years. From a business owner’s perspective, I had no problem with them paying only what they could to stay in business. But many local, small business, employees worked for rock bottom wages, with no medical benefits or retirement plans and with those wages they could not set up their own benefits. Often those low wages were also in cash, building up no social security benefits for years. Walmart may irritate us for sure, but minimum wage thoughts don’t tell the whole story. I have many friends who work for Walmart and say it suits their needs perfectly
-by Mike Ford CA AG, SCREA, AGA, GAA, RAA
My very first appraisal mentor; Michael J. Vizzini, SRPA always charged about 10% more ‘than the herd’. His rationale was that his work was better. Our clients agreed 90% of the time-very few shopped him on sfr prices.
I’ve also always found it is far less crowded swimming in the deep end of the pool than the shallow end. I just had to learn the skills needed for deeper water.
I’ll always be grateful to MJV for teaching me that.
-by Jim Woodring
That would be Tier 1 exclamation mark.
-by Jim Woodring
Woo Hoo! I’m in Tier !
-by Jeremy Hall Appraisals - Colorado
One of the greatest challenges, is working with everyday, regular lending clients or their amc distributors, and getting them to appreciate more detail and more support. They’re focused on production, and scarcely even understand why additional content and analysis protects the lenders and investors from repurchases, nor do they care. To them, a ‘superior product’ is one which can be reviewed and processed quicker than the rest. Only in real estate could a dedicated worker hear something like; You’ve done too good of a job, and this is not aligned with the peer standard. Until such time as underwriters can be in control of which appraiser is preferred and which is not, and appraiser approval is tracked alongside longer term repurchase or conflict history, the industry abuses will continue. Realty agents tell me great job with the attention to detail. They call me for advice with complex scenarios. Home owners say; I’m glad you’re the appraiser, the last guy was in and out. The reviewers whom sit next to the assignment staff will say; He’s just making us work harder, so we don’t like him. Only in real estate.
-by Louis
Richard,
-First I would like to state that I agree with providing quality work and your business will be successful. That being said your analogy of the iPhone and take on how business in America works is wrong. You may pay “x” for an iPhone but if you want the one with more memory, bigger screen, etc. you pay MORE MONEY. In America you get what you pay for. Not saying that providing a poor appraisal since the fee was low is smart (your the one on the Hook) The industry is rapidly evolving and we keep getting more regulatory mandates that are plumping up our reports with guidelines that take so much more time than years past to complete. Put your pants on and get out of bed with the AMCs.
by Rachel Massey
Good article Richard! I agree with this and have seen it first-hand. It just takes time, so readers should not be discouraged that results are slow coming. It most likely will take a couple of years of above average quality and support to get the word out, but I firmly believe the best way to survive and thrive in this business is to exceed expectations, not just meet them. Thanks for the article.
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