Appraisal Management Gets a Shot in the Arm

JAN 14, 2013 2:41pm ET
Comments (6)

WE’RE HEARING...appraisal management isn’t such a hum-drum business after all. No, really, at least not in the hands of a 27-year-old entrepreneur like Brian Coester.

About seven years ago, Coester left a job at Smith Barney to join his dad’s appraisal business and provide marketing support, only to see his dad retire a month later. (The old man still accompanied his son on marketing visits, just so clients wouldn’t be spooked by the younger Coester’s age). Today, Coester Valuation Management Services does about 6,000 appraisals a month and generates about $25 million in annual revenue. Coester’s goal is to have the company doing 2,000 appraisals a day.

Coester admits that being a 20-something CEO does raise eyebrows among some potential clients, but he said it hasn’t been a roadblock. “It’s never been an obstacle to the point where anyone has not done business with us because of it,” he told me.

And many clients are relieved to see industry veterans, like director of accounts Frank Novak and SVP of operations Rob Chasteen, working alongside Coester. In hiring people, Coester told me he puts a premium on mortgage experience and technology savvy.

And youth perhaps brings a fresh perspective to the appraisal business, one of the more stodgy pieces of the mortgage puzzle in many eyes. And with the Consumer Financial Protection Bureau increasing oversight of the entire lending process, lenders will find themselves under even more scrutiny regarding how they value collateral. With regulators and investors requiring more data and tighter controls, automation of any lending function is key.

“The biggest thing for any company right now is just keeping pace with all the changes,” Coester said. “It’s like trying to go upward on a downward escalator, where you have to run twice as fast just to keep up.”

The regulatory environment has changed so much that he believes an originator today looking at an appraisal report from a 2006 loan package would wonder how anyone was allowed to close a loan based on it.

Coester says the appraisals get returned for “revisions” upwards of 30% of the time because they don’t meet regulatory, underwriting or investor guidelines. Coester wants to get that down to 5% or less.

As a result, his nationwide appraisal management company has focused on using technology and “common sense stuff” to make sure appraisals come back the same way every time. The company has studied revisions to see what errors crop up repeatedly. When trends are spotted, those issues are incorporated into appraiser training.

Coester is keen on having software developers flag every data point in the appraisal process, even things that typically are not needed for monitoring or reporting. That way, if you decide to change what data used in reports, it’s as simple as changing the radio station in your car. There is no reason to muck around with the software architecture.

“A simple thing like that becomes genius later on,” he said. “It’s not about creating something super special but more about using the technology that is currently available.”

The location of “comps” used to support an appraiser’s valuation is one potential red flag to keep an eye on, he said. If an appraisal comes in with two comps from across a highway, where previous appraisers used comps on the same side of the highway as the house, that’s a big warning sign, he said.

Coester is also skeptical about the reliability of automated valuation models, saying that, for lack of a better word, they “stink.”

“They’re just accurate enough to get you in trouble,” he said. “Five of them will be pretty much right and then one will be $300,000 off.”

Currently, he sees a continuum of valuation products, ranging from free home value estimates from companies such as Zillow and Trulia, to simple AVMs that cost six or seven bucks, to interpretive AVMs (around $50 a pop) to desktop appraisals ($125) to full appraisals ($450).

Because of the significant price differential, he believes that an interpretive AVM in the $30 price range could find a niche, but efforts to deploy such products using sales contracts and real estate listings for current valuation estimates haven’t been well received to date.

CoesterVMS developed Cloud Control, an appraisal management platform that utilizes Salesforce.com’s technology, which helps customize the appraisal ordering process for different lenders with different origination strategies and channels.

Ted Cornwell has covered the mortgage markets since 1990. He is a former editor of both Mortgage Servicing News and Mortgage Technology.

Comments (6)
"Brian Coester (CEO of CoesterVMS) who was at one time an appraiser in Virginia should know better than anyone that every appraisal is a custom job. An appraiser cannot simply place a flat fee on every report that is done. Yet, that's the model that he uses when his company "manages" appraisers.

It should be noted that Coester allowed his license in Virginia to lapse after he was party to a report that he assisted in inspecting and preparing that was found to be poorly prepared by the state board in Virginia. His father was the one sanctioned as he was the supervising appraiser. The supervising appraising, his father, was sanctioned by the board and fined. Virginia does not sanction assistants. Alex Uminski, SRA, a well-respected Richmond area appraiser, was asked by Fannie Mae to do a review of the property appraisal report that was ultimately the issue for the complaint. Once, Uminski had finished the review and discovered that the report was inflated and that the Coesters were not from the local market area, he turned them in to the State Board. It should be noted that the property subsequently sold for much less than it was appraised for, after the inflated property value supported loan defaulted. Uminski added that the low sale price was after the foreclosure transactions and a rehab, for an arms-length sale.

The Coesters traveled from the Gaithersburg, MD area to Richmond, VA to appraise the property. This is a distance of approximately two hours without traffic. Sometime thereafter he decided it was a better deal to run an AMC. This should be a concern for anyone engaging this company to manage appraisers. If professional ethics have been worked around as an actual appraiser, how then does this same person start "managing" appraisers?" - Woody Fincham
Posted by | Wednesday, January 16 2013 at 9:15AM ET
I am surprised NMN would do a feature on an AMC. This is a puff piece to solicit business. AMC's are nothing other than blood sucking leaches. I told this to a group of LO's and they told me I was being too nice. What value does administering an appraisal order offer, $200 an appraisal which is customary, $250 w? Dodd-Frank doesn't require AMCs be used, they require appraisal independence. Every lender should setup an internal appraisal department to make sure appraisers get paid and they get good work.
Posted by | Wednesday, January 16 2013 at 12:32PM ET
With 6000 appraisals a month and $25M in annual revenue, you'd think they could pay their appraisers on time. Their payments consistently take 50% longer then they promise and when you eventually have to call them to ask where your money is, you get attitude from their accounts payable people (probably b/c every call they take is for the same thing). I've stopped taking assignments from them. The longer the payments take...the more I smell another AppraiserLoft-style meltdown.
Posted by | Wednesday, January 16 2013 at 2:51PM ET
25 million in annual revenue ?? So, the company gross income is what ...about 10 million or so ?? I'm I missing something here ? I'm in the wrong end of the business.
Posted by | Wednesday, January 16 2013 at 4:26PM ET
Love the comments. I don't know what anyone is thinking writing an article such as this about an AMC. As a broker, my experience is predominantly appraisers are under paid and jobs are bid to the cheapest appraiser. Then appraisers wait up to 90 days or more to be paid. This article lays it out very clearly. AMC's are a money machine and many are for the banks that own them. AMC's are absolutley zero help in determining accurate values or assisting consumers in getting accurate valuations. I will note I've had no experience with this AMC, but 100% of them I have been "forced" to use by lenders are dismal.

I just had 2 loans lose locks because one appraiser took 7 days to even call for an appointment; the AMC took a week to review, add in another week for perparing the garbage. So unfortunate that home owners are being taken to the cleaners so AMC's can rake in the dough.
Posted by | Wednesday, January 16 2013 at 6:12PM ET
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