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Appraisal Management Gets a Shot in the Arm

JAN 14, 2013 2:41pm ET

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.