I’m going to Arizona on Friday to talk about Alternative Valuation Products.

What are Alternative Valuation Products?  In a nutshell, the term is used to describe any product that provides a valuation to a lender, but is not intended to meet the guidelines or format of Fannie and Freddie.  In other words-anything besides a 1004.

Ah yes-the venerable 1004. One of the most difficult challenges facing residential appraisers is that they have been forced down the cattle chute of conformity in what type of report they provide to clients.  Maybe I’m making this statistic up-but I think that 93.675% of all residential appraisers provide a 1004 appraisal to any client-regardless of the intended use and the intended user.  Lenders, lawyers, consumers-it’s always a 1004.

Does that make sense?  Is the 1004 the all-purpose appraisal report format?  I think not.  The 1004 is intended for the needs of Freddie and Fannie.  It meets their internal needs, their requirements.  It’s not the all-purpose appraisal; but it is the default format for residential appraisals.

I have spoken to thousands of appraisers over the last several years.  When I talk about the 1004 or forms in general – I mention that I think that forms have been the ruination of an industry;  That residential appraisers have been pushed down a path that makes them really good form-fillers, but often stifles their skills at producing an appraisal.  We have been focused far too long on the presentation layer – the report.  We have been lead to believe that the report is the appraisal.  We have lost sight (some of us at least) that it is the analysis, the process of determining the valuation of a given property that is our job.  The form is merely the outcome of our appraisal findings.  Form vendors have worked hard to make the form as efficient as possible and they have done a good job.

But at what cost?    There are times when I am amazed that so many in our industry look to the 1004 and lament about appraisal fees that are dropping; that volume is down and that the industry is on the ropes.

But not all volumes are down.  Last year, by some estimates, more than 12 million valuation products were completed by someone other than an appraiser. Say what?  Exactly!  These were alternative products that appraisers did not provide to their clients.  These were products that for the most part could have been performed by appraisers. This is the alternative valuation product marketplace. Over a billion dollars is spent on these products. This is a billion dollars that could go into your pockets.

What are these products used for?

Here is the feedback from a top-ten lender on how they would like to use alternative valuation products:

1. As a replacement for BPOs in the valuation hierarchy for home equity origination.
2. An alternative to a URAR in non-agency (GSE) or portfolio loans (home equity, private client, consumer finance, community banking).
3. In default management as a replacement for one or all of the BPOs used throughout the process.
4. A replacement or alternative for current valuations in the loan modification programs.
5. Use in quality assurance programs to meet agency requirements.
6. As a second valuation for value dispute resolution and value reconciliation purposes.

I can already hear what you are saying beneath your breath.  “The fees are too low.”  “I can’t do those appraisals because I cannot meet USPAP requirements and provide that kind of report.”  And worst of all-“these types of reports are destroying our industry.”

Nonsense.

My message is simple:  alternative valuation products are needed by our clients, and they want appraisers to perform them.  Others have seen the need (notably BPOs) and have provided them to their clients for years.

Others are just beginning to smell the roses.

On Monday, I spoke with Joanna Conde, the organizer of the Arizona State Conference:  http://www.arizonaappraisersstateconference.org.  She told me that my discussion of alternative valuation products was the “hot” topic.  She said that half the people would love what I have to say and half would hate the message.  I have the opportunity to change some hearts and minds.

Challenge accepted.

I have recognized that there are some appraisers who believe that anything less than a 1004 is a violation of USPAP; that it is somehow “less” of an appraisal.  I am here to tell you that those appraisers are wrong.  Chief appraisers of the nation’s largest lenders agree; AMCs agree; USPAP instructors agree.  Appraisers can provide a solution that meets their clients’ needs.  They can do it in a manner consistent with the requirements of USPAP, and they can do it in a manner that makes money for the appraiser.  And I am talking serious money by the way.  I keep hearing this canard that somehow by performing any report that is less than the going rate for a 1004 will cause appraisers to work for less.  Hello!  Can we focus on your hourly rate rather than your “piece-work” pricing?  If an appraiser can consistently make $50 an hour, are they not making $100,000 a year?  Am I missing something here?  Or is it more likely that those who shriek the loudest are missing it?

Last week I attended the Collateral Risk Network (CRN) www.collateralrisknetwork.com conference in New Orleans.  What was identified as a critical need by most of the speakers?  Answer: The need for appraisers to perform alternative valuations for their clients.  One after another, some of the nation’s largest lenders came to the front and asked what could be done so that appraisers could provide products outside of the traditional sphere of the 1004.

I heard the same message from the Industry Advisory Council of the Appraisal Foundation some months back.   The members went so far as to establish a task force to provide guidance to appraisers on how they could provide USPAP conforming alternative products to their clients.

There will be whole new opportunities emerging in the next few years to empower appraisers.  And there will be new tools and new analytics that will make the appraiser’s job both exciting and more remunerative.  I really believe that.

And by the way-it’s not about wrapping an AVM inside of a product and saying it’s an appraisal.  I’ve seen those and I yawn. It about a whole new class of product that takes advantage of data and provides the tools to analyze the data.  More about that in future blogs.

For now-it’s about the Arizona Appraiser’s State Conference. I am sure that some of the people coming to the Arizona conference will challenge whether appraisers can provide this type of product.  They will challenge me and some will likely suggest (or shout) that appraisers cannot provide an alternative valuation product.

I accept the challenge.

As appraisers, we provide services to our clients.  We need to provide the right product for the identified client need.  We can offer far more than a 1004.

All and all, in these groups I see an air of hope.  That maybe the opportunity still remains for appraisers to provide an expanded array of products that will meet client needs.   There is also a feeling that maybe this is the right time-the tipping point.  But many still question whether appraisers can come up with a solution that meets those client needs and whether they will step up and perform anything other than a 1004.

I think they will.

I have been pitching alternative valuation products for years.  Products that can offer more credible and supportable values with greater transparency.

So Friday and Saturday I will have in excess of 300 appraisers who will run the gamut of “I love the idea” to “I hate the idea.”

Bring them on.

If you are one of the 4,500 appraisers in shooting distance to Phoenix – come hear me speak on Friday or Saturday.  Check out the link and the agenda and sign up.  It’s cheap for what you will get.  Tell me what you think.  I’m open to the good, the bad and the ugly.  Ask your tough questions.

I don’t think appraisers are one-trick-ponies.  I think we have a lot to offer-and our time to shine is coming back.

Let me know what you think.