(Editor’s Note: This article originally appeared in the Fall 2016 issue of Appraisal Buzz Magazine)
Translation: Hello from Australia
On my recent visit to the U.S., I was again reminded of the vast and sometimes surprising differences between the U.S. and Australian appraisal landscape. After all, we essentially are doing the same thing to achieve the same end result. I can’t help but see the U.S. as “the land of opportunity.” I know that’s not a common view held in the U.S., but I still see it like that.
Firstly, I need to qualify that I’ve never worked in the U.S. and as a result, a lot of my understanding of the appraisal space in the U.S. comes from discussions and observations, which, by their nature, are limited. In short, I could be wrong about how things work in the U.S. and happily ask you to correct me where I am wrong.
I have, however, worked for Herron Todd White in Australia now for over a decade, and ended up as CEO (despite not being an appraiser). In that time I have seen it grow from a $23m turnover with 30 offices to about a $125m turnover with 65 offices and 850 employees (including admin). It’s been a fun ride.
At Herron Todd White, the largest employer of appraisers in Australia, all 100+ owners work in the business, which is like a tightly controlled franchise model. We build our own systems (IT and other), have zero contractors and don’t act as an AMC. All of our appraisers are employed by Herron Todd White directly and use the same in-field technology. We adhere to the same policies, procedures, and guidance expectations; and have been collecting data in the field, electronically for over a decade (we are on our 4th generation software now).
Perhaps surprisingly, in the Australian residential appraisal space our competitors are the likes of large global real estate firms CBRE, JLL, Knight Frank (as well as some non-global name firms of course). This was not the case until about a decade ago. The sector has moved quickly from a ‘cottage’ industry/small business model to a larger corporate model within around 10 years. This trend continues, with the “danger zone” surrounding the medium sized firms. Small niche commercial valuation firms will be ok, and large firms with scale will dominate, but those in the middle may be worried about their place in the world moving forward. This, however, is a trend across the globe in all service sectors as clients continue to want to consolidate their supply chain and reduce the number of partners they deal with.
The Australian space is dominated by appraisal for collateral lending (we call it mortgage security). We have four major banks that have north of 80% mortgage market share, plus a number of regional and smaller banks, credit unions and non-banking clients. We only have 26 million people in Australia (half that of California), but we spread out over a geography about the same size as the Continental USA (albeit we mostly live along the coast – too hot in the middle).
Our appraisers (called “valuers”) are statistically younger than US appraisers and likely to work for one of the bigger valuation firms. There are very few valuers left working for small two or three person/small business operations. To become a valuer in Australia you need a three or four year University Degree and then at least a year of “on the job training” (depending on State licensing laws it can be two years). Australian valuers complete between 6 to 10 valuations a day on a format pretty similar to your standard “single family” format. Generally, up to 40% of the total fee goes to the valuer. For example, if the total fee to the valuation firm is $200 for a house up to $1m, the valuer generally (depending on their employment agreement) gets $80 from which they need to run their own vehicle. However, insurance, technology, desk cost, membership to equivalent of Appraisal Institute is generally paid for by their employer. Most valuers would complete and send about half of their mortgage security valuations from the subject property. On hitting “send to client” the valuation goes through a plethora of automated checks and balances. The valuer can’t send (from a technology point of view) until they have addressed or explained any variations/omissions.
So, what’s the same (from my perspective) between our American appraisal cousins and us? The overarching concept of sending someone out to provide an opinion of value on which others can rely to advance funds is very similar. Furthermore, clients want more for less. Clients want faster, cheaper, and better – all three (the old business axiom of choosing two of the three is out the window).
And what’s different? One of the key differences is that in Australia, most banks hold the risk of the loan themselves, as opposed to selling them off to a GSE. This is a key difference because the banks in Australia are therefore more concerned about the longer term risk of the loan, as opposed to what I think happens in the U.S. whereby the bank is really just a ‘broker’ doing a deal that then gets quickly on sold. In this situation the U.S. bank is more concerned about “compliance” (as opposed to quality) so that they can defend any compliance issues that might force them to buy back the loan should things turn sour down the track.
In looking at the U.S. landscape, I was struck by the plethora of “rules” the appraiser must follow (from Congress, the State, to USPAP, etc.). Many times I hear that the ‘rules’ often prevent the appraiser from “doing the right thing,” which is in the best interests of all concerned. I appreciate that the rules are almost always put in place with the best intentions, though I hope the Australian environment resists the temptation to try to anticipate every scenario and prescribe what the valuer should do. Rather, I hope the Australian environment leaves room for professional judgement and continues to acknowledge that it’s impossible to prescribe an action for every possible eventuality a valuer comes across.
In Australia, with only four big banks dominating the Australian market, the quest for market share within a much smaller market than the US drives the appraisal firms to work faster and faster to appease the banks whilst ensuring that quality and compliance continually increase. A typical residential valuation is expected to be back to the bank within 48 hours, as opposed to the three to seven days afforded by US lenders.
“In Australia, the fees are about half that of the US, the Gross Turn Time averages two days and quality gets scored and ranked on every Val.”
One of the “secrets'” of being able to achieve these turnaround times (there are of course many and none of them involve cutting corners) is having a ‘standard’ or “harmonized” set of instructions from the major banks. As a profession we worked on getting the support of the major banks to “harmonize” their instructions to valuers for the “standard” assignments. That is, the major banks recognized that there is no competitive advantage to any of them in the specifics of what they ask for in a standard valuation, and that it would serve everyone well to “harmonize” their requests so that each major bank is asking the valuer for the same information within their report. This then allows us to build systems to that standard, and it quite frankly is easier for the valuer to do their job well. Valuers don’t have to re-read different letters of instruction from different clients who want slightly different things that actually don’t have much of a material impact to value or risk. I understand in the US context, that until the Chief Appraisers of the GSE’s, the top four banks, and a handful of other key stakeholders get in a room and nut out a ‘national standard’ that this notion remains a pipe dream. In my view, that is the secret sauce for success.
With the focus more and more on “big data”, I can’t help but think that the Australian and US Appraisal landscape will be more homogenized in the foreseeable future.
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