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Fee For Service Armageddon: How Low Can You Go?

From the Movie Armageddon – actor Steve Buscemi says, as they are sitting in the Space Shuttle on the launch pad:

You know we’re sitting on four million pounds of fuel, one nuclear weapon and a thing that has 270,000 moving parts built by the lowest bidder. Makes you feel good, doesn’t it?

The commercial appraisal industry has evolved from a group of professionals providing critical input for underwriting or other decision making to a pure commodity. In retaining the services of an appraiser, the basic theme is “the low fee takes it.”

These buyers of appraisal services either cannot distinguish a good report from bad, or simply don’t care. Therefore, most lenders – notice that I didn’t say all – will make their selection based on that person that is willing to sell his services for cheapest fee.

Can you imagine selecting your cardiologist or divorce lawyer using the same criteria?

With the advent of on-line bidding systems, lenders can now solicit bids from a dozen or more firms, which inevitably places even more downward pressure on fees.

The irony is that the same groups that make an entirely fee-based decision are the ones lamenting the dreadful quality of appraisal reports that are the norm today.

HmmmI wonder if there’s any relationship there?