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Trends involving volume and investing in smaller valuation companies to ensure quality valuations will impact the home finance industry in 2015, according to an email from Summit Valuations President Ron Ahlensdorf, Jr., to his firm's staff and clients.
When taken together, those trends could mean more opportunity for firms such as Illinois-based Summit Valuations and the mortgage loan servicers and investors the firm serves.
"Market forces will complete the work of shifting the industry away from massive industry giants to smaller firms in 2015," Ahlensdorf wrote. "We saw this a couple of years back when loan origination fell off at the big banks, opening the doors for smaller community banks and credit unions, and we saw it again last year with the shift from big bank loan servicing operations to smaller non-bank servicers and special servicers. In 2015, we see a similar shift away from very large property valuation providers to smaller, more nimble shops."
The first trend is about volume, according to Ahlensdorf. Servicers sent tens of thousands or orders to BPO shops for evaluations at the height of the foreclosure crisis, and even the largest of companies could not handle the volume – and the quality of results suffered. Although that wave has passed, a new one has begun as investors are buying undervalued housing inventory for rental stock.
"Volume is both friend and foe in our industry," Ahlensdorf said. "While higher volumes mean more business for everyone, those firms that are ill-equipped to deal with the increased work run high risks. That can also create higher risks for the companies they serve."
The "new wave" of buy-to-rent investors have been buying properties by the hundreds of thousands for the last couple of years, but as a result of declining inventory of distressed properties combined with home price appreciation, investors are taking more time for deliberations, which makes way for the second trend – investors are seeking out smaller companies in favor of the larger firms in order to increase quality. Ahlensdorf said investors are looking for viable partners with a track record, suitable technology, and a sufficiently trained staff that can provide a quality product – easy-to-read reports and data that can be accessed anytime from anywhere. According to Ahlensdorf, this trend is already winning new business for Summit Valuations.
"When deals were very affordable, it was easier to take risk and absorb any losses caused by bad collateral valuations, but as prices have risen this has fallen out of favor with these buyers," Ahlensdorf said. "This has led to a flight to quality in the collateral valuation space and sent a lot of work to smaller companies that have a lower ratio of orders to employees."
According to Ahlensdorf, only pre-qualified agents holding an active real estate license that Summit has verified can be admitted to Summit's agent panel, and panel members are consistently graded on their performance to ensure that they are providing quality, thorough, highly accurate, timely valuations. Summit validates accuracy of its valuations using a propriety, multi-faceted quality assurance process with hundreds of check points. A member of the quality assurance team hand reviews every field in each valuation.
