How Lenders Can Eliminate Revenue Leakage from Appraisal Fees
At Reggora, our mission is to make fast, high-quality appraisals the norm for mortgage lenders. Along the way, we’re able to solve problems that lenders often don’t realize they can fix. In part one of our value series, we'll show how revenue leakage from appraisals costs lenders upwards of $50 per loan file and how Reggora eliminates those losses.
Unforced errors in payment collection for appraisals have the potential to amount to a six-figure annual loss for lenders. There are two core issues that contribute to this level of revenue leakage: completely uncollected appraisal fees and fee escalations without a change of circumstance. Every time one of these cases occurs, unique circumstances may make it seem like an exception, but STRATMOR Group’s 2022 study on appraisal operations showed 26% of a typical lender’s loan volume is affected, and the losses add up quickly.
While neglected bills from borrower fallout and internal absorption of fee escalations may be accepted as status quo or the cost of doing business, they don't have to be. With the right tools, lenders can take a proactive approach and prevent six-figure losses. In this article, we’ll examine the main sources of revenue leakage, the challenges they pose, and how mitigating these issues using Reggora’s appraisal management platform increases a lender’s margins.
Revenue Leakage Source 1: Borrowers Neglect to Pay
As lenders compete in such a large, competitive mortgage industry — comprised of nationwide brands, local real estate companies, and tech-focused startups — they’re prioritizing improvements to the borrower’s experience in order to stand out. To that end, it may seem like it’s better customer service if the appraisal can be ordered and scheduled without delay. So lenders end up fronting the money, assuming they’ll get reimbursed at closing.
That is, if the borrower makes it to closing with you. There may be unresolvable reasons as to why the transaction can’t move forward. Or they might fall out due to a better offer from another lender. Unfortunately, their appraisal bill may get left behind too. According to STRATMOR Group’s 2022 appraisal research, the average cost of an appraisal is $629. Worse is when a fee escalation also occurs without a Change of Circumstance. If they choose another lender and neglect to pay for the appraisal, you’re forced to also absorb the additional escalation cost, which is, on average, $181 per loan for lenders nationwide.
Losing $629 or $810 on transactions that don’t close adds up quickly. Across Reggora’s customer base of over 120 lenders, this typically occurs on 4% of a lender’s transactions. As an example, here is how much that costs a lender originating 10,000 loans per year:
Scenario 1: Lender Loses the Entire Fee of $629
- Total Cost: 10,000 x 0.04 x $629 = $251,600
- Cost Per Loan: $25.16
Scenario 2: Lender Loses the Entire Fee and Covers Fee Escalation, Totaling $810
- Total Cost: 10,000 x 0.04 x $810 = $324,000
- Cost Per Loan: $32.40
Want to calculate how much your organization could save? Contact our mortgage solutions team for a free cost per loan consultation. Our team will quantify your current revenue leakage and provide a detailed model of the costs you can eliminate.
Leakage Solution: Upfront Payment Collection
When you’re trying hard to streamline the borrower’s experience, you may question whether upfront payment collection adds friction. While it is an extra step, you have to question how committed a borrower is if they aren’t willing to pay a few hundred dollars up front on a five-, six-, or seven-figure transaction. If they won’t agree to that, they likely aren’t planning to make it to closing with you anyway.
To reduce friction when collecting payment up front, lenders need to make it easy for borrowers to pay. Reggora’s appraisal payment solution was developed for this exact reason. Reggora automatically sends the borrower a white-labeled email with a payment link as soon as they provide their Intent to Proceed (ITP). For some lenders, this can even be done in your point-of-sale system. Timing is important here. Since payment is a logical next step after the ITP, borrowers will be more likely to complete the process in that moment. Reggora will deliver follow-up emails every 24 hours until payment is made. This helps ensure that the borrower doesn’t miss a single-send email or further delay taking action. Once payment is collected online, Reggora automatically allocates the order to the correct vendor, all based on the unique requirements you set up front.
By allowing the borrower to conveniently pay up front, using a computer or mobile device, a lender doing 10,000 loans per year will save $25.16 on each loan — over $250,000 annually.
Revenue Leakage Source 2: Lender Absorbs Fee Escalations
Fee escalations are especially common in these days of appraiser shortages. This creates quite a headache for lenders when the escalated amount exceeds the appraisal fee they disclosed to the borrower. If the lender cannot issue a Change of Circumstance due to the reason for the fee escalation, then they must assume the difference and lose that revenue.
Nationwide averages from STRATMOR Group research put this level of revenue leakage into perspective: fee escalations average $181 per loan, and fee escalations without a Change of Circumstance occur in 26% of appraisals. If you apply these industry averages to a lender whose volume is 10,000 loans per year, the result is $470,600 in losses.
Leakage Solution: Proactively Increase Fee Schedules
Reliable, up-to-date data is key to mitigating revenue leakage from fee escalations. Reggora’s nationwide appraisal data enables lenders to see escalations in real-time and proactively adjust their fee schedule accordingly, either by market or with vendors who routinely issue fee escalations. Doing this on a regular basis will keep your fee schedules updated so you disclose the correct amount or more.
Lenders who take this approach using Reggora’s nationwide data on fee escalations are able to reduce related revenue leakage by 65%. Using Reggora to actively manage fee escalations ultimately decreases a lender’s cost per loan by $31 per file, based on 10,000 loans per year.
The Value of Optimizing Your Appraisal Process
The challenges associated with appraisal payment collection and fee escalations are common throughout the industry. However, the associated revenue loss does not need to be accepted as the cost of doing business. Reggora’s appraisal management platform equips lenders with reliable, proven tools that directly address the culprits of preventable revenue loss. The main takeaway here: Reggora eliminates revenue leakage to reduce a lender’s cost per loan file by $56.
These aren’t the only costly issues that lenders face when it comes to appraisal management. In our white paper on the ROI of appraisal management technology, you can learn more about costly challenges and impactful solutions for appraisal quality control, billing, management time, and visibility into the process, all of which we will outline in future posts as a part of our value series.
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