One Simple Way for Mortgage Branch Managers to Improve P&L
Branch managers consistently look for ways to improve their branch's profitability. And mortgage lending is a notoriously low margin business. In boom times, it’s easy to brush the problem off, but in low volume times like 2022/2023 every bit of margin matters — especially if you receive variable compensation (a bonus) tied to your branch’s performance.
Fortunately, there’s a simple way to reduce operating costs that branch managers often overlook: appraisal fees. In this comprehensive guide, we'll dive into the three places you lose revenue from these fees - supported by STRATMOR Group's 2023 data - and show you how simple it is to stop the bleeding.
Three Ways Your Branch Loses Revenue From Appraisal Fees
1. Deal Fallout
One of the most glaring sources of revenue leakage lies in deals that fall through. Consider this scenario: you've ordered an appraisal for a loan, planning to collect appraisal payment at close, but the borrower got poached by another lender after you pulled credit. It happens all the time. Your competitors buy lead lists of these credit checks so they can try to steal your borrower by offering a lower rate, free points, etc. You've already invested time, effort, and money, and yet the entire appraisal fee is lost. Let's put this into perspective: according to STRATMOR Group's collaboration with Reggora, lenders eat the appraisal fee when deals fall through on 13% of their loans. Now, envision your branch processing 500 loans per year - that's 65 potential lost appraisal fees. At an average appraisal cost of $629, you're staring at $40,885 vanishing from your branch's profit and loss.
2. Fee Escalations
Fee escalations that don’t qualify for a change of circumstance represent another revenue leakage point. Picture this: an appraiser escalates the fee because they don't want to travel far. And, because you didn’t disclose enough up front to cover that increase, you're left shouldering the extra cost. According to the same study, the average lender loses the fee escalation on 14.2% of their loans. If your branch processes 500 loans annually, that translates to 71 fee escalations. With an average escalation cost of $181, you're looking at a loss of $12,851 per year.
3. Credit Card Processing Fees
In an era where convenience reigns supreme, most borrowers prefer paying with credit cards. Unfortunately, lenders often bear the brunt of credit card processing fees. In fact, a whopping 53% of lenders absorb these fees, according to the data. For your branch processing 500 loans a year, the average credit card processing fee of 3% on an appraisal cost of $629 adds up to a loss of $9,442 annually.
That’s a total of $63,178 in unnecessary cost added to your P&L. And that’s just for branches that lose the average amount. You’d be surprised how many branches we see that lose revenue far more often than average.
Three Simple Solutions to Stop the Bleeding
Collect Payment Upfront
The key here is to not eat the fee if the deal falls through. The modern payment solution offered by Reggora empowers borrowers to conveniently pay online, right from their phone. This eliminates the risk of losing the entire appraisal fee due to deal fallout. Plus, your LO’s don’t have to worry if, when or how an AMC (if you use them) is going to collect payment. It’s all done upfront, in your branding, and the LO knows exactly when the link goes out — so there’s no surprises, and no suspicious link from a vendor the borrower has never heard of.
Disclose Correct Amount Upfront (or Use Vendors that Don’t Unnecessarily Escalate)
Avoid fee escalation losses by disclosing the accurate amount (or more) upfront. Reggora's nationwide fee data enables automatic upfront disclosures. Alternatively, just use vendors that don’t unnecessarily escalate fees like The Appraisal Marketplace. Its fee escalation rate is 1% — compared to the industry average of 14.2%. This way, you completely mitigate the risk of unnecessary fee hikes. And, for your LO’s that feel like it helps win business, they’ll have a nice low appraisal cost on the disclosure.
Note: Your first 10 appraisals are free if The Appraisal Marketplace doesn’t deliver them on time. And that offer is good for each new geography you roll it out in.
Bundle Credit Card Processing Fee & Appraisal Fee:
Why not let borrowers cover both the credit card processing fee and the appraisal fee? Bundling these fees ensures that you're not bearing the cost. With Reggora, it's effortless to implement this solution, and ensure compliance. Note: If your compliance team needs help, we can walk them through the CFPB’s TILA-RESPA Integrated Disclosure (“TRID”) rule. Passing the processing fee in this way doesn’t violate it, but there’s some misinformation that sometimes makes folks feel otherwise. We’re happy to help everyone through that.
Ready to Improve your P&L?
Don't let revenue leakage from appraisal fees continue to erode your branch's profitability; you deserve a larger bonus. You can book a complimentary, 30-minute consultation with our team. In this private consultation, we’ll show you your current revenue leakage, compare it with peers using STRATMOR Group's 2023 data, and walk you through the three simple solutions outlined above. You can book a time that works for you right here.
In a landscape where margins matter, it's essential to plug every revenue leakage point. Especially when it’s this simple. We’d like to help you protect your branch's profitability; book your consultation now.
