Is this worth the debt? I don't think so.
Appraisal Management: Service Fee Income and Cost of Services – We manage the process of residential home appraisals for our customers, generally residential mortgage lenders. We earn fees when our service is completed and the appraisal is delivered to our customer. We also provide other valuation services and provide transaction-based technology for mortgage lenders to manage their own appraisal process. Fee revenue is directly related to the number of completed orders or transactions. Cost of Servicing includes the direct cost of the appraisal or other service, when applicable, which is paid to an independent party, and the internal costs directly associated with completing the appraisal order. The internal costs include compensation and benefits, office administration, depreciation of equipment used in the production process, and other expenses necessary to the production process.
The large increase in service fee income in the appraisal management segment is directly related to the increase in completed orders and transactions. The substantial increase in order volume is mainly due to our sales efforts, which led to increases in the number of mortgage lender customers, along with gaining additional order volume from existing customers. Generally, direct costs of services are consistent when comparing the three months ended March 31, 2012 to the same period in 2011. Fees charged by appraisals have largely remained unchanged. However, changes in the fee income and cost of service per unit, and therefore the net margin, from period to period may be impacted by the product mix of the appraisal products completed. In addition, margins for other valuation and transaction-based services are generally significantly different from full service appraisal management services, which may impact margins as the volume of these services increases.
The selling, general and administrative expenses are higher when comparing the three months ended March 31, 2012 to the same period in 2011. However, as a percentage of revenue, these expenses are lower as many of these costs do not increase proportionate to production.
Following is an analysis of the results of operations from the appraisal management segment.
Table 3 – Appraisal Management Segment Operations (dollars in thousands, except unit and per unit amounts)
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For the Three Months Ended
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March 31, 2012
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March 31, 2011
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Total
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Percent
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Total
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Percent
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Service fee income:
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Full service appraisal management
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$
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41,431
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99.3
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%
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$
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18,695
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99.0
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%
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Other valuation services and transactions
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306
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0.7
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191
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1.0
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Total
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41,737
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100.0
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18,886
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100.0
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Cost of services
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37,426
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89.7
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16,694
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88.4
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Selling, general and administrative expense
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2,739
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6.6
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1,521
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8.1
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Other expense
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—
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—
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30
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0.2
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Other income
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—
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—
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10
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0.1
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Net income before income taxes
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$
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1,572
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3.7
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%
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$
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651
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3.4
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%
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Completed orders:
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Full service appraisal management
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107,618
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51,116
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Other valuation services and transactions
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16,925
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4,555
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