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52 Brandon Kirkham COO, JGM Property Group What is the most emergent threat to the property preservation industry today? Without any hesitation, it is the significant exodus of vendor partners that provide direct, boots-on-the-ground services. e trade group, NAMFS, recently completed a survey that identified resource loss as upwards of 40% over the last three years. Much of the exodus is among the most experienced providers. New providers recruited to our industry do not have the retention rate needed to replenish the vendors that are either retiring or exiting due to financial reasons. In light of this, what are your recommendations on how to slow or even reverse this trend? e single largest driver for the exodus is the outdated investor allowable fees. A distant second is the proliferation of additional requirements. Property preservation fees have remained relatively unchanged for over 10 years for the property preservation industry. Fuel and labor prices have forced out many of the providers referenced above. e economic model is broken. e fee rates are based on substantially different industry dynamics from what we are experiencing today. Volumes were much higher, as were concentrations of properties in urban areas, which have a lower cost to service, and the general condition of the housing stock subject to conveyance was better. e trade association, NAMFS, commissioned a study and compiled cost data from a variety of service providers. is information is actively being shared with stakeholders, investors, and government agencies. e industry is very hopeful that this initiative will lead to updated fee schedules and possibly a mechanism that will adjust fees annually based on changes in the CPI. Do cost estimate tools assist with changes in materials and labor costs? e introduction of a Cost Estimation tool was intended in part to help; however, these tools do not always accurately reflect the actual cost to maintain, preserve, or repair properties that are in default and subject to long-term neglect. At best, it is a tool that provides component details of a bid and a reference point of a reasonable cost. It helps with the evaluation if the vendor's cost estimate is comprehensive and reasonable. Too often, it is used as the absolute limit of what the investor will approve. For example, the cost estimation tools yield a midpoint price based on collected pricing data and support multiple stakeholders such as insurance companies and builders. A mid-point does not account for property attributes of deteriorated or neglected properties or the additional regulatory requirements unique to the property preservation industry, both of which add substantial costs. An easy illustration: a builder will utilize 85% or more of a sheet of plywood, while a preservation contractor uses a much smaller portion of the same sheet. Regardless, both the builder and the repair contractor will have the same full-sheet cost; however, the CE tool will only reimburse the actual calculated dimensions in the form of united inches. e remaining portion of the unused plywood is a loss to the vendor. What initiatives do you foresee with technology in 2023? I remember a time when Polaroid photos were taped into the claim file. I am a big proponent of technology and understand the fundamental value it creates for all stakeholders. Technology has provided a significant lift in communication, documentation, oversight, and compliance. As an industry, we can do more with less administratively. But the work in the field is at the core of this industry, and technology has no impact on the craft in the field. Changing a lock, mowing a lawn, treating discoloration, or carrying gallons of water into a property to clean a toilet requires human power. Initiatives are underway to improve standardization. We anticipate this will make it to the market in 2023, although more work is needed. Technology, when designed with the input of all stakeholders, can create significant efficiencies and better results. It can lower costs and improve the vendors' abilities in the field. Technology that is not aligned with the practical aspects of the job in the field can have the opposite effect. To illustrate, the goal of an initial property condition report is universal for all stakeholders: document the condition and communicate risk. However, there are many different versions of a property condition report, along with substantially different configurations of the report. In some cases, all 100+ questions must be answered, while in other configurations, only relevant questions are presented to the vendor to be answered. Flagging hundreds of photos taken during an initial secure to align with each inspection question and sub-condition can take hours to complete. Taping 20 Polaroids to a piece of paper only took minutes. Collaboration and standardization will improve performance, reduce costs, and help retain new vendors. Do you anticipate an adverse impact of regulatory or legislative changes on the property preservation industry in 2023? Yes, and the potential change would be the most significant development in over 40 years. In 2022, California enacted legislation under AB Proposition 5 that essentially reclassified independent subcontractors as employees and established a framework for a litmus test when making such a determination. e target of the legislation was the new "gig" economy, such as Uber and Lyft. However, the litmus test has the potential to apply to the property preservation industry. e Biden administration recently engaged the Department of Commerce to develop a national standard that addresses this topic with the underlying goal to reclassify away from 1099. is review process may take up to 18 months to complete, and thus substantial work is needed in 2023 to quantify the impact and develop solutions should the legislation pass. A move to reclassify from 1099 to W2 would adversely impact the preservation industry and would require substantial modifications to the regulations issued by HUD, VA, USDA, Fannie Mae, and Freddie Mac. Chiefly, the substantial modification in the property preservation fee allowables. In addition, cost estimation tools and other technology platforms would need substantial modification to account for the resulting impact. Without corresponding changes, the vendor network supporting mortgagees, loan servicers, banks, investors, and insurers would no longer exist. Feature By: David Wharton