The right mix.
Parts of a great success story have always been there for Clarocity. The company had an innovative product designed to tackle the huge U.S. residential valuation market, but some tweaks, and some time, were necessary to get the recipe right.
Today, after spending the better part of the year making improvements to its management and share structure and completing a key acquisition, Clarocity thinks it is finally ready to shine.
New CEO Shane Copeland says the rest of the world is finally catching up to Clarocity’s next-generation solution and that means the company has emerged as a key player in a multi-billion dollar market. Cantech Letter sat down with Copeland to talk about what’s next.
Shane, can you give us a brief overview of what Clarocity does?
Clarocity is a creator and provider of next generation asset valuation products and supporting technologies for the U.S. residential real estate market. We create high efficiencies as well as reduce cost in dollars and in time. Our mission is to lead traditional valuation forward into the next phase of appraisal and asset valuation technologies by building the most forward thinking products on the market as well as the technological bridge to producing them on a large scale. We are entirely about what’s next and we want to bring financial services market along the path with us.
What has been going on with Clarocity over the past twelve months? There seems to be a lot of restructuring activity…
Since the Valuation Vision group has taken control of Clarocity leadership, moving forward has been the underlying theme. The last twelve months have been entirely about forward movement towards the future and eliminate legacy strategies that didn’t address the challenges in today’s market.
The company has made the shift away from a focus on database management toward innovation in valuation products and further development and distribution of the supporting Clarocity platform that produces them. During this same time we have replaced our Board of Directors with an extremely well established and highly experienced leadership group who are here to assist our team in making the transition from a small Canadian company to a $300 million valuation services and technology company that is based in the United States. The company is under terrific leadership that is highly motivated to move to the next phase of Clarocity’s development.
Additionally, as of Aug 1, 2016, Clarocity added Valued Veterans of Kansas City MO to our family of companies. Through the addition of ValVets we have essentially doubled our monthly revenue as well as our total addressable market by adding appraisal and a national AMC to our mix of available products and services. With ValVets we are just at the starting line of the ever expanding appraisal market that is ripe for adoption of our innovative MVPro appraisal products.
Our estimates of the U.S. residential valuation market is that each year over $10 billion is spent on some form of asset valuation services. Our goal is to touch as many parts of the valuation process as possible.
When Clarocity wins a customer who are they and what were they using before you came along?
We typically win customers who are large national lenders, large national servicing companies, Wall Street investment firms and GSE or government agencies. When we win those customers, we are usually peeling them away from one of the older and more established valuation companies who often have issues adapting to evolving client needs in a timely manner. Because we build our own technology and control the entire experience from the front to the back, we can be highly adaptive for our clients. In a time of change as we are in today, this is a huge advantage.
How big is the market that Clarocity is addressing?
Our estimates of the U.S. residential valuation market is that each year over $10 billion is spent on some form of asset valuation services. Our goal is to touch as many parts of the valuation process as possible. Whether it be an MVPro appraisal or something as simple as a platform transaction to produce any variety of products, we want to have some impact on each step along the way. With a market this large, step one for our company is to gain 1% of the market for $100 million in annual revenue. Over time and success of our products and services, we believe that 3% of the market is a reasonable destination in the next five years.
At Clarocity, we have designed products and technologies that leverage the experience and expertise of appraisers in the marketplace now. Our products and technologies enable appraisers to produce credible appraisal reports in 1/4 of the time of traditional appraisal product.
Tell us about the landscape of the valuation market. How has it changed since 2008?
Valuation in the United States has changed dramatically since 2008. The housing collapse in the United States focused a lot of attention on collateral risk and lending. In 2009 there were concerted efforts to protect appraiser independence through the Home Valuation Code of Conduct (HVCC), an agreement reached between the New York Attorney General and the GSEs (Fannie Mae and Freddie Mac). This agreement was then codified inside of Dodd-Frank, the financial reform legislation developed as a response to the crisis.
To comply with this drive for independence, most lenders adopted the use of Appraisal Management Companies (AMCs) like Valued Veterans. In addition to these independence efforts, the Appraisal Foundation, the congressionally authorized source of appraisal standards and appraisal qualifications, increased the requirements to become a licensed or certified appraiser. These more stringent requirements coupled with other economic factors have resulted in fewer people entering the appraisal profession. With the average age of licensed and certified appraisers being around 55 years old, the confluence of fewer new appraisers and the aging population of current appraisers is resulting in a shortage of licensed and certified appraisers. We are just now experiencing the ramifications of this shortage with extended turn times and higher appraisal fees in select markets. This economic trend will extend nationwide before long.
At Clarocity, we have designed products and technologies that leverage the experience and expertise of appraisers in the marketplace now. Our products and technologies enable appraisers to produce credible appraisal reports in 1/4 of the time of traditional appraisal products. Using this technology, appraisers can earn more per hour than their standard appraisal billings. It is a win-win for both the professional appraiser and lenders who need timely and less expensive valuations. The changes since 2008 are only the beginning, we expect the valuation landscape to continue to evolve and we are designing products and technologies ahead of this movement.
Earlier this year, Clarocity announced that its U.S. subsidiary Valuation Vision, Inc. received positive results as part of it’s 2015 BPOMerge™ performance review with a major U.S. loan servicer. You achieved a 99% accuracy rate. How will this lead to business?
BPOMerge™ was the 1st product we developed in response to the changes in the valuation industry since 2008. This product is revolutionary and uses multiple valuation experts in any given market to determine the value for the subject property. These multiple opinions are then merged into a final price point for the property. It is this merged value that has tested so well. With fewer appraisers available for assignments, many of our clients use the BPOMerge™ product as a replacement for appraisal in the default and servicing sector. Technically BPOMerge™ tests better than one independent appraisal at at least half the cost. The BPOMerge™ also supplies up to 18 listings and comparables for the client to consider in their own analysis.
Simply put, BPOMerge™ has tested as accurate as individual appraisal opinions, is half the cost and supplies more data. Our clients recognize these attributes and are moving to this product where they can under regulatory guidance. Lenders in the United States are regulated by Federal Agencies. These agencies allow for alternative valuations in some instances and require appraisals in others. Our new generation of appraisal products called Market Value Pro (MVP) is designed to supply appraisals where BPO products are not compliant. We have solutions for all of our clients needs.
Safe and sound lending practice requires that lenders regularly value the assets supporting their lending decisions and portfolios. It is critical that these valuations accurately reflect the actual value of the property that is used for collateral.
Why does it matter so much that valuations are accurate and timely?
Valuations are required as a part of a collateral risk decision in lending. Collateral risk management begins with the initial valuation of the property prior to closing the loan. It continues through the life of the loan with spot checks on the value of collateral supporting loans on the books. Safe and sound lending practice requires that lenders regularly value the assets supporting their lending decisions and portfolios. It is critical that these valuations accurately reflect the actual value of the property that is used for collateral. Investors who purchase securities based on residential lending need to be confident that the underlying asset is accurately valued. Timely valuations are critical in a competitive lending environment. When loans are originated, consumers want to have their answers as soon as possible. During the asset-management phase of lending, it is important that valuations are timely to capture value change that may be occurring in the local marketplace. Markets move quickly and timely valuations are necessary to stay abreast of the value of collateral.
Can you tell us about Valued Veterans, LLC? Why did you acquire that company?
Valued Veterans (ValVets) is national Appraisal Management Company (AMC) located in Kansas City. ValVets has the licensure necessary to operate in all 50 states and a robust panel of appraisers they already conduct business with. ValVets is not your typical AMC. They are very technologically advanced and highly efficient, producing a large volume of traditional appraisal work through their panel with a very small internal staff. While most of the revenue produced by ValVets is currently traditional appraisal work, but the leadership at ValVets also sees the valuation landscape changing. They understand that the growth in appraisal valuation will be with alternative valuation products like those produced at Clarocity. New revenue growth inside of this AMC will be in the alternative valuation space, founded on the MVP products we have already developed. ValVets enables us to immediately produce our MVP appraisal reports nationwide and supply a pent-up demand for this product inside of our current client base. On top of all this, the technology focused team at ValVets is a great cultural match for the innovative thinking inside of our organization.
I feel strongly that we have nearly escaped the gravity of old Clarocity and moved this company toward a US residential real estate valuation product base with a laser like focus on building the next generation of valuation products and technologies.
Why, do you think, has it taken so long for Clarocity to gain market acceptance?
My sense is that Clarocity was initially a bit too far ahead of its time with the Zone concept that made it difficult for initial product acceptance. By the time the market had caught up to the initial idea, companies like Google, Core Logic and Zillow had jumped into the market as large competitors with pre-established market penetration. The end result of which created a significant head wind for the company to introduce the Zone concept while seeing any space to establish a successful position. Our tactic has been to avoid those head on collisions with large market leaders while focusing on innovative solutions for valuation and a highly efficient and user friendly platform to support them. We are no longer primarily in the data business. We are now fully committed to the valuation production innovation and technology business seeking to solve the current market dilemma of extensive time, cost and lack of efficiency that comes with antiquated valuation products. We see our role as solving the next phase of valuation through innovative technology to make the process more efficient, accurate and more easily understood by consumers. We are doing all of this while building a pathway for appraisers to better utilize their valued skill set through actual reconciliation of value and narrative to support that opinion. By the way, we are also enabling appraisers to earn more money in the process.
Why do you think Clarocity is close to success now?
I feel strongly that we have eliminated legacy strategies that didn’t address the concerns of today’s market. A key part of our strategy was to immediately put our focus where it should be – on the needs of U.S. Residential Real Estate valuation market. We’re leveraging proprietary technologies developed at Valuation Vision with the national appraisal footprint of Valued Veterans to launch the next-generation of valuation products and technologies.
Why now? While the U.S. finance market is generally slow to adopt processes, the pressure is mounting to address the growing challenges in real estate valuation. In a tight regulatory climate, the current reliance on traditional appraisal is simply not sustainable for a number of factors. As such, the market is now actively seeking new solutions that solve the problem of time, cost, and accuracy in real estate valuation. Clarocity products and solutions have captured the attention of the top players in the U.S. finance industry. We believe that market demand for our valuation products and technology is ripe, and are timed well for harvesting.
Our brand is about setting new standards in product innovation that solve some of the largest challenges facing our industry. Our success with GSEs and Servicers in the U.S. has proven that our solutions compete favorably on reliability, efficiency, and cost. It’s our intention that Clarocity continue to be the leading brand that the entire U.S. Finance industry turns to when they need what’s NEXT.
You can expect to see Clarocity grow its revenue base and profitability, increase the market adoption for our proprietary products and technologies and set a course forward toward the next generation of valuation.
What milestones should investors look for over the next twelve months?
Step one would be the total integration of ValVets and Valuation Vision under one roof and one seamless operation. We will be launching the new company under Clarocity in both Canada and in the US. Step two, we expect continued expansion of our next generation appraisal products under MVPro suite. As the market begins to accelerate the adoption of next generation appraisal, the company is poised to see significant growth in the production of those appraisal reports for Home Equity, Servicing and Quality Control that will effectively more than double our combined revenue for 2017. We will make these additions amongst clients ranging from very local to very large with a national footprint. Step three, we expect to announce a series of additions to our Clarocity Platform as a Service (PAAS) client base over 2017. We intend to provide the asset valuation space with a best in class technology that will allow large market actors to produce our unique version of valuation products. Step four, we have our eyes on some strong strategic acquisitions that will enhance our product offerings and provide a more balanced revenue base for the combined companies. We are always looking for the right partners to bolster our efforts to be the next generation of valuation technology and products. Where it makes good sense technologically, operationally and culturally, we will bring great partners into what we will be doing at Clarocity.
In summary, you can expect to see Clarocity grow its revenue base and profitability, increase the market adoption for our proprietary products and technologies and set a course forward toward the next generation of valuation.