If the AMC’s get their wish some appraiser’s jobs could be in danger
If you’ve read my blog or been around the real estate profession over the past several years you know what an AMC (Appraisal Management Company) is. As I have explained in the past I’m not a big fan. The premise of the AMC concept is that they add a layer of protection between the loan officer and the appraiser in order to protect the integrity of the transaction. For their work in managing the appraisal process the AMC gets paid for their professional services.
From the beginning the AMC’s payment model to the appraiser was that they would take out their compensation from the fee paid to the appraiser. An example might look like this: The appraiser’s fee is $400, so the AMC collects $400 from the bank they work for, keeps $100 (or whatever their fee is) and then they send the rest of the fee of $300 to the appraiser. Doesn’t sound fair does it? It’s really not.
Part of the AMC’s job is to check the quality of the appraisal. Many times the appraisal reviewers have less experience than the actual appraiser, if any at all, however they are questioning what licensed and experienced appraisers are putting in their appraisal reports. All of this boils down to appraiser’s fees dwindling over the past several years while at the same time their workloads are increasing as they are asked to respond to ridiculous appraisal reviewer questions and requirements.
Appraisers have fought to get paid customary and reasonable fees, however it is an uphill battle. Fee studies have been performed to determine what a fair and reasonable fee is but many AMC’s contend that because appraisers have been doing work for the reduced fee that they’ve been paying them, this fee should be considered what is fair and reasonable.
The “shortage” of appraisers
Experienced appraisers have responded to the low fees and increased requirements by refusing to do work for these management companies, and have either shifted their business to non-lender work or choose to work for only those good AMC’s that pay them a full fee.
The result of appraisers not willing to work for some AMC’s have been increased turnaround times on appraisals because there’s less appraisers on the AMC roster. This also causes loan closing times to take longer.
Management companies have incorrectly communicated this situation as a shortage of appraisers when it should have been described as a shortage of appraisers willing to work longer and harder for less money. In response to what is occurring AMC’s have a solution that they feel will solve the problem but in reality will only contribute to erosion of the public’s trust in the whole process.
The (Not so) Great Solution
The AMC’s solution to the manufactured shortage of appraisers is to hire their own staff appraisers. This may not seem unreasonable to the general public because it would allow the AMC to provide appraisal services for their bank clients, but when you dig deeper to see the possible relationships involved you can see where it could affect the public’s trust.
Phil Crawford who does the “Voice of Appraisal” podcast recently covered this in one of his shows. He painted the scenario of a bank that has partial or total ownership of an AMC, which is not uncommon. The AMC is a profit center for the bank because they make money even if a loan is declined.
I recently contacted Phil to dig a little deeper and he had this to say:
I have been monitoring the attempted “corporate takeover” of the appraisal profession for the past three months. AMC’s are trying to find ways to create large panels of staff appraisers to handle their client demands. They need this fresh batch of staff appraisers to complete 1004 assignments, since a great number of independent fee appraisers refuse to work for a majority of AMCs. These staff appraisers are employees and not subcontractors.
The only way to create such panels is to change some of the current qualifications to become a certified appraiser. Some of these changes and suggestions have been outlined in a recent presentation by The National Appraisal Congress. Make no mistake about it, large staff appraiser panels, is their ultimate goal. It’s a textbook corporate expansion model, but there are several problems.
1. An AMC is an agent of a lender.
2. The lender and the AMC are participants in the transaction for which the appraisal is being performed.
3. Some lenders have ownership in their AMCs.
4. AMCs have their staff appraisers performed field assignments on the 1004 form. The staff appraiser signs off on all certifications of pages 4, 5, and 6.
5. Certification number 17 specifically states in the second part of the first sentence “I have no present or prospective personal interest or BIAS with respect to the PARTICIPANTS in the transaction.” It is hard to believe that a staff appraiser who is getting a paycheck from an AMC employer, who is a direct participant (with a vested interest) in the transaction, would NOT have any personal bias to that very employer.
Can these appraisers claim they are truly unbiased under this current business model? I’m sorry, I can’t buy it. It is a real shame the appraisal organizations throughout the county (NAA, IFA, ASA, AI) have turned a blind eye to this issue. We will just have to wait until the next market correction to see what possible damage (if any) could come from this business arrangement.
It’s possible that this model of AMC’s hiring their own appraisers or owning an appraisal firm can potentially erode the public’s trust and cause more harm to our profession which is built on the foundation of the appraiser being an unbiased third party acting with no undue pressure to arrive at a predetermined opinion of value.
So what is the best solution?
It is my opinion that to strengthen the public’s trust in appraisers and the valuation process, which of course influences the real estate markets, that AMC’s should not own or employ real estate appraisers. There’s just too much funny business that could occur or at the very least the perception of funny business.
Instead of AMC’s trying to circumvent the traditional appraisal, process why can’t they just pay appraisers what the market derived fee studies have shown? Instead of taking a large chunk of the appraiser’s fee, why not support a fee plus model where the AMC fee is added to the appraiser’s fee to arrive at a cost to the bank or mortgage company? This would allow appraisers to get paid a fair and reasonable fee which would incentivize new appraisers to get into the business. Appraisers who have quit doing AMC work would reconsider if they were paid a fair amount and there would be no “shortage” of appraisers that the AMC’s have been complaining about.
What are your thoughts on the push for AMC’s to hire their own staff appraisers or buy existing firms? Do you think it erodes public trust in our profession? Leave a comment below and let’s keep the conversation going.