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.
Question
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.
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Hi there, this is a great article and certainly something to consider. Now that it is 2020 – what have you seen in regards to AMC’s staffing their own appraisers? Is this something that has cme to fruition or are AMC’s still just the middle man?
That’s a great question. I have not seen any activity on a large scale basis, however, another trend that was being talked about for a period was the bifurcated appraisal. This occurs when several people are involved in the appraisal assignment. One person, such as a real estate agent, performs the inspection and another part, usually the appraiser performs the rest of the assignment including all of the analysis. This model is supposed to be cheaper so I think it was the new “shiny object” that everyone got interested in. Right now parts of this industry are fluid with things changing often.
10/10/17
Some AMC’s have an AMC company and a separately and different named Appraisal company. What they do is they act as an AMC for numerous lenders, and their own appraisal company is on the appraisers list so they often assign their own appraisal firm the appraisal work, thus taking both the AMC fee and the appraisal fee. This is a BLATANT CONFLICT OF INTEREST, that must be STOPPED IMMEDIATELY. This is criminal and fraudulent activity and goes against the very idea of AMC’s. This must be brought to the attention of Mr. Cuomo who was a proponent of the AMC’s as well as the Appraisal Board’s in every state in the U.S. immediately. Appraisers, please band together and bring this issue into the public eye immediately and put an end to it now!
I agree. Appraisers need to make sure things like this are brought to the attention of the public and to the attention of the proper authorities.
There’s still one more issue not being addressed. Turn times. Most AMCs are asking for the report 48hrs after the inspection. It is incumbent on us by USPAP to verify all sales. I find agent don’t tend to care about our time requirement. This and it can take days to finally accomplish this. I know many/most appraisers are skipping this part. I know, appraisers claim they can rely on tax records or the MLS to this. In reality they are just trying to justify not doing the work. Clearly there is data missing IE concessions, etc. But the most important part is the AMCs are encouraging this with the short turn times (48hrs). And they claim they are most interested in quality. That’s a joke…. The powers that be should think about this. Oh, I really agree with the percentage markup concept.
I totally agree, Jay. Appraisers rely on various people getting back with them in a reasonable amount of time and if they do not then this can affect our turn times. I have found that texting and messaging agents on Facebook has helped out in getting the information I need. AMC’s are overstepping their boundaries when dictating turn times and this is why many appraisers will not do work for them. This has been inaccurately diagnosed as there being a shortage of appraisers but in reality, it is a reflection of appraisers not wanting to deal with unrealistic AMC requirements.
Here’s a thought – mandate that the AMC is paid based on a percentage of the appraisal fee with a cap – say 15% or 20%. Doing this puts the AMC on the appraiser’s side of the fee equation – the more money the appraiser makes the more the AMC makes. Then instead of the AMC sucking the life out of the appraiser’s business by squeezing their profits from the appraisers – they would have to truly compete on a level playing field of price and performance for the lender’s business.
I agree with you, Tim. The AMC model should never have been based on taking a large cut of the appraiser’s fee. This has created so much animosity between appraisers and AMC’s because we feel like we are being abused. I hope if and when the dust settles that we can all work towards a more profitable and better relationship where the appraiser is paid a customary and reasonable fee for their much needed services.
Never enough appraisers! I tottaly agree with Phil, and fifth point is nicely written.
Thanks, Alex.
Good Lord! You have noooooo idea the crap that goes on with the AMC Staff. To outline what it is really like to work as a staff appraiser for an AMC my post would be 10 times longer than Mr. Baggins. I worked for one up until 1/1/2017. I’ve been appraising for 17 years. I do consider myself a “quality appraiser” and the transition into staff has been gradual over a period of the past 6-7 years. In the end the pressure is not for value but for quality and quickness which we know is an oxymoron. My constant fight has now come to an end with a sigh of relief. The prospect of rebuilding my business from the ground up is daunting but welcomed. Great Post Tom…. BTW; I just came across your blog.
Anthony, thanks for your comments. Seems like there are many stories like yours. I think we all want quality but with that comes the necessity to take the time and do it right. In addition, this comes at a cost, which should be customary and reasonable. Long term there is no way to do appraisals fast, cheap, and accurate. There may be an occasional job that we are able to do quickly and accurately because we are super familiar with the area or did something in there recently but overall that does not occur that often. Good luck on your move, and I hope you are able to get back on your feet quickly. I know there are a lot of appraiser groups on facebook that provide support and encouragement. Wishing you a happy and prosperous 2017!
Did we already see this model before with Washington Mutual and their perferred AMC?
Quite possibly, but I think now they want to do it on a more widespread basis.
You guys. There is practically no difference between many distribution models these days. I think the term of amc is a misnomer lately. Even direct distributors are taking a cut these days. The problem is the appraisal fee is hard cost, and all other fees are financeable to soft costs. Imagine a world where the appraisal fee could be rolled into soft costs. Wait, that’s problematic right, because of the contingency rule and out of pocket costs which occur if the deal is not solidified. A recipie for liability disaster to be sure. On the other side of that coin, why not make all brokerage and realty fees hard cost and quit ramping up unanswerable and unmanageable inflation with integrated servicing costs included in the final sales price. Wait, now NAR wants me head because I’m screwing with their bread and butter, and flat rate realty would take the wind out of this overblown monster we call the mortgage lending market. Solutions: Cost plus, rotational distribution, and no grading. Perhaps you’ve heard me say this on any numerous other blog posts; If an appraiser is good enough to be on the approved panel, they should expect a fair share of the assignments without bias. Tom, there were key decisions which affected this issue. The most notable one lately was the CFPB’s reluctance to select the new HUD1 closing form which seperated the appraisAL total fee and the appraisERs individual fee. Not a coincidence, as the lenders lobbyists swept in like the vulture capitalists they are, to stop that particular form. Why did they make such a big deal about transparent disclosure of the fee? I’m glad you asked. Because then the FHA’s unearned fee rule, and the MB’s junk fee rules would be applicable like they should have been applicable all this time anyways. Appraisal services; the only realm in mortgage lending were junk fees, unearned fees, and tag on fees are still acceptable. I even posted on the appraisersblogs the other day, a reference to yet another amc whom is advertising profit sharing as a selling point to their potential lender clients. It is supposed to be illegal to tag on or kickback fees that way, but that is indeed exactly what is happening. Just landed on the VA panel, and boy is that different. An actual appraiser is in charge of assigning appraisals on a true strict rotational distribution approach. A commendable industry model, to be sure. Amc’s make a point of not hiring licensed individuals for appraisal assignment. They had initially ran per diem commissions per orders to internal staff but realized that was too much exposure. Instead they pool funds, expand, and give those kick backs to lenders and staff via yearly bonuses, if they don’t just funnel all that straight to management. I keep on suggesting a national audit of amc’s and all I hear is crickets. Some things scare them, some things don’t. Auditing this whole mess for junk fee rule compliance is the answer. But 10k/20k daily per instance retroactive regZ fees for departure from C&R is no laughing matter, and nobody has dared to purse that to date. Thanks for listening.
Tom, thank you for the article. I to do not like the AMC model because it has taken the small business out of the appraisal industry. I also do not like fee studies and reasonable fee regulation. I think the fee studies are are being used by AMCs to say, “Here is evidence of what appraisers are working for, therefore it must be reasonable.” The fact is that most appraisers are working for far less than reasonable because they do not have other options. The fees that are reported as reasonable are not sufficient incentive for new talent to come into the appraiser pool given the education and experience requirements when compared with other industries that have similar barriers to entry.
Thanks Gary. I also worry that the low AMC fees are included in the fee studies, however a lot of the studies I’ve seen are higher than most of the low AMC jobs that I get emailed to me. I agree that fees will need to increase and barriers to entry will need to come down for new people to get into the profession.
Thanks for the post Tom. This is a timely topic for sure. And clever use of Star Wars. A blog post is always better when storm troopers are present. 🙂
Can you not feel the cold chill go down your spine when the Imperial March music is played as all of the corporate appraisers are deployed (my favorite word of the day) to do the bidding of the dark lord? 🙂
Tom,
You are clearly outlining many of the problems that AMC staff appraisers can cause. Great article.
Thanks for reading Joe!
Yes, of course Tom. Thank you for pointing all of this out.
The emperor is wearing no clothes.
More work, hassle, forms, liability, and layers of people to answer to for….Less Money!
Yay, who wants to sign up?
The answer is not staff appraiser’s for AMC’s or banks because they are not even ABLE to be unbiased, their very jobs depend upon towing the line. Even ” independent” appraiser’s can be dropped by a lender or AMC for not coming in at sales price, bending to pressure etc.
Of course they don’t say that’s the reason, they don’t say anything, you just don’t get any work from them anymore. If it’s just one of several clients your ok. If it’s your employer, and presumably you need this job (like to feed your family) how much independence do you really have? Not much.
Now they want to lower the requirements for becoming an appraiser. I’m not against dropping the 4 year college degree requirement but now they are talking about dropping the experience requirement altogether. Good Grief!
If the government didn’t buy and insure loans and bail out banks then nobody would have to oversee anything. The bad actors would go out of business and the banks would actually have some skin in the game and then the banks would make sure they were getting the best appraisers available and gladly pay them accordingly. But as it is?
Who really cares when you are playing with other peoples money?
You’re right Al. It makes sense to us but maybe not to the actual people doing it? But maybe it does make sense to them and their bottom light so that IS why they are doing it. I agree on the college requirement as well but to ram rod trainees through the system and forgo the experience requirement to get them out on the street does not make sense. But then I guess they don’t need to know too much about how to value something because it sounds like they’ll value the property at whatever their AMC employer wants them to, huh?