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Appraisal Management Companies –
should you work for them?
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Appraisal Management Companies have been around since the 1960s, but there were few of them. Since 2008, AMCs have been doing over 80% of lender appraisal ordering and management.
The issue is: Appraisal Management Companies: Should You Work for Them?
I regularly write about AMC issues in my monthly Appraisal Today newsletter, such as low fees, review hassles, etc. . Plus, how to evaluate which AMCs will work, or not work, for appraisal businesses and how to handle fees, etc.
Why did many lenders start using AMCs in 2008?
The Dodd-Frank law requiring appraisers and loan officers to be separated so there can be no influence on appraisers. That is why most lenders use AMCs. Also, they got rid of most of their staff appraisers, saving money.
Many appraisers are very upset by appraisal management companies, saying they are destroying their livelihood by asking them to work for very low fees when business is slow. But lenders use them for good business reasons.
Working for one or more AMCs is a business decision for a fee appraiser. You choose who you work for. Not all appraisers have to work for low fees (say 50% to 60% of standard lender fees). Not all AMCs pay low fees.
Why do lenders use AMCs?
Lenders use AMCs because they offer “one-stop shopping” for appraisals (many also offer title reports and other services). With more and more mergers creating larger and larger lenders, managing a national or large regional fee panel is too much of a hassle.
The appraisal fees they pay to the AMCs are typically higher than they would pay to fee appraisers, but they don’t have the expense of fee panel management, and managing their appraisals (ordering, reviewing, etc.).
What are the minuses for lenders?
When lenders use AMCs they give up control over the appraiser and the appraisal. Their prime customers who obtain large loans and have substantial deposits want special treatment, which AMCs usually don’t offer.
When appraisal volume picks way up, AMCs have difficulty finding appraisers willing to work for a reduced fee. Turnaround times can go way up for getting appraisals to close the deal on a new mortgage.
Quality of work
I regularly hear questions about how “good” the appraisals prepared for AMCs are. I really don’t have any information, but doubt they are worse than those done by “let us make a deal” appraisers working for some mortgage brokers. There is data to show the third party originated loans have a higher default rate.
The most significant problems seem to occur when an associate is working for half the fee you’re getting, i.e., half of 50%. It’s very tempting just to throw something on the form.
Doing a 48-hour turnaround can be a real problem when the appraisal is not a “slam dunk.” In order to complete it on time, corners may have to be cut.
The minuses of working for an AMC
The biggest minuses are lower fees and hassles from underwriters requiring additional time to clear up issues.
Many appraisers are personally offended when asked to work for less than their “standard” fee. But the fees paid by AMCs vary. Some appraisers (i.e., rural areas) get higher than their standard fee, and some (in urban areas) get 50% of their standard fee. Some AMCs pay relatively low fees and some pay relatively high.
Some appraisers have mentioned slow payment from some AMCs.
Why work for an AMC?
Some appraisers don’t like the fast turnarounds, i.e., 3 days. Working for a low fee and a fast turnaround are definite minuses.
However, there are some benefits to working for appraisal management companies:
– If you don’t have any other work, it’s better than nothing and having your house go into foreclosure.
– Unless you work for an appraisal management company, you won’t be able to get work from many major lenders.
– Some are very loyal to their appraisers, especially if they have worked for them when business was strong several years ago.
Typically you don’t communicate with the lender who ordered the appraisal. That can be a plus or a minus. The plus side is no phone calls. The minus side is not being able to communicate about problems or ask any questions.
Should you work for an AMC?
It’s a business decision, depending on how busy you are, how likely you will be able to get new lender clients, whether or not you use associate appraisers, etc.