In 2008 after the housing crash, then-Attorney General of New York, Andrew Cuomo, came up with the Home Valuation Code of Conduct or HVCC. The legislation was in response to his poor dealings with banks and real estate that he had an interest in and due to him being under investigation for billions of dollars that were unaccountable for or missing from the coffers at HUD, which he received complete immunity. Talk about a Sham… Today HVCC was rolled into the now in place legislation known as Dodd-Frank, which is still a sham.
After the housing crash, we all know what happened. Banks and Lenders were all let off the hook. In contrast, Appraisers were the ones to take the blame and be forced into losing all of their direct access to clients overnight with the brilliant idea of having Appraisal Management Companies becoming the middle man in between lenders and appraisers. In theory, this legislation was supposed to create a firewall to the mythical notion that all appraisers and lenders conspired in transactions. In fact, it started more issues within the appraisal profession. However, the biggest blunder of HVCC/Dodd-Frank and the AMCs is the harm to consumers, harm being intensified today in this increasing market.
While the appraiser profession has suffered many losses and even more damaging changes to it as a result of the AMC model, the Consumers, who are the ones that drive commerce and the markets, are the ones that have suffered in many ways as well. Yet, they are the forgotten ones—forgotten due to greed, overlooked due to insane and incredibly poorly written laws, and overlooked because Government, once again, is only looking out for themselves.
So how are the consumers being harmed, you may ask? Let me point out the issues.
1) When HVCC was created, and the AMCS became prevalent, it wasn’t made clear in the laws on how the AMCS would be paid. The AMCS are the acting agent for the lenders they work with, and one would think that the AMCS would be paid by the Lender separately for their services. NOT SO. AMCS established their payments by taking a portion of the fee paid to the appraiser, which reduced the amount of compensation an appraiser would receive for their services and raised fees to the Consumers to compensate for the AMC. Please refer to my other blog on the fees paid entitled “What’s Not In Your Wallet” (https://skaptheappraiser.net/2018/03/28/whats-not-in-your-wallet/)
2) The result of #1 and fees being paid led to many experienced appraisers not wanting to work for these AMCS, which led to many appraisers either leaving the profession or turning their attention to other avenues of business that did not include lender or bank work. So now, fewer appraisers are willing to perform services for refinances and purchases for the consumers, resulting in the illusion of an appraiser shortage.
3) Now, we will combine #1 and #2. Fees are an issue, and there are fewer appraisers to perform these services. We will now add to this another aspect. AMCS were developed to manage the appraisal process. They were developed to create a panel of appraisers and assign work to those appraisers. It doesn’t sound so bad, right? Well, that’s until you dig deeper. See, this panel of appraisers is made up of appraisers from newly licensed to 30+ years of experience in the profession. The AMCS treat each appraiser as equal regardless of experience and location. Think to yourself: when you are looking for a contractor, a mechanic, or a lawyer, shouldn’t you be expecting to have the most experienced and knowledgeable person performing the service for you? That doesn’t happen here. You could end up getting a new appraiser that isn’t as knowledgeable of your market area performing your appraisal. Now, does that mean the new appraiser cant perform it well? No, they most certainly could. However, when we combine points #1, #2, and #3 together, we end up having major issues. So as a consumer, I now have fee issues, I have a limited pool of appraisers, and I may not be getting the best appraiser for my market area. Does this sound like a winning formula?
4) Now, we will combine all 3 points above and add another one to the mix. In GA, there are over 200 AMCs registered. Each one has its own requirements, pay schedule, and ways of doing business. When I say pay schedule, this is another aspect of the HVCC/Dodd-Frank law that created what’s known today as Customary and Reasonable Fees. Say that again, you might ask? Yes. Customary and Reasonable Fees. What other service profession out there has a law that states you must pay Customary and Reasonable fees? I’ll wait? Ok the waiting is over. See Its a mythical unicorn in my opinion, and you can read another blog I wrote on it here: https://skaptheappraiser.net/2020/05/07/the-story-of-the-most-elusive-mythical-figure-customary-reasonable-fees-cr/ The main point of this Customary and Reasonable fee study, in my opinion, is NOT what was being paid to appraisers before the crash; however, what fees were being paid to the appraiser after the crash based upon the AMCS forceful tactics to drive fees down for their gain. As time went on these tactics have kept fees to the lower end even when everything else in price goes up.
Further, as it became apparent that the AMCs were making up their own requirements and sending engagement letters from a few pages to over 50, even fewer appraisers wanted to work for these companies. Also included in the AMC requirements was language that would absolve them of any wrongdoing, requesting full access and ownership of all of the appraiser’s work, work file, and all data, and even going so far as to say that they have ownership of the appraiser’s offices and more.
I, for one decided that out of the 200 registered AMCS, I would only work for some of them. As of today, I work with three. So if your lender doesn’t use any of the three AMCS I work with, I most certainly won’t be doing your appraisal. So as a consumer, you are pretty much at the mercy of the AMCS. Currently, they determine how things will be done, who will be your appraiser, and the inflated fees you pay for the appraisal.
5) The bidding process. Now there is nothing wrong with getting quotes for services. I do it when I seek a mechanic or plumber; however, the AMCS have created a bidding process that harms the Consumer. They have an established fee already set that they can pay to the appraiser. Say $500.00 as that is what was quoted to the Consumer. They send out a bid request and get bids on the job, and well, it’s pretty apparent that they are looking for the fastest and cheapest to perform the work so that they can make money off the job. Think about this: You are told the fee is $500.00. Are you told that it also includes the AMC fee? Probably Not. You think that is what the fee for the appraisal actually is. As stated above, the AMC needs to make money; therefore, they bid it out and say I bid $450, that’s only $50 for them. Why not find someone cheaper to do it even though the home is located three blocks from my house and I know the area well. What this has done is create a timeline issue. Just this week, I was sent a bid request on a job that I had bid on three and a half weeks ago, and the buyer is supposed to close Monday. I have bid on this job three times now, with a reasonable turn-time, only never to get the job. How does this help the consumer? Now, this poor buyer is either going to have a deal fall apart, lose their earnest money and ultimately lose the home of their dreams. All because of the current system that’s in place.
There are many more issues that these laws and more have created. I’ve just decided to point out some of the main ones off the top of my head. Some other issues that have resulted… Increased turn times, Lack of communication between three parties (The appraiser to the AMC to the Lender and vice versa). The pressures appraisers face that these laws were supposed to eradicate are now actually applied by the AMCS to please their lender clients. If an appraiser doesn’t go along with AMC policies, they get less work and if they do go along, they aren’t getting customary and reasonable fees.
At the end of it all, the consumer is the one being harmed. Deadlines and closings need to be met, yet AMCS have extended the process; they have difficulty finding appraisers to promptly perform the appraisals due to bidding out orders to 100 appraisers at cheap fees. Extended requirements that they have made up as well as poor communication. Consumers deserve better than this. They have been forgotten in all this. It’s time for changes to be made, it’s time for appraisers to go back to what they do best, and it’s time to end this flawed experiment of AMCS.
One of the main roles of the appraiser is to UPHOLD THE PUBLIC TRUST and over the years it’s become increasingly clear that the other parties involved are not willing to conduct themselves in the same manner and that should be of concern.
There is another negative consequence to the squeeze on fees: there’s no budget to train new appraisers. Unless something has changed, the apprenticeship investment places a burden both appraiser recruits and their mentors. And when a new appraiser becomes certified, that individual can leave the mentor for a better slice of the smaller pie.
But here’s the scary part of this – the solution being tossed around? – Let- real estate agents be the observers and gather data to supplement the appraisal process.
It’s not being tossed around any longer. It’s already happening. I tried out a couple hybrid appraisals recently and they do not seem like the smart route to take. They even require the realtor to do a sketch…. Sketchy
Great points here, Mark. I never considered that borrowers get the luck of the draw when it comes to appraisers. As a borrower, I’d be po’d if I got a newbie appraiser that didn’t know the area, but you hear about it happening all the time. I, like you, prefer to work with a select few AMC’s. When you find ones that are willing to accept your terms, then I welcome the work as much as private work. But I definitely agree that the consumer gets screwed in the process. I’d be interested to see changes going forward (If any)