When it comes to refinancing or purchasing a home, you need to get an appraisal done by your lender. Unlike any other service profession, you the consumer are not entitled to pick your appraiser, rather you will be assigned an appraiser that will perform the inspection and report for you. Seems pretty simple, right? The answer is NO and this blog is going to explain everything that you, the consumer, have not been informed of. I will break it down into sections so that you have a more in-depth understanding of just how government, leadership and more have not only not informed you, but have also misled you.
What is an Appraisal Management Company?
An Appraisal Management Company (AMC) works with lenders and appraisers to facilitate the ordering, tracking, quality control and delivery of appraisal reports. AMC’s also are the ones that select the appraiser that will be performing the inspection and completing the report for the transaction. AMC’s have been around for quite some time; however, it wasn’t until after the crash that laws were created (HVCC now DODD-FRANK) that brought AMC’s into the forefront. So as you can see, it’s pretty straightforward to what an AMC is and what they do; however, there is so much more that you the consumer have no idea about.
The facts no one is telling you about AMC’s. I will list them, then discuss them.
1) Fees. So, you just paid $1000 for an appraisal to the AMC for an appraisal report thinking that is what it will cost. Did you check your closing statement or the appraisal report? If not, you better. Why? Well, that $1000.00 is not going to the appraiser. See, the AMC is going to charge you what they want to charge you. Then they will go to their panel of appraisers and bid it out, looking for a fee and turn time. 99% of the time they will find the cheapest and fastest appraiser to accept the order, let’s say $400, and guess what, the rest of the money gets pocketed by the AMC for profit. Let me say this again. You paid $1000.00 total. $400 went to the appraiser and $600 went to the AMC for basically doing NOTHING. Let that sink in. $600.00 you could use for other things. Remember, the AMC is acting as a middle man in the process, and yet, they are making more money than the appraisers themselves. They lead you to believe that this is the cost of the appraisal, yet fail to tell you that this fee includes whatever the AMC decides they want to keep. I would go as far as saying this is deceptive practices. See my previous blog post called “ Whats not in your wallet” here
2) Appraiser selection. So, you are about to make this giant investment, or you are about to refinance on your home and want to know the actual value of it. One would think that you would get the most experienced appraiser or one that knows your area to perform it right? Not so fast. This goes back to the above point on fees. The AMC’s aren’t concerned about the experience of the appraiser, the knowledge they have of that area, or their location, rather they are more concerned on profits and making their client, the lender happy. They use a blind bidding process, based off the criteria of lowest fee and turn time, rather than competency, experience, or quality to choose your appraiser. So, could you be getting the best appraiser in your area? Maybe, but it’s more likely you are getting the appraiser that is the cheapest and fastest. You may be getting an appraiser that just got their license last week and signed up with this AMC instead of the appraiser who lives 1 mile away and has performed appraisal for over 15 years in the area. Do your research. Do your due diligence.
3) Many appraisers have stopped doing lender work. Yes, this is fact, however the AMC’s will tell you there is a shortage of appraisers. So now we have just combined points one and 2 into this one. Due to the actions of AMC’s and the points I previously stated, many good appraisers have stopped doing lender work, myself included. Let me give you an example. In Ga, there are over 200 registered AMCS and I only work with 3 of them. Why is this important? Well, for one, as an 18-year appraiser, I may not get to see the order for your home if your lender works with the other 197 AMC’s in the state. Is that my issue? Nope, that’s your issue as a consumer because the more appraisers that stop doing lender work due to the poor actions of the AMC’s and the laws, the lesser chance you have of getting a quality and experienced appraiser to perform your valuation.
4) AMC’s have staff appraisers. Yes. The same companies that are supposed to be the middle man, maintain appraiser independence, be neutral, now have their appraisers on staff as paid employees. Here is a question to ponder. How can a staff appraiser remain unbiased and neutral when they get paid by the very company that has a contract with a lender that sends them work? How are they to remain a middle man between their appraisers and their clients? Add to this that many lenders actually have partial or whole interest in AMC’s. I don’t know about you, but if I’m an employee of a company, I will abide by their rules and do whatever they say for me to do. As an independent appraiser, no one tells me what to do.
5) AMC’s are like magicians. Magic, or illusion, is the art of creating a seemingly impossible situation that allows someone to achieve a desired outcome. It’s a concept used to describe a mode of rationality or way of thinking that looks to invisible forces to influence events, effect change in material conditions, or present the illusion of change. I have highlighted 2 phrases, desired outcome and influence events. AMC’s are a master at this. See the desired outcome after the crash when AMC’s came into the forefront was to make money and there were no laws that prevented them to do so. When appraisers and more started to speak up, they then created this illusion of a shortage of appraisers and used that to influence future events. That notion of an appraisal shortage wasn’t being told correctly, but the illusion they created made it, so they could create new products, morph into becoming more than they were supposed to be and also hire staff appraisers. See there is no shortage of appraisers; however, there is a shortage of appraisers that are willing to work with AMCs and their deceptive, consumer preying and poor business practices. If you think for 1 minute that the AMC cares about you or your loan, you are mistaken. They only care about making their lender clients happy, so they can retain more work and making sure they can charge more and pay less.
6) False Blanket of security. AMC’s claim they offer a lot to the process. That couldn’t be further from the truth. While in 2008 then State Attorney General Cuomo of NY, made some bad deals. He couldn’t put it on his banks or people, so he placed the blame on appraisers. He was the one who created the HVCC (Home Valuation Code of Conduct) that put AMC’s in place as the middle man. What they were supposed to do was to be a barrier between appraisers and lenders and to put an end to “Collusion” between both, as he stated. HVCC has since been rolled into DODD-FRANK and well not much has changed. Instead of lenders pressuring appraisers, you now have AMC’s doing it. How do they do it? Well, as I explained AMC’s have lenders as their clients. They have to make their clients happy to retain them and continue to get order volume. AMC’s are now the pressure kings. They demand appraisers do things that will satisfy their clients. They will ask appraisers to change things before the appraisal even gets to the lender. Furthermore, they will threaten appraisers with removal from their panels if they don’t comply with their demands. So while it’s not the lenders pressuring appraisers, It’s now the AMCs doing it. So much for appraiser independence. This is also another reason why AMCS have developed their own staff appraisal panels. So that they can control the reports and the appraisers. Shame.
I’ve pointed out many aspects of the AMC’s. They are no longer a middle man. They are a deceptive, price gouging, and non-needed entity in the valuation space. Lenders are NOT required to use an AMC, however, they do so as they do not have to have their own in-house personnel to pay, etc.
So think about this the next time you apply for a loan, or refinance. Ask the questions about how to get the best appraiser for you. Don’t settle for the cheap and fastest. Don’t pay a fee without knowing where that money is going to. Most of all, do your research on the AMC your lender uses and seek answers to your questions
7 thoughts on “Consumers Guide: Appraisal Management Companies and what no one is telling you”
Mark. Excellent job. You requested us to comment on the .gov website, earlier in the week. I did so with essentially similar commentary.
Pas this puppy on
Good afternoon, Mark.
Couple of thoughts: (1) the reason the borrower doesn’t get to select the appraiser is because of the potential for positive bias resulting from a relationship the borrower may have with the appraiser. If you remember, one of the reasons for Dodd Frank was the perception of positive bias from allowing mortgage brokers to select their appraiser of choice. (2) How would a staff appraiser be any more, or less, biased than a 3rd party contract appraiser? Appraisal Independence has to do with potential relationships between the appraiser, borrower, and lender, right? How would me working as an employee of an AMC have any effect on a disposition to favor one party’s cause over the other? The parties to the transaction have nothing to do with the AMC – and vice versa…(3) it is my opinion that there was, in fact, a shortage of effective supply (of appraisers) during the pandemic era of lending. This can easily be confirmed by looking at the protracted turn times during that period – relative to current turn times. Is there an appraiser shortage now? Of course not. Was there 2 years ago? You bet your wallet there was.
Great Article and explanation of the AMC. Buy an AMC paying an appraiser $400 is most likely a top tier AMC, depending on the area. Most AMCs pay under $300 an appraisal and with volume down I’ve hear as low as under $200 per a nationwide AMC supervisor close friend I have. Hopefully the model of hiring the fastest and cheapest gets made known to the public vs the other bias narrative being pushed beyond belief.
Interesting from a person who has never worked at a lender or an AMC. Educated on the facts or bias to your points?
Actually I’m quite spot on with my points having not only my own experiences but having had spoken to many others who actually work or have worked at AMCS. When you have friends in ALL places, you get the facts. I appreciate the comment, however as stated my points are backed with facts.
You are spot on Mark!
Thanks for doing this. Just review and distribute Valuation Connects “advice “, and lower your fees so the AMC gets to keep more borrowers’ money. Oh, guess what, I bet they sent that out without notifying their lender clients. Lenders better start looking into these relationships!