Problems with Appraisals? The dirty little secrets AMCs don’t want you to know

Lenders in todays climate are experiencing a rush of changes. The appraisal industry is no different, HVCC, Dodd-Frank, State Regulatory Adoptions, UAD, UCDP, FHA, Fannie Mae and Freddie Mac have all made a significant impact on the way appraisals are done. Many Lending Institutions (LI) have attempted to manage the appraisal process “in house” only to encounter the many regulatory obstacles, operation expansion and increased expenses that come along with managing appraisals.

Smart lenders outsource the appraisal process to Appraisal Management Companys (AMCs) that offer solutions to deliver compliant, timely and cost effective appraisals to the Lender. These companies have dominated the appraisal industry in the post financial crisis and have become the industry standard when it comes to the appraisal process. Each AMC has a process for accepting order, payment, tracking, reviewing, delivering, and monitoring appraisal compliance, however it is important to know that even though most AMCs appear to be the same, NOT ALL ARE CREATED EQUAL.

Like most business AMCs are in the business to make money and AMCs are not different. AMCs are the gatekeepers in the appraisal process and AMCs have a few well kept secrets on how they operate. The most significant is how they pay the appraiser. Have you ever wondered with the introduction of AMCs the the cost for an appraisal has either stayed the same or gone down slightly in price? How is it that by introducing a “middle man” in the process that the cost for an appraisal has not gone up? The answer to this question is the appraisers are now forced to work for AMCs and AMCs now dictate the price paid to appraisers. The average price paid to a “fee appraiser” prior to HVCC was $345 on a national average, consequentially after HVCC appraiser were being offered a small fraction of that amount, accounts as low as $122. Appraiser had been squeezed out of the transaction and with the unprecedented slow down in work volume appraiser now had to compete for work from AMCs. Appraiser getting paid less is not the entire problem of the appraisal process we see today. Another detrimental practice that most lenders are not aware of that significantly hurt the appraisal process is AMCs that participate in the practice of “broadcasting” or “bidding” appraisal orders. The way this works is simple, when an order comes into an AMC for $450 they send an email or text notification out to a large pool of appraisers for $200. If nobody accepts the offer in 30 minutes the amount increases to $215, in another 30 minutes it goes to $230, an the amount increases until the most desperate of appraiser accepts the order. Now if the obvious selection of the most desperate appraiser versus the most qualified appraiser performing the work doesn’t concern you then you should probably stop reading. If not hopefully I have shed some light on what is causing most of your appraisal issues and now I would like to show you how to fix it.

I hate to say this but the biggest step towards solving your appraisal issues needs to start with the lender. Yes, the lender needs to realize that not only do they have to realize that the entire lending industry has changed and become more expensive to operate, but so has the appraisal industry. Lenders need to steer away from AMCs that promise the lowest price and fastest turn times because at the end of the day “you get what you pay for”. Look for an AMC that emphasizes quality and service over time and price. Ask questions about how they qualify appraiser on their panel, If they pay appraisers their “Full Fee”, do they participate in “broadcasting” or bidding”, what kind of warranty does the AMC offer on appraisal related deficiencies when the lender or financial institution has to “buy back” the loan? These are just a few of the questions lender need to ask when vetting an AMC.

The important “take away” from this article is that Land Gorilla offers a solution to the traditional AMC business model. We created the “Full Fee” appraiser business model. We make our appraiser selection based on quality of work, geographic location, competency in product and strong communication skills. We NEVER participate in “broadcasting” or “bidding” out work for the cheapest and/or most desperate appraiser. We quality control the appraisal process with compliance reviews of each appraisal and additional warranty our appraisals to cover lender losses due to appraisal related deficiencies. Remember not all AMCs are created equal. Contact us today to learn more about how we due business.

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