Appraisal and Home Inspection Management Companies
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Recently, a local appraiser
called me saying that one of her major client was going to be using appraisal
management companies. She asked me what she should do.
Large lenders using appraisal management companies (AMC) is an increasing trend. Although the percent of lender appraisals done through appraisal management companies is relatively low (estimated at about 5% by some), it can make a big difference if one of your main clients starts using one.
Many appraisers are very upset by appraisal management companies, saying they are destroying their livelihood by asking them to work for very low fees. 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 60% to 75% of standard). 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.).
The most likely lenders to use AMCs are large regional or national banks, thrifts, and mortgage banking companies. Finding an appraiser for a one-time loan in a remote area can be a challenge unless you have a very large fee panel.
What are the minuses for lenders?
When lenders use AMCs they give up control over the appraiser and the appraisal.
In some parts of the country, the majority of loan originations are done by mortgage brokers, who like to be able to choose the appraiser. Real estate agents also like to have some control on appraiser selection.
Local lenders using a relatively small local fee panel don't have much incentive to use an AMC. They lose feedback from their appraisers, and the fees paid to the AMCs are typically higher than are paid to the fee panel appraisers.
When appraisal volume picks way up, AMCs have difficulty finding appraisers willing to work for a reduced fee.
When did AMCs start?
The oldest AMC I know of is Lenders Service, near Pittsburgh, PA, which is almost 30 years old. It is also the largest AMC.
In the past 5 to 6 years, many new ones have started in response to the predominance of the mortgage lending business by large banks, thrifts, and mortgage banking companies. Recent trends in mergers and acquisitions has increased the number of large mortgage lenders.
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 "lets make a deal" appraisers working for some mortgage brokers. There is data to show 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 sometimes having to purchase special software. They want you to use software they can see and they want you to take a piece of the pie, since they are doing all the advertising and marketing.
For many appraisers the biggest problem is having to purchase special software for electronic transmission. This is both a financial and time burden as you have to learn how to use the software. If you work for more than one AMC you may have to purchase several different software programs and learn how to use them.
Many appraisers are personally offended when asked to work for less than their "standard" fee. But the fees paid by AMCs do 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,
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 certain lenders. Citibank, for example.
- You won't be hassled by mortgage brokers and underwriters.
- Access to lenders without having to be on a lot of fee panels.
- Only one company to deal with instead of many with conflicting requirements.
- 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 and problems or ask any questions.
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