I saw an opinion piece written about appraisal management companies over at HousingWire that made me just about fall out of my chair – and my office chair is a sturdy Herman Miller Aeron so it was quite an unsettling piece. I’ve written about AMCs quite a bit since HVCC came into effect on May 1, 2009 and my last big piece: “Appraising for AMCs Can Be Like Delivering Pizza” prompted a senior executive at one of the largest US AMCs – who we don’t work for – to call me after he read it and say, “all of what you wrote is true – how do we change it?” He sounded very reasonable and earnest and got his Chief Appraiser to reach out to me to explore what to do. That person ended up providing me with robotic and defensive feedback before I even asked any questions – making it clear it was all about keeping his job, not improving the industry. Sad.
Make no mistake – I am not against the concept of AMCs and there are some reasonable ones to deal with – but the majority of them are poorly managed and therefore can only attract appraisers with the “form-filler” mentality.
This HousingWire editorial was called “It’s time to debunk the 3 biggest myths about your AMC” by the CEO of an appraisal management company. We don’t work with them and I don’t know of them or the author. It’s a corporate sounding piece so I’m guessing that it was pitched and written by their PR firm as a way to sell the virtues of a good appraisal management company.
What threw me for a loop was the omission of any discussion about the actual providers of valuation expertise. AMCs do not provide value opinions to banks. AMCs manage appraisers who provide value opinions to banks. My guess is they or the AMC industry in general are receiving more pressure from banks for the rising cost of the appraisal process – not because the appraisal fees are rising – but because the AMC appraisal quality is so poor that relative to the cost, the value-add of an AMC really isn’t really there.
We have started to observe national lenders push back against the poor quality of AMC appraisals and some lender personnel are now bypassing AMCs on complex or luxury properties because they don’t trust the expertise coming out of the AMC. Amazing.
Here are the 3 “myths” presented in this AMC PR piece. I restate each point being made to reflect the reality of the appraisal process:
From the Housingwire guest editorial:
THEIR Myth 1: Appraisal Management Companies add costs to the lender’s business.
So, yes, the costs of putting a solid value on a piece of real estate have gone up. But this is not due to the fact that an AMC has been added to the equation. It’s due to the fact that it costs more to do it right, to employ the technology, to manage the fee panels, to quality-check the results. Like most myths, this one has at its core the ugly truth that the price of an appraisal has gone up between $80 and $200, depending upon the circumstances.
MY Opinion of Myth 1: The rise in costs is NOT because appraisers are arbitrarily raising their fees. It is because the appraisal management industry takes half of the appraisers fee paid by the borrower at application to cover their costs and ended up driving most good appraisers out of retail bank appraisal work – now dominated by AMCs. The rising costs are being born by the AMCs who try to checklist away the poor quality. Here’s how: Imagine making a modest salary for a job well done and then one day (May 1, 2009) you get your pay cut in half. The middleman between the bank and the appraisers (the AMCs) got to keep the other half of the appraiser’s fee/salary. In reality, this 50% pay cut was the appraiser paying for bank compliance with HVCC by hiring the AMC. Would you quit your job if you got a 50% pay cut? Most would say yes. Who would replace you at 50% of an already modest wage? A lower caliber, lesser experienced person who was able to cut corners – like eliminate research – and essentially be willing to be a form filler rather than a valuation expert – quality evaporates not matter how much “review” is put in place. AMCs have been grappling with poor quality and probably have had to increase oversight as more banks push back against the poor quality. I think the additional compliance issues being touted throughout this opinion piece in this “Myth” are probably more of a scare or fogging tactic than a real reason for higher costs. The higher cost that is being represented by the AMC is more likely from the fact that AMCs are being forced to find better appraisers in certain markets and those appraisers are less willing to subsidize bank compliance with HVCC out of their own hide. We doing more and more AMC work now and we are paid a full fee and are given a fairly reasonable turnaround time. Why? Because that AMC’s panel quality was poor and their bank clients basically told the AMC to use firms like mine or the bank will go to another AMC who will use a higher caliber of appraiser.
THEIR Myth 2: AMCs deliver poor turnaround times that can’t compare to internal teams
Anyone who buys into this myth must live in a world without Service Level Agreements (SLAs) that spell out exactly what a vendor will provide to a lender. It sets the terms of the engagement and specifies penalties that the vendor will suffer should it fail to live up to the promises the document holds. Turnaround times are always part of the SLA between an AMC and a lender…Now, here’s the grain of truth at the center of this ridiculous myth: lenders are working to incorporate so many new compliance rules into their processes that the collateral valuation process is simply taking longer for many of them than it has in the past. Part of this comes from the fact that compliance checking takes time. Part of this comes from unnecessary processes within the lender’s shop that exist out of some executive’s fear of possible compliance problems. The appraisal process is taking longer in many cases, but it’s not due to the AMC. It’s just part of the new business environment we’re working in.
MY Opinion of Myth 2: This is simply a reframing of the conversation between lenders and AMCs. The biggest problem with most AMCs today is they demand an unreasonable turn around time – some require 48 hours (more with complex properties), about 1/3 the minimum average time needed to do a reasonably competent job. Because the AMC bank appraisal quality is generally poor, AMCs have to insert more and more checklists into the QC process to appease their lender clients. The lender clients require more service level agreements BECAUSE THEY DON’T TRUST THE QUALITY OF THE PRODUCT, NOT BECAUSE OF MORE FEDERAL COMPLIANCE ISSUES. In turn, the appraiser gets a gum chewing 19 year old who calls them every day to fill out a checklist. Banks were fine, pre-HVCC, with the turn times of their in-house and outside fee panel staff and it NEVER was as fast as the typical AMC requires today. Today, most AMCs have to differentiate themselves from other AMCs by cost and turn around standards. With the poor quality of the typical AMC bank appraisal, the AMC gets squeezed financially as banks and appraisers are beginning to push back with more requirements and costs. An appraisal is NOT a commodity – it is a professional service. If the AMC doesn’t respect the bank appraisal industry and pays them poorly, all the AMC can ever hope to receive in return is a poor quality product that can’t be check listed away.
THEIR Myth 3: The lender relinquishes control when they outsource to an AMC
The lender is in complete control at all times and federal regulators have made it crystal clear that the lender is the responsible party anytime they outsource to a third-party vendor. No lender will relinquish control to a third party when it knows the CFPB will come back to its front door in the event of a problem. There are some aspects of the collateral valuation process that the government has said must be removed from the control of the loan officers originating the loan and the managers who oversee them. Federal regulators do not want the lender to control the outcome of the appraisal process and so they have made it clear in the regulations that it must be moved away from the origination department. The uncomfortable truth is that the federal government wants the lending institution to lose a bit of control here, for the good of the consumer and the financial institution. But handing responsibility for a few aspects of one process to a third-party outsourcer is not the same thing as giving away control. No lender we know and no good AMC executive would equate these two.
MY Opinion of Myth 3: One of the biggest myths furthered by many AMCs is to fog lenders with the idea that HVCC requires banks to use them to be compliant. The statement “The uncomfortable truth is that the federal government wants the lending institution to lose a bit of control here” is very misleading. All the government wants is a separation between the sales function and the quality function of a bank – a firewall – which is an AMCs major selling point. The irony here is that large AMCs are just as susceptible to lender pressure as the individual appraisers, but on a much larger scale.
I am not anti-AMC. However I am against bank appraisers paying for a bank’s compliance with HVCC and being marginalized as a result. The appraiser is the expert developing the value opinion for the bank, not the AMC.
In my experience to date, the majority of AMC bank appraisals that I have seen are very poor. But it doesn’t have to be that way. If the lender paid the market rate for an appraisal and an additional fee for the AMC to administer the process, the quality would improve. Borrowers today generally don’t realize that the bank appraisers is paid a fraction of the “appraisal fee.” Today’s bank appraiser is paying for the bank’s compliance with HVCC and this has largely destroyed many of the quality firms in the appraisal industry. It doesn’t help that the residential appraisal industry has no real representation in Washington.
But I do like my chair.
Tags: Appraisal Management Companies, AMC, Aeron Chair, HousingWire
I an appraiser and I like your style. I will keep following.
Spot on Jonathan! Thanks for pulling back the curtain of the very incompetent AMC and exposing them for who they are.
I wanted to share this with my colleagues inside and outside of the appraisal profession, but there are too many grammatical errors and the writer continues to use the term HVCC, which sunset in 2010 and has been replaced with the Appraiser Independence Requirements (AIR). I think the message is great but, in order to avoid critical scrutiny, the writer should employ a proofreader who is familiar with the subject.
Thanks Gary, Tom and Steven – much appreciated!
However I can’t decide if Bill Knight is a troll or simply likes to pontificate on embarrassing sidebar cheap shot points to miss the forest for the trees. BTW, HVCC is clearly a term that needs to be used even though it has sunsetted – it’s already embedded in nearly all regulatory policy. Not seeing the forest for the trees…wait a second, that sounds like us! (appraisers). LOL
Bill McKnight is no troll. He is highly active in “Real Estate Appraiser’s Association” (REAA) and President of the Sacramento Chapter of the REAA, as well as a member of the Political Committee. He regularly meets with California government leaders representing concerns of appraisers located throughout California.
Members of the committee are: Director: Curt Thor; Members: Jim Bellavance, Bill McKnight, Dave Bernstein, Jared Mickel.
If Bill makes a suggestion it is due to his concern stemming from experience interacting with high ranking government types.
More info about REAA. There are five (5) chapters in CA. Information can be found here… http://reaaca.org/
Thanks JP. I regret my choice of words and apologize to Bill for my knee-jerk response. My takeaway is that I have to be more clear in terminology and not assume anything.
I think of HVCC as an abstract milestone, sort of like referring to the Lehman Brothers’ collapse. While no longer in existence as it once was, Lehman 9/08 remains a milestone in our economic history as does HVCC in the appraisal industry. I’ll try to be more clear going forward on the topics of HVCC/AIR.
HVCC is definitely alive and well. Most lenders (loan reps) are not aware that Amc’s are not required and that lenders can go back to mini panels of appraisers. HVCC is imbedded in the system and your reference to it is 100% correct, even though the AIR is now the new law. One thing I did not hear mentioned is the Power trip aspect of the AMC, always implying if not outright saying you will not get anymore business if you don’t hit their time frames etc. That is where the quality of the appraisals hits the skids, and the enjoyment of the business went totally out the window. 3 of my four trainees who have made appraising a career, plus myself, are actively seeking new careers as we can not stomach the business anymore.
I always enjoy Jonathan’s musings, which I’ve read for years. But, while I agree with the main points of this blog, it’s incumbent upon appraisers to use correct and up-to-date terminology. And I agree with Bill McKnight about the HVCC references. It may seem minor, but it is important.
Upon the signing of the Dodd-Frank law, the HVCC Agreement was sunsetted immediately. What replaced the HVCC was the Appraiser Independence Requirements (AIR) within D-F, which were basically verbatim what was stated in the HVCC.
So the sentence written in this blog really needs to say “Today’s bank appraiser is paying for the bank’s compliance with ‘Appraiser Independence Requirements’ and this has largely destroyed many of the quality firms in the appraisal industry.”
Jonathan is correct in that many banks, mortgage brokers and loan officers, and to some extent, appraisers, were having a smoke screen blown their way by others who wrongly advocated the mandating of AMC’s when the old HVCC took effect. It never was written that way, and is not (via the AIR) to this day.
Troubling to me is the fact that banks who ordered appraisals themselves using their own appraisal department personnel pre-HVCC were never allowed to ‘steal’ a portion of the appraiser’s stated fee for service to pay the bank appraisal department overhead.
But once AMC’s took over most appraisal ordering, that became the norm to finance the AMC operation, to the detriment of appraisers. Unfortunately, too many appraisers got sucked into this morass promulgated by AMC’s who ‘promised’ continued or increasing appraisal assignments only if the appraiser accepted a lower fee to join the AMC’s appraiser vendor panel. It happened to me when Wells Fargo started using RELS. Naturally, my associate and I wanted to continue doing appraisals for WFB, but we had to accept and endure a 25% pay cut to do so. Not long after, RELS cut our fee even more.
This ‘stealing’ business model is not sustainable as a way Congress, the ASB, TAF, Fannie, Freddie and a whole host of other entities envisioned when appraisal licensing was instituted. Despite the demand (with USPAP as the hammer) to ‘do quality work despite what you’ve accepted to be paid’, it cannot work in the long term if the rate of pay is not commensurate with the effort and time necessary to do quality report analysis and production.
Again, as other posters said, Kudos to Jonathan for describing reality in today’s world of appraisers being ‘managed’ by AMC’s.
Thanks Dave – really, really great insight. I appreciate your HVCC feedback too.
Two thumbs up!! It kept me at the edge of my seat! When the freedom to speak is once again within my rights, I have plenty to say.
Thanks Frank! You always have plenty of sharp insights to share.
HVCC is still a recognized term in this industry, I have a lender ordering directly, that requires me to state in every report; that I have not been pressured and I have complied with the HVCC, now I have no problem with this as the HVCC applies to lenders and not appraisers. the lawyer who came up with this must have been somebodies kid that didn’t get hired by a law firm.
I hear you Jim. Sometimes our industry gets so tangled in our own appraisalspeak that we become disconnected with what the observers of our industry can understand. Thanks for sharing.
Jim B…. The problem with many lenders is they are not familiar with how the Dodd-Frank law eliminated the HVCC (by that term). As such, they have failed to update their ‘instructions’ which still reference a term which has been put out of its misery.
The correct way to respond to their order instructions is to say that you have complied with the Appraiser Independence Requirements (AIR), which as I mentioned above, is almost if not entirely word-for-word what the old HVCC said.
If we appraisers don’t educate our clients, incorrect terminology will continue to be used, perpetuating the myth that something ‘sunsetted’ actually still exists.
Thanks Dave! Understood.
Important correction: The “correct” way to repond to Lender/3PAgent demands for a statement re Appraiser compliance with D-F 2010 – is to inform the requestor that the AIR Appraiser Indpendence clause in D-F 2010 is binding on the Lender, it’s optional AMC/3rd Party Agent, and any other person with a vested interest…………. IT IS NOT binding on an Appraiser. Should the L/3PA wish to certify compliance on each order -feel free:
‘‘§ 129E. Appraisal independence requirements ‘‘(a) IN GENERAL.—It shall be unlawful, in extending credit or in providing any services for a consumer credit transaction secured by the principal dwelling of the consumer, to engage in any act or practice that violates appraisal independence as described in or pursuant to regulations prescribed under this section. ‘‘(b) APPRAISAL INDEPENDENCE.—For purposes of subsection (a), acts or practices that violate appraisal independence shall include— ‘‘(1) any appraisal of a property offered as security for repayment of the consumer credit transaction that is conducted in connection with such transaction in which a person with an interest in the underlying transaction compensates, coerces, extorts, colludes, instructs, induces, bribes, or intimidates a person, appraisal management company, firm, or other entity conducting or involved in an appraisal, or attempts, to compensate, coerce, extort, collude, instruct, induce, bribe, or intimidate such a person, for the purpose of causing the appraised value assigned, under the appraisal, to the property to be based on any factor other than the independent judgment of the appraiser; ‘‘(2) mischaracterizing, or suborning any mischaracterization of, the appraised value of the property securing the extension of the credit; ‘‘(3) seeking to influence an appraiser or otherwise to encourage a targeted value in order to facilitate the making or pricing of the transaction; and H. R. 4173—813 ‘‘(4) withholding or threatening to withhold timely payment for an appraisal report or for appraisal services rendered when the appraisal report or services are provided for in accordance with the contract between the parties. ‘‘(c) EXCEPTIONS.—The requirements of subsection (b) shall not be construed as prohibiting a mortgage lender, mortgage broker, mortgage banker, real estate broker, appraisal management company, employee of an appraisal management company, consumer, or any other person with an interest in a real estate transaction from asking an appraiser to undertake 1 or more of the following: ‘‘(1) Consider additional, appropriate property information, including the consideration of additional comparable properties to make or support an appraisal. ‘‘(2) Provide further detail, substantiation, or explanation for the appraiser’s value conclusion. ‘‘(3) Correct errors in the appraisal report.”
THE Clause re an Appraiser’s “conflict of interest” below – was already a requirement of the USPAP certification in every appraisal report:
“‘‘(d) PROHIBITIONS ON CONFLICTS OF INTEREST.—No certified or licensed appraiser conducting, and no appraisal management company procuring or facilitating, an appraisal in connection with a consumer credit transaction secured by the principal dwelling of a consumer may have a direct or indirect interest, financial or otherwise, in the property or transaction involving the appraisal.”
If you have AMCs asking you to add to your report that you have complied with HVCC, well, that just adds further substantiation to the incompetency of AMCs in the appraisal process. Appraisers never could comply with HVCC, or AIR. These are lender regulations. The best you can do is say no one directed your opinion of value, but then again, if they start sending over ROV after ROVs, well, that might be an indication of a direction in value.
As small banks close up or merge, AMCs really don’t have much of a niche anymore. Lenders should rethink their use of AMCs because the Interagency Guidelines do not allow them to push off responsibility for the report, or the appraiser selection on the AMCs, so, for the price of a secretary that does not answer to the loan production staff, lenders could greatly reduce their AMC liabilities and achieve greater turn times, without AMC USPAP nitwits requesting changes and additions to reports that have nothing to do with value or USPAP compliance.
Jonathon, good blog. I prefer not to get caught in the minutiae of the terminology because your message remains the same and is very clear. Now how about the myth of customary and reasonable fees? Or more appropriate, fees that are reasonable and sufficient to compensate appraisers for their time and effort. In my market area (which historically is one of the lowest fee areas in the country) customary and reasonable fees are what the AMC has defined it to be. AMC’s have adopted the attitude that if you want the work you will accept what they pay, no negotiation. I have dropped a number of AMC’s for this reason, but ultimately I need to work to put food on my table.
Thanks for taking time to write about the topic Jonathan. I enjoy reading your articles. In fact, I’ve mentioned your name as one to read in my RE blog, Dismiss Low Battery.
Relative to bank obligations, the interagency guidelines are an interesting read. Remarkable really. Puzzling I haven’t seen any in depth articles about the interagency guidelines. But maybe I’ve missed them.
Or the FIRREA changes that required the banks to either in-house review, away from LO division (including De minimis loans) or outsource.
I enjoy appraising. Because it is noble and honorable. It’s a very good living. At least in Florida. I embrace the changes. Love the changing technology. And leave the complaining to others.
An Appraisal Institute colleague told me 11 years ago when I entered our profession: “Bob, think of appraisal as grocery money.” I never forgot that.
Today we also own brokerage and a property management company. In brokerage, appraisers have a value proposition no realtor can equal. Naturally, it sets us apart in a service industry where realtors are always struggling to set themselves apart. Best part? Joe public recognizes it.
I hope appraiser folks who have been negatively impacted from AMCs have other real estate opportunities in their market. To compete in an active competitive real estate market with big commissions, it takes serious money, a great management team, branding, and a killer website.
Appraisers have a competitive advantage. And we are using it – to our advantage.
Thanks Robert – really appreciate your perspective.
I can’t get through the first Myth without loosing my patience. I really get upset with the accusation that everyone who accepts lower fees is cutting corners and doing inferior work than those who don’t accept these fees. I don’t know anyone who thinks these are easy times to make a living, and it’s not like there are thousands of other jobs to choose from. People are desperate to pay their bills! What, are you going to loose your house, like the hundreds of people you see while doing REO appraisals, just because the AMC is offering $75 less than what you feel is your just reward. I get just as upset with low fees as anyone, but I personally don’t do less work or cut corners when I work for less, and I don’t think I do more if I get a somewhat higher fee. What a luxurious opinion, to be able to only work for what you think is right. I think the real problem is the fact that the AMC fee is not separate from the appraisal fee to let everyone know what is going on. Why would this not be the number one fight. It is a easy fix. Proper disclosure would solve so much of this problem.
The last desk review I did took 6 hours. Such as Suburban when the property is in the middle of town, with SFR as the zoning when its R1 urban, single family residence and Waynes Coat for wainscot. I still can’t figure out why Waynes coat was in the bath 🙂 don’t even ask what neighborhood the comps came from……….
My opinion: AMC’s want low fee appraisers who will fill out the form just enough to get it to the bank. Poor work is were they make the most money off the low fee form filler. After 20 years I don’t see it getting any better. And Jonathan thanks for taking the time to show others what the truth looks like. Keep up the good work.
I agree with so much of what I’ve read here. I will tell you however, from an AMC I consult for, they add $50-$100 to the Appraisers fee and charge that to the borrower/lender. They do not cut the Appraisers fee. As stated, what kind of quality can you expect if you continually squeeze your Appraisers for their fee and demand turn times of 48 hours? Not very good, so we don’t do that as a smart business practice. There is still way too much shady business going on in our biz. This group seems to have the membership and the juice to effect change.
Thanks Brandon. Well said. The challenge to the AMC industry, is that because so few provide a real “value add” then the only thing they have to compete on is price – and to date, the appraiser is paying for it.
Great job Jonathan! I especially like the fact that you mention how some of the AMC review appraisers do not stick up for their profession, but instead enforce lender requirements that they know are nearly impossible to adhere to, without compromising the quality of a report. (most AMC’s I deal with give you a reasonable amount of time to complete an assignment. If the homeowner delays the scheduling of the inspection, and you don’t get into the property until the day before the original due date, they give you 48 hours to complete the assignment, complex or not! This is absurd! All the reasoning for giving you adequate time to do a competent job goes out the window!)
Thanks Lawrence. You bring up a good point – the criticism of AMCs has been based on low fees. However the reality is that the time allowed to complete assignments is a set up for failure. Appraising is a professional service that doesn’t always mix well with a cookie cutter national policy on timing that applies to all assignments done everywhere.
Distinctly different services, should require distinctly separated fees. /
If the lender wants to use an amc, that is fine, but only if the lender pays for that service separately. /
The function of the amc is a firewall, and they should therefore remit all appraisal invoices, to be paid by the lender directly. /
The removal of the financial incentive to depress appraisal fees for variable opportunistic profit will go a long way towards automatic correction with a great deal of amc industry issues. Also this will be more appropriately aligned with junk fee and fee skimming rules. The amc gets a free pass on fee skimming because they were a unregulated business, and regulation has not kept up with their existing process of raking variable portions of fee, without any need to adhere to junk fee rules. If the amc’s can rake a portion, why can’t the lender? Neither should be allowed to dip into the appraisers fee, for variable opportunistic profit. With each new amc employee, there is one less trainee, and sometimes even one less experienced appraiser, because the amc pay comes directly from the money pool that is supposed to be the appraisers money pool. The amc rake goes to telecom workers, management, location costs, janitorial, utility, etc, etc. If the amc is a viable business model, they should be billing for that separately.
Myth #4 – Lenders actually care. Its not the AMC’s its the lenders. The premise that the lenders don’t know what’s really going on is false. If they actually cared about quality, they would not put up with the thousands of Q6 reports being submitted every week
Ah but Dan, that is the beauty of the Interagency Guidelines. Lenders are supposed to care, by regulation. The fact that they don’t care is an indication that regulators are not regulating.
And that is exactly the kind of thing that has lead to multi-million dollar whistle blower lawsuits in the past.
Think about it.
As usual, Jonathan is spot on.
I’m not even sure these AMCs will exist in the future, as the 2015 requirements are implemented and their effect felt several years down the road. The effect of those requirements will shrink the supply of appraisers and push fees up proportionately with the increased education requirements, making the situation for AMCs untenable.