There is no shortage of appraisers, only appraisers willing to work for Appraisal Management Companies, but there will be a shortage if the current toxic business climate does not change. The AMC business model is based on lies that hurt the consumer and your constituents.
There are many voices that have agendas to reduce the qualifications to become a Real Estate appraiser, whether it be a Licensed Appraiser, Certified Residential Appraiser or a Certified General Appraiser. There are also voices that would like the requirements of an appraisal by a person licensed by the state to be waived as there is a reported shortage of appraisers in some areas and this needs to be addressed truthfully.
In response to the financial crisis of 2007-2008 many rules were put into place to change the way appraisals were ordered which resulted in the proliferation of Appraisal Management Companies (AMCs). This business model was not new, but was not dominant in the industry prior to 2008. By 2009 the AMC model for residential property ordering became the normal and the ordering of residential appraisals by AMCs dominates the market to this day.
While there are good and bad players in every industry the AMC business model is highly unregulated and manipulative and many of the AMC’s base their business model on lies and deception to not only lenders but also the consumer who needs to be protected as there is no way for them to know how this middle-man between the lender and appraiser works.
A typical AMC sells a lender on a set fee for appraisal products and charges that fee to the lender (paid by the borrower). The AMC then has a set fee to work for and any difference in fee they get and what they have to pay an appraiser is profit.
The AMC model tells the lenders that they will hire local and competent appraisers to perform the appraisals on consumer’s homes or potential homes they wish to purchase. In reality many AMCs do not do that but rather seek out appraisers from many miles away that will do the report for the lowest fee and in the quickest time.
There is nothing wrong with consumers and companies to look for a service provider and competitive pricing as many companies and consumers do it on a daily basis. However, most consumers look for not only a reasonable price for the service but also for a person that is competent to do the job. A vast majority of the AMC model does not do that, they only look for the person (provider) who is the least expensive, despite qualifications or competence, so that they may keep the difference in fees.
The AMC model has been known for years to send multiple appraisers an “offer” for an appraisal assignment and the first appraiser to accept the assignment would get the assignment no matter their location, qualifications or competence. This is not good for the consumer or your constituents.
It was very typical for the fee offered to the appraiser to be very low but that is not the problem with the AMC model. If there are local, competent and qualified appraisers who are willing to take the assignment it would be the result of the free market (capitalism). However, because the AMC model was so abusive to appraisers many became desperate and accepted assignments to put food on the table no matter their competence or knowledge of the local markets.
This model continued for years and over time many appraisers left the industry for other income streams as it was no longer feasible to work in the industry.
Fast forward to 2016 and the COW states (Colorado, Oregon and Washington) had an “appraisal crisis” with fees rising significantly; the appraiser shortage that was created by the AMC business model became true. It is debatable if there is really a shortage of appraisers or just appraisers willing to work for the AMC business model.
The truth of the matter is the AMC model refuses to change and the lenders are not yet to a crisis. During the COW state “crisis” of 2016 it was not uncommon for a simple single-family home appraisal to cost the consumer $1,500 through an AMC yet the appraiser was paid $600 to $800. In the same time period an appraiser in southern California or Atlanta was being offered $250 for the same amount of work with the consumer paying the AMC $350. The AMC business model has been gouging the consumer because they have created a false narrative and have facilitated the shortage of appraisers in some areas, real or not.
In September, 2017 Matt Simmons of Maxwell, Hendry & Simmons, LLC wrote the following with the chart seen below:
“Speaking of supply and demand, our firm recently compiled some data on the supply of appraiser credentials in comparison to mortgage origination volume. Based on the level of hysteria out there, I bet this will show how few appraisers we have to complete all of this mortgage finance work, right? Wrong. The number of active credentials on the National Registry was 92,434 in 2003. It was 96,856 as of 2016. That’s an increase of 5%. Meanwhile, the number of annual loan originations actually dropped 42% over that same period, according to ATTOM Data Solutions. Most of the articles claiming an appraiser shortage reference the number of credentials on the registry in 2007 (121,407) versus 2016 and then build the narrative around a 20% decline in appraisers. This is completely misleading and measures the supply of appraisers from only the high water mark.”
- The AMC business model is based on multiple lies to the consumer.
- Consumers are being adversely affected by the AMC business model.
- A vast majority of appraisers do not like (many hate) the AMC clients they are forced to work for.
- A vast majority of appraisers would choose to never work for any AMC ever again if given the choice.
- Many AMCs require the appraiser to submit the report within 48 hours of inspection. This requirement reduces the potential income of the appraiser (a self-employed person) in that they might have agreed to a turn time that allowed multiple inspections in certain areas to maximize efficiency. The AMC model does not care about the appraiser, their efficiency or their income potential.
- The AMC business model now requires an appraiser to PAY a technology fee to submit a report. The AMC requests an appraisal but the appraiser must pay a fee of $12-$40 to submit a report to the company that requested the service. How is it that the AMC cannot pay for its own technology or pay for the tech companies that THEY EMPLOY for their technology?
- Many AMCs do not pay the appraiser in less than 30 days and some don’t pay for 90 days. There are a couple states who have felt the need to legislate payment in a timely manner because of this abuse by these companies.
- It is not uncommon for AMCs to send 25-page letters of engagement while direct lenders typically have a one or two page letter of engagement.
- AMCs are supposed to vet the appraisers on their rosters yet none ever require samples of reports from their vendors (appraisers).
- A significant number of appraisers have experienced not getting paid from bankrupt AMCs (Appraisal Loft, Vesta Valuation, ES Appraisal, JVI Appraisal, Summit Appraisal) and there are rumors of three more AMCs going out of business. One AMC is borrowing money at 24% interest, one company just offered $0.25 on the dollar for past fees while another AMC was just bought by a competitor and that company won’t pay the bills of the company they acquired.
- A national AMC has been documented sending “appraisal offers” to 200+ appraisers at a time; it is not uncommon for AMCs to send a “possible assignment” to 30-50 appraisers at a time. This cannot be good for the consumer.
- A national AMC had a manager in December 2017 who sent a scathing “Christmas memo” to appraisers detailing the checking up on appraiser’s schedules and the need to turn in reports that were due Christmas Day.
- Multiple AMCs now have tracking software that they want appraisers to download on their cell phones.
- AMCs review reports with PDF checkers and will automatically send a list of revision requests to appraisers with no actual person looking at the report.
- Appraisers do not like getting revision requests from former fast food workers who are classified as REVIEWERS (two AMCs have been documented as hiring people off the street with their most recent job being in fast food).
- AMCs are now asking appraisers to do reports based on photos taken by an unknown person who knows nothing about real estate and sign their name to a report which is backed by their license.
- It is not uncommon for AMCs to require revisions be handled within two hours or be punished with less work. Some AMCs have due dates with specific times (report due at 10:47 AM or it is considered late).
- It is very common for an AMC to send out an e-mail to multiple appraisers for a set fee and for that order to sit for weeks until they find someone to take the conditions of the assignment.
- It is common for AMCs to lie to loan officers or borrowers about a lack of appraisers in rural areas when there are plenty of available appraisers to do the work but who want to be fairly compensated with reasonable conditions.
- Consumers are being hurt by the AMC business model by paying inflated fees to AMCs for unqualified appraisers hired by the AMCs.
The AMC model has little respect for the residential appraiser and until appraisers feel respected or enjoy what they do they will not train future appraisers. The AMCs will not change the way they do business and in order to realize short-term profits they hope to change qualifications for becoming an appraiser or to change the way the business works.
Appraisers used to recruit their children and train them for the profession. It would be hard to find appraisers who will encourage their children to enter the appraisal profession as it simply is not an enjoyable or rewarding career anymore.
There is no shortage of appraisers, only appraisers who are willing to work for Appraisal Management Companies. There will be a shortage if the professional appraiser is not treated as such and as long as the toxic relationship continues unchecked.
By Timothy S. Evans, Certified General Appraiser, Commercial, Industrial, Agricultural and Residential Appraisal Services, Monroe Valuation, Inc. – Michigan and Iowa