Animosity Between Appraisers and AMCs
AMCs control the money.
We hear a lot about animosity between appraisers and AMCs and this doesn’t make for a good working relationship. Business relationships work best when it is in the best interest of both parties to be on a level playing field.
Keep in mind that the AMC does nothing for the appraiser. They may provide a service for the Lender. Since this is a service that the lender has contracted with the AMC to provide, then the Lender should pay the AMC a fee based on the value of the service that lender receives (the appraiser is not a party to or has any knowledge of the contents of the agreement). The borrower and certainly not the appraiser, should not have to pay for this service.
The problem in the appraisals environment is that the AMCs have all the power and the appraisers are the pawns. To use an old clique “He who has the money has the power” and the AMCs control the money.
You ask how do we solve this problem, it is easy.
The solutions are easy and could be implemented by the lenders with no new regulations.
The easiest solution would be to have the Lender pay the appraiser directly based on the appraisers invoice and pay the AMC based on their agreement with the AMC. This would eliminate the incentive for the AMC to search for the lowest appraisal fee and they could then look for the appraiser that does good quality work and is locally competent (a requirement of USPAP). Neither one of these are the primary focus of the AMC when they are seeking an appraiser for an assignment. It is all about the appraisers’ fee because that determines the amount the AMC make on the assignment.
This adjustment would be easy to implement. The lenders agreement with the AMC is for a specified fee for the service that the AMC provides to the lender and this is paid by the lender to the AMC. The completed appraisal is sent from the appraiser to the AMC which will review it and/or provide what other services their agreement calls for. The AMCs review along with the completed appraisal and appraisers invoice is then sent to the lender. The lender then reviews the appraisal and the review from the AMC and makes the decision of whether there are any changes that need to be made to the completed appraisal. Change requests can be sent back thru the AMC or directly to the appraiser. The lender pays the appraisers invoice. This takes away the incentive for the AMC to find the lowest fee from the appraiser to benefit the AMCs profit margin. This also gives the appraiser more assurance that his invoice will be paid in a timely manner and that he/she will not be black balled by the AMC.
This way both the appraiser and the AMC receive a reasonable fee for the service they provide and the lender and the borrower know exactly the cost of the appraisal report.