Are AMCs Value-Adding?
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The Federal Housing Finance Agency has released a working paper “Are Appraisal Management Companies Value-Adding? – Stylized Facts from AMC and Non-AMC Appraisals”
We have not had a chance to review the report in great detail, however, a quick glance has some very interesting analysis. This is a must read for every appraiser!
See the “Are AMCs Value-Adding?” paper here or below.
Are Appraisal Management Companies Value-Adding? – Stylized Facts from AMC and Non-AMC Appraisals
In this paper, we study whether there are any systematic quality differences between appraisals associated and unassociated with appraisal management companies (AMCs). We find that compared to non-AMC appraisals, AMC appraisals on average share a similar degree of overvaluation despite being more prone to contract price confirmation and super-overvaluation. AMC appraisals also share a similar propensity for mistakes, despite employing a greater number of comparable properties. Our evaluation employs relatively simple statistical comparisons, but the results indicate no clear evidence of any systematic quality differences between appraisals associated and unassociated with AMCs.
Appraisal management companies 1 gained prevalence after the recent financial crisis as intermediaries with the ability to prevent lenders from directly pressuring appraisers—thereby improving appraisal quality and adding value to the appraisal industry. Whether they have realized such potentials is now a growing debate. AMC advocates believe that in addition to acting as firewalls between lenders and appraisers, AMCs contribute a quality assurance step to the appraisal process. Some advocates may believe additionally that the thriving of AMCs represents an increasing specialization of appraisal management and appraisal services 2. Each of these circumstances would lead to consumers acquiring less biased and better quality appraisal reports and consequently to lenders achieving reduced credit risk as well as reduced management time and effort. Those on the other side of the debate believe that AMCs offer no quality assurance contribution and in fact tend to hire the least expensive rather than the most suitable appraisers. They also claim that AMCs set unrealistic deadlines, effectively rushing appraisal reports. Under these circumstances, rather than having higher quality appraisals, AMCs could in fact reduce the overall quality of appraisals, and in doing so, increase credit risk in the long run. Opponents also cite the fact that because AMCs take a cut of prevailing appraisal fees, their prevalence has caused and will continue to cause an appraiser shortage, the result of which, ceteris paribus, is increasing appraisal costs for future borrowers…