Are AMCs Value-Adding?
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.
Excerpt:
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.
1. Introduction
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…
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Glad to see some one other than appraisers realize the lack of value in an AMC. I do believe the reported analysis is very muted. How many sale prices have been lowered to meet the appraised value? What about the cost of the appraisal to the consumer? There is so much more that needs to be addressed in the report.
According to Zachary Dawson of Fannie Mae appraisers hit or exceed the contract number 97% of the time. He opined that either real estate is a near perfect market or there is lender pressure.
“Perfect” market…review the definition of “market value” again.
Ha! Even FHFA acknowledges that there is no quality difference between amc and non-amc appraisals but that there is more value manipulation when using amcs.
“but the results indicate no clear evidence of any systematic quality differences between appraisals associated and unassociated with 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 are more prone to contract price confirmation and extreme levels of overvaluation, despite tending to use a significantly greater number of comparable properties.”
I always said that extra comps usually add nothing to a report beyond what the best 3 show. If needed to support a credible opinion of value, I add more comps. However, amcs always require 5 to 6 comps for no good reason and they usually come back asking for additional comps, when appraised value is lower than contract. Violating independence or attempting to influence value?
In a nutshell, amcs are worthless!
I have had more pressure put on me by AMC’s than I ever did working directly with the lender or loan officer. I was taken off Clear Capital’s list because I refused to make stupid changes and increase a value on a report done for JP Morgan Chase. They claimed I didn’t measure the improvements, which I did, but they weren’t happy with my diagram and used that as the reason. Don’t know if anyone else has had the same problems. So be it..
This report is just the beginning. As more and more focus is brought into our profession, more will come out. We all should be taking advantage of every situation to educate those around us; consumers, agents, legislators. Perhaps appraisers should commission our own report. We have a lot more data and sources to drawn from.
Be careful of ‘studies’ where the results are all tabulated, weighted and then ‘massaged’ even if it seems they produce one desired conclusion. Go back and reread this entire paper and I think you will find a host of unsupported ‘conclusions’ or leaps where the data does NOT say what the papers author(s) claim.
Read the dates of publication for most of the cited references. Few are current. Think this was an impartial, professional study? How about their asking the Mortgage Bankers Association whether AMC fees to banks are the same as what appraisers charged?
‘The U.S. Government Accountability Office (GAO) reported that, according to mortgage industry participants, AMCs typically charge lenders about the same amount that independent fee appraisers would charge lenders when working with them directly and absorb at least 30 percent of this fee.’
Oh! Well, if they got that information from the unnamed ‘mortgage industry participants’ it MUST be so! Right?
THIS is a foundation being laid for an already decided future plan of actions by FHFA where they have decided what the desired result is and they just had to prepare a paper in support of it. Question every finding-to-conclusion summation in the report.
Start with the litany of symptoms identified with AMCs vs non AMC appraisals. The conclusion makes no sense.
Similarly the data contained in many of the ‘sets’ is absolutely irrelevant to quality! If any appraiser submitted this garbage to a client as being meaningful it would properly result in charges from their state board (assuming it were an appraisal assignment rather than a pathway to a predetermined federal agency result).
Just because this was prepared by employees of a federal agency does not mean it isn’t garbage people. After you reread this paper please go back and read the story about The Emperors New Clothes again.
Different time. Different details. Same scenario. Let’s NOT wait until they become publicly vested in their ‘report’ conclusions. DIG DEEP into this and start citing all the other flaws. There are many.
‘The U.S. Government Accountability Office (GAO) reported that, according to mortgage industry participants, AMCs typically charge lenders about the same amount that independent fee appraisers would charge lenders when working with them directly and absorb at least 30 percent of this fee.’
They just proved the C&R issue! That would make a notable legal point for a RICO case to pursue the 10k/20k fine, and don’t you know it, from the horses mouth.
I’m with you Mike. The obvious root of the bias, being they only looked at appraisers whom play both sides 20/20, a nifty correlation obviously meant to put the reader at ease.
‘Although our evaluation employs relatively basic statistical comparisons the results provide scant evidence of any systematic quality differences between appraisals associated and unassociated with amc’s. Future research can focus on the incentive and organizational structures of amc’s as well as on the network structure among amc’s and lenders. Such structures might have a substantial impact on appraisal quality.’
No kidding Sherlock, you purposefully removed the samples which would have proved that, the best appraisers do not work for amc’s! Analyze the appraiser whom does hundreds a year for amc’s vs the appraisers whom refuse to work with amc’s. That data was likely in there but conveniently omitted. When you systematically remove data which might indicate a problem, I suppose there will be scant evidence of said problem. Statistical Trickery! And stop capitalizing amc’s, it’s not a proper word.
And not surprisingly, no real digging on repurchase protection risk, boilerplate data, copied language, mirrored statements, outsourced labor indications, or any of that. And that’s why I’m requesting on the new FNMA forms:
Specific line items the appraiser has to answer:
Did you inspect personally?
Did you use any outsourcing data typing, comps sharing, or other development assistance?
Note the company whom supplied this data, and the individuals names, dates, cost.
That would give them something to unpack, and it would be such a whopper, nobody would know what to do with it.
So I finally took the time to read through this, I had looked forward to being able to do that. I know less about policy and meaningful interpretation of data than from before I read this. They’re like advocate minded though, they only care if the loans get funded! 6% is a damned fortune, wow. They called this one a long time ago. Amc’s, keeping appraisers ‘independent’ since 1996. They got all this borrowed glory about amc’s being around since the 60’s. A total lie, maybe 1% of them were, and there is absolutely zero similarity today compared to their old business models.
Well that was sure a glorious waste of time. Except that it provides meaningful insight that they’re well aware there is a problem!
Diana the exact type of abuse you cite has become commonplace. It used to be Rels that was the biggest abuser this way. Now it seems to be CoreLogic though there are many other notable players that adopt the same scenario.
Know what the “best” part is? The ones that find a technical issue to argue (you don’t even have to be wrong). THAT is their legal excuse to then appraiser-shop.
Now what does Dodd Frank say a lender MUST do after they’ve ‘identified a deficient appraisal’? That’s right. Many (but not all) THEN turn the appraiser in to a state board! Not because they made a substantive mistake that had a significant impact on the conclusion.
No, they do it to preserve their paper trail of compliance for AIR!
And… ‘fresh set of eyes’. As if the underwriter is not looking at it. Oh wait, with the UCDP system they actually are not! 40 a day quotas and such. The bread is rich today.
Lenders could care less if AMC’s add value to the final product (the appraisal), as the only value they see is a redistribution of costs from what used to be theirs (in-house), but via split fees, has become the appraisers expense. Via delivery fees, technology fees, background check fees, and the AMC fee, its the appraiser who is paying the lenders added expense from increased regulation.
As long as it does not cost the consumer anything right? The case for a national RICO lawsuit to bring a case regarding violation of reg Z on C&R was just made by this official document!
Hi James…its an interesting observation but the obvious question is how FNMA would even know about ‘low’ (or more accurately less than contract) appraisals for loan packages? A lot of these are never submitted for Collateral Underwriter review & generation of an SSR when its clear there is an insurmountable difference between sale price and appraised market value. If it (appraisal) doesn’t generate an SSR then FNMA cannot even know about it. Correspondent lenders would never even have submitted a loan package to the direct lender at this stage. This is especially true if they are one of those AMCs that ‘make the deals happen’ for their lenders. THEY don’t want any record of the first low appraisal sitting around in FNMAs database.
In typical FNMA fashion, I think Mr. Dawson is arrogantly (or ignorantly) thinking that FNMAs statistical data is meaningful and that they have ‘discovered something’ nefarious.
(1) The real estate market does work.
(2) Not all buyers are stupid enough to offer to buy above market value.
(3) Not all AMCs or independent/correspondent ‘Loan Officers’ are honest beyond reproach. Appraiser shopping is nothing new.
What magical number does Mr. Dawson think would be a “norm”? 90%; 80% or 70%? Less?
Fact is FNMA doesn’t know what the hell they are talking about in this regard. Let’s not accept whatever they say blindly without asking meaningful follow up questions. (not you, whoever wrote the article he was quoted in).
I dare the same analysts to correlate the use of ‘see addenda’ with their statistical categories.
Further I dare them to correlate repurchase data with these statistical categories over both short and very long terms.
And I triple dog dare them to explain exactly how these admissions in cost and sourcing are not a violation of existing federal rules!
‘Please advise when the cfpb’s fictitious interpretation of C&R will be rescinded.’ Unexpected classics in literary history. Credit to Mike Kennedy on that line.
Hi Mike, As to the percentage my guess no one knows what the range should be but if 97% were a correct and accurate number currently then why would we need appraisers? I suppose you could make the case that without appraisers the percentage might be 105%. I think the overriding question here should be is lender pressure still a major factor here? What do you think, is it?
Agree James. My point was that we have NO IDEA what the numbers are because neither FNMA or anyone else is reliably tracking them from the perspective of how many are ordered as opposed to completed and then delivered to FNMA.
As for pressure? Absolutely! It is FAR worse than it ever was pre HVCC. Pre HVCC we all knew how to say “no” and most of us did. Notable exceptions were Countrywide and WAMU (later years) products where FDIC determine dover 90% of appraisals were BAD!
The current system allows institutional pressure to be applied to individual appraisers where before it was usually limited to individual loan officers at correspondent lenders. The kind that would leave you every six months only to come back the following year.
Today refusing to do what CoreLogic wants can cost you your license. Refusing to do what Wells Fargo wants, likewise. Their sheer size makes them difficult to rebut or seek fair treatment. The current practice that “Everybody does” of just correcting a report and then sending it out as if it were the original and only version is an expectation of AMCs… which leads to nuisance revisions as well as those that may be necessary.
Don’t forget the hint at the avm being possibly more reliable. They really outdid themselves on this one.
As appraisers we all know this third party “parasite” called an AMC is just a company that gets between the real client and the real service provider to skim off an unearned fee. I had originally believed that this phenomenon was just a curse that had been cast on the real estate appraisal occupation.
My sister, now retired, described to me how these “third party” companies would call the glass company where she worked. A store at the mall would have a plate glass window or a display case, etc. become broken. Instead of Dillard’s, or JC Penney calling the local glass company…OUT of the blue would be this “third party” company calling to order the repair. This “third party” company would want someone to drop everything going on in their world and rush to repair the glass. However, an estimate of the repair must be submitted before any work could begin, a store manager must sign any work order, etc, etc. and payment would be make to the glass company promptly within 120 days! That is if you crossed all of the “T’s” and dotted all of the “I’s”.
My son works for an HVAC company. He told me today about the “third party” companies that were calling their company wanting to place AC repair work orders at the mall and elsewhere. Someone from Mars wanted to know when the repair would be made, how much it would cost (OH, NO…TOO MUCH) etc. This CRAP is not just happening to appraisers. Have you watched the TV commercials about ANGIE’s LIST? I have said it so many times that it really is getting old…THEY CANNOT MANAGE APPRAISERS IF THEY DO NOT HAVE ANY! The SOBs cannot put in glass or repair HVAC systems if they do not have people willing to do the work and split the fee with them.
COME ON…let’s STOP working with these AMCS….if we do not do this fairly soon…not many of us will be working. Oh well, just my opinion, yours will differ!
Wayne, you really hit on something there. Run ANY google search today and GOOGLE decides who to leadoff with even if they have nothing to do with what you searched for. Search by city for a vendor and they will STILL give you their garbage list.
NOTE to advertisers I NEVER repeat NEVER select the top 5 to 10 Google or Bing referrals. NEVER. Note to service contractors IF you sign with a referral service instead of answering your own phones I will NEVER select you. NOT EVER. I seriously RESENT third parties wasting my time and interjecting themselves into my business needs. How DARE they presume to know what I want and waste my time?
I wonder…could borrowers feel the same way? Is a borrower that interviewed and selected their own appraiser going to be as upset if value is lower than expected than one who had an appraiser foisted on them? We have allowed TAF; and other regulators to assume no conversation between appraiser and borrower about value can ever be open and honest. THAT is wrong. We used to educate borrowers. They used to give us helpful information.
Wayne, the Patriot Trading Group guys were deep into those issues a few years ago. “The fastest growing companies in the US for many years were companies which; had no overhead, had very few employees, only shuttled service requests, but actually did not provide any real service, product, or material.” They ‘managed labor’ primarily. aka; vulture capitalism, the dark side of outsourcing.
And people wonder why I absolutely object to outsourcing and foreign labor… Outsourcing provides the illusion of gains but primarily services to monopolize industries, reduce worker population, and shuttle a substantial portion of money to the hands of a few, likely overseas ventures.
It’s time to take out the American flag, and wave it high. A resurgence in patriotism is the solution. To be proud of a hard days work, to shame those whom would hire anyone other than a fellow American.
http://patriotarchives.blogspot.com/
On a separate note, you mentioned angies list. Same as home advisor, and many others like it, all some sort of spinoffs or mirrors of the dreaded service genie lead generation model. These companies have a long track history now, of omitting valid complaints and criticisms of companies whom have paid for their membership listing services. It’s caused me personally be be ripped off by a company I thought was credible, only discovering they were not due to these clever listing strategies and collusion with these listing companies.
Ready for a set of real critical reviews about these companies? Hold on to your hat, this could knock your socks off.
https://www.sitejabber.com/reviews/homeadvisor.com
https://www.sitejabber.com/reviews/angieslist.com
Mike,
if appraisers were to just band together and let our local lenders know what is going on this crap would stop. Lenders are told by AMCs that they can and will take care of all the appraisal requirements of the lender at no cost to the lender. The lender is lead to believe that we all enjoy working with AMCs and there is no cost or effort required by the lender. Gee…no wonder the lender wants to go the way of an AMC! When the lender is told that “I will be happy to work with you” However I will die and go to hell before I work with an AMC…That is when the lender will begin to understand why with a hundred local appraisers they are having some lowlife from three counties away doing the appraisals. We will never get rid of those in our business that will work for chump change and/or slap their mother if an AMC says for them to do so. There will always be some that work with AMCs but the rest of us should have some pride and integrity and stand our ground.
I know these comments will make some angry but for those…look in the mirror and you will see the problem!
You are absolutely right Wayne.
Then I wake up and am faced with the question
“What can be done to get all (cross that out); most (cross that out) many (cross that out too) SOME appraisers to think AND act alike with a shared common position and objective.” I am absolutely amazed at our collective ability to keep shooting ourselves in the foot for the strangest reasons.
Well that’s easy. Conveniently, when an appraiser seeks to market, they need only scroll down or up on the national lenders list. Then that conversation is a natural event in the course of regular marketing.
If appraisers are actually applying at the amc’s and such, they’re doing it wrong. Amc’s do a lot of marketing on both sides of the coin, you need only turn to the email to get leads on those guys. Meanwhile, the clients worth having appear on the lenders list, and appraisers must reach out and do a little digging and qualification to end up on those lists. Worthwhile effort which will permanently alter and benefit the appraisers career in the long run, direct selling directly to lenders whom assign directly. Don’t forget about the direct part. Did I mention that direct is better, in a direct statement? Directly, it’s true. Direct assignment. Direct.
Mike,
the question you have asked in the above post is a serious one. If I remember correctly you had written an article on APPRAISERBLOGS where you referred to the number of various appraisal groups. I believe that you quoted a number which included all of the different appraisal coalitions, organizations, groups, etc. I believe it even mentioned the AGA. At the time I read that post I remember thinking that we have so many different groups and organizations representing appraisers that NONE of them can make any difference at all. This very old “game” of “my” certification is bigger than yours or “my” designation is bigger that yours has not served any of us very well. It seems that most of these “groups” have just become providers for continuing education classes and to sell books. Each group “pretends” to be the best and offers up designations which “always” require that a member continue to pay dues or lose the designation. Our industry exploits each other by selling newsletters, educational workshops, coaching, expos, and on and on. I suggest that appraisers NEED ONE group to represent all of us. This should be a group without designations and no intimidation games!
If we were all united under a common banner we really could make a difference. This group could write and “approve” a fair engagement contract. The members could agree to “require” that this engagement contract be the standard for all of us to work under while dealing with AMCs. The AMCs would either accept this agreement or our members would refuse to accept work from them.
REALLY…..if we hit them in the wallet they will listen to us or go broke. I would prefer that they go broke, but I understand that some appraisers need to work with them. This new organization would not spring up over night but I think most of us realize we need to do something different.
What you say is true. However in the world that we all live and work in that simply won’t happen. Human nature. The best we can hope for is that the larger groups will find common cause and work together.
In our experience, state coalitions have the best feel for what ails (most) appraisers in their individual states. Each states appraisal laws vary from a little bit to a lot. We have always supported individual coalitions. We’ll work to help appraisers with them, or in spite of them (a very few states ‘coalition’ are purely self serving).
The concept of a national coalition comprised of state coalitions is one that arose from diverse group conversations where a suggestion for a retained lobbyist was proposed. AGA opposed that concept completely since our experience is professional lobbyists only add to costs (hugely-though the one present in the conversation declined to opine total issue-specific fees beyond his expected retainer) and our parent union already acts as a ‘lobbyist’ without added costs beyond dues. Some participants recognized (& voiced) inherent opposition to unions.
Thus, a national group of state coalitions evolved. Because we know the people and their sincerity & integrity, we reluctantly support the effort though it dilutes efforts and diffuses corrective solutions. It also requires reinventing the wheel in terms of research and exploring national solutions. We hope that the coalition of coalitions will minimize the learning curve to arrive at meaningful solutions and methods of solving all of our problems.
So far they are doing a pretty good job on relatively smaller single issues. We continue to urge appraisers to join their state coalitions; and for those coalitions to be active in the national coalition. Though we think we have a more effective method, we will not undermine their efforts out of petty spite or false perceptions of ‘issue turf.’
For our part, we will continue to do what we do best and nobody else is doing. Actively try to defend our members when falsely accused on USPAP violations; or to educate them and mitigate damage when inevitable unintended transgressions occur. To get blacklisting reversed and to directly engage with AMCs or lenders that are still violating appraiser independence. That and to provide benefits to our members such as free two year community college tuition.
Yes, we charge a fee (dues). In our honest opinion it is the best bargain appraisers have going for them. Unlike E&O which is perceived as nothing but deep pockets and an invitation for complaints to be filed, we have appraisers backs. WE will fight for you.
Y’all know the rest…contact janbellas@appraisersguild.org for more info.
One could simply force separation of improperly co mingled fees… About 15 years ago I was so into it, the new career on the horizon. I had looked into all of that and was like, why spend that much time and money on accreditation, I’m already working right now.
Paying for advisement will skew the picture, it’s simply not worth it. Paying for groups has a benefit, I pay into the one around here, although I never show up.
Trial by fire and the attrition in this industry is appropriately high, it’s not for everyone.