AMCs Take a Sizable Cut of the Appraisal Fee
It was March 28th, 2018 that I wrote my very first blog post entitled “What’s not in your wallet?” where I went into great detail about how Appraisal Management Companies or AMCs get paid and how the consumer is not aware of the fact that the AMC is taking much of the fee while finding the cheapest and fastest appraiser.
In that blog post, I gave many examples of the abuse appraisers and consumers are absorbing by these Appraisal Management Companies. How one borrower back then was charged $1,150 for an appraisal where the appraiser was only paid $500 while the AMC kept the rest. Seems pretty insane, right? I mean, how is it that an AMC that is supposed to just manage the order (take the order, assign it, follow up, do some QC control and send to the lender) is making more than the appraiser who is taking on all the liability with their report? Good question.
Now my blog was written in 2018; however, this practice has been going on since 2009 when the Home Valuation Code of Conduct (HVCC) went into effect and is today known as the Dodd-Frank Act. Since I wrote this blog, many things have changed in the appraisal profession.
These changes range from newer cheaper appraisal products, the push for Automated Valuation Models (AVMs), Desktop appraisals where the appraiser doesn’t even visit the home but a third party gathers the subject data, to some regulation changes and new appraisal profession entry initiatives. While the profession is changing in more dangerous ways than good, some things just seem to remain the same, as seen in the photo below.
The AMC sent the above order to an appraiser and even though it’s not as bad as the example I stated above earlier, it still proves my point: Appraisal Management Companies take a sizable Cut of the appraisal fee.
Unfortunately, many believe that this fee is what the appraiser requested but that’s not the case. They sent this order to the appraiser with the fee offered to the appraiser while showing their cut. The AMC charged the borrower $649 but is only willing to pay the appraiser $350. They are making $299 to manage the order.
If the AMC is charging $649 for the appraisal, then wouldn’t this be considered the Customary and Reasonable fee for an appraisal? Also, is the AMC disclosing to the borrowers that the $649 includes the fee for their services? Probably not.
We are in a period of inflation where companies and businesses are raising their costs for services and prices daily. Yet here we are in 2022 and appraisers are subjected to what I call the greatest and most legal Ponzi scheme ever created. It’s 2022 and yet AMCs are offering appraisers the same fees they made back in 2005.
The issue over Customary and Reasonable fees for appraisers under Dodd-Frank is far from settled. What that even means is a mystery to me and probably to you as well. Basically, it means a fee paid based upon what everyone else in your area is accepting or charging. Is there any other profession that has this sort of language or rule? None! What’s sad is no one has a clue how to decipher what this means, not even the people who created it. Typical political garbage. This brings me back to my earlier question. If an AMC is charging a borrower $600 for an appraisal and that borrower believes that is how much an appraisal cost, then shouldn’t $600 be considered the Customary and Reasonable fee? Take the AMC out of the equation. If they are capable of charging this fee, then why can’t appraisers? Why can’t experts charge what they want for their services and not be beholden to a third party that is getting rich off of the experts? Think about the example above. The AMC takes $299 out of the fee. Let’s say they get 5000 appraisals a year across the country. By my math they made $1,495,000 for managing the orders with no liability, no recourse and not doing anything.
Many appraisers like myself have stopped doing lender and AMC appraisals because of this very reason. Many have moved on to doing other things, more private business, or just left the profession. AMCs act as if they add something to the process. Perhaps they do; however, they do not deserve to determine what fee an independent appraiser who runs their own business should take, nor do they deserve to keep misleading the public and consumers.
My final thoughts. It’s time to revisit Dodd-Frank. It’s time to start listening to the hardworking boots on the ground appraisers instead of AMCs. AMCs want to keep the status quo. They will hire the cheapest appraiser to pad their pockets. While appraisers are the target of unprecedented levels of litigation and disciplinary investigation, the AMCs have no liability. It’s time to find other solutions that may include leaving AMCs in place but being paid per order by the lenders they have contracts with. Maybe it’s to take the independent appraisal fee quote out of RESPA and TILA and allow appraisers to get back to wanting to appraise homes instead of seeking alternatives. CFPB, Government, Congress, Fannie, and Freddie need to stop looking out for their friends and donors and start looking for real solutions. Consumers deserve better.