AMC Dangers to the Consumer
Appraisal Management Companies (AMC) are changing how our profession works.
It’s important to know exactly how they are affecting the real estate process, especially if you are a home-owner, looking for real estate or are involved in another part of the property.
Who does an Appraiser work for?
An appraiser works for “The Client” named in the report who ultimately responsible for the appraiser’s compensation. It is important to realize that while a borrower may have paid a lender or third party the cost of the appraisal, “The client” remains the only party authorized to use the report. The appraiser is restricted to direct communication with the client only.
When an individual or attorney retains the services of an appraiser, for an estate settlement, divorce, asset determination, etc the individual or attorney is “the client”. It is necessary to note that Federal regulations do not permit an individual borrower to select or engage the services of an appraiser for the future purpose of a loan application.
The purpose of lending and appraisal regulations is intended to “protect the public” (citizens) from unscrupulous appraisers which mandated appraiser licensing effective in 1992. Since 1992 many regional banks merged into several larger entities such a CitiCorp, Bank of America, Wells Fargo, JP Morgan/Chase, AIG, etc. Large corporations were unable to maintain a business relationship with local appraisers and the necessity for coordination of appraisal, title, and credit services evolved.
These lenders originally outsourced the tracking of appraiser licenses, qualifications, and appraisal assignments to independent “Appraisal Management Companies”(AMC’s) aka “Vendor Management Companies”(VMC’s). The AMCs were not appraisers or Federally Regulated Lenders and were not subject to any Federal or State Regulatory Agency or oversight. The incentive for lenders utilizing the services of an AMC was cost. The lenders were no longer bearing the cost of maintaining approved appraiser lists, accounting procedures, etc as the AMC’s originally performed the services for the same fees paid directly to each appraiser, by hiring “appraisers” at a discount, often inexperienced without an established client base in place. The lenders were assured that appraisals were being completed within regulatory compliance.
The lenders also enjoyed the idea that for every mortgage loan application, a single phone call to an AMC would generate all necessary documents, including the appraisal report, title search, title insurance, title policy, survey disaster inspection, and/or Broker Price Opinions (market data provided by a Real Estate Agent)
AMC’s progressed and lenders began to realize the title insurance premiums and AMC profits could be an additional revenue source, and AMC’s were “encouraged” to enter into “Joint Ventures”, or a “profit sharing”. During this “Joint Venture” exercise, First American Title Company, began to purchase appraisal data collection services, as well existing AMC’s and continued to merge AMC’s, each servicing an individual major lender such as Corelogic with a joint venture agreement with JPMorgan/Chase, and RELS which services Wells Fargo, Finiti which services CitGroup, all owned directly by First American. Several Banks directly invested and purchased exiting AMCs.
In order to “profit share”, appraisal and title insurance fees were increased to the consumer, concurrently reducing fees even further to the appraisers. In addition, the appraiser was pressured to complete an analysis in a maximum 24-48 turn-time which emphasized speed rather than accuracy and adequate research. Loans were being processed and approved in record time with minimal quality control and no regulatory oversight.
At approximately the same time, it was alleged that certain AMC’s were colluding with certain lenders to achieve specific results, altering appraisal reports for a specific value, pressuring an appraiser to provide a pre-determined value, selecting only appraiser that would promise a pre-set value, and ignoring the utilization of unqualified individuals preparing appraisal reports. As a “settlement agreement” which implicated certain lenders, AMC’s , and GSE’s (FNMA and Freddiemac), additional regulations were implemented by the NY State Attorney General, which encouraged the insertion of third party AMC’s into the lending process, known as The HVCC (Home Valuation Code of Conduct). Many of the stipulations of this settlement agreement were never implemented by the GSE’s such as a complaint hot-line.
AMCs and others viewed this action as an opportunity to expand the business model and within 2 years over 80% of all residential appraisals were controlled by AMCs.
Real Estate Agents were finding that the AMC’s were sending unqualified individuals to complete appraisals.
Waiting on the Federal Government, individual States implemented AMC regulations and registration, in an attempt to protect the consumer. It is the consumer of appraisal services who is harmed by inexperienced appraisers and corporations looking to increase profits. These lenders have created a profit center without approving a single loan.
The Housing Market was beginning to show signs of decline and Federal legislators Chris Dodd and Barney Frank introduced legislation which proposed establishment of regulations of AMCs, by individual State regulators, as well as The Consumer Finance Protection Bureau (CFPB), and was eventually passed in both houses and signed by The President. As could be anticipated, the owners of AMCs and those which profit from same objected to the implementation of the approved regulations, to which the Federal Reserve redefined for the benefit of the continuation of revenue sharing by AMC’s and lenders.
The AMC’s and lenders are concerned that the CFPB may interpret that the revenue sharing agreements violate RESPA (Real Estate Service Procedures Act) which requires lenders to make disclosures about the charges and fees that the borrower can expect at closing. RESPA forbids service providers from requiring the consumer to use specific companies for services and the act also forbids kickbacks and payments for services not rendered for the benefit of the consumer.
With every Real Estate Loan Transaction, a HUD1 statement is required to be presented and signed by the consumer, which is supposed to disclose title insurance premiums and all fees related to the costs of the transaction, yet the same lenders and AMCs are resisting efforts for disclosure of the fees paid to the AMC’s. The appraisal fee of the HUD1 is not what the appraiser receives, a portion, up to 50% of the fee goes directly to the AMC and joint venture partners. Other fees to which are shared are also not disclosed as a separate line item. Of additional concern is the solvency of certain AMC’s. If an appraiser is not paid by the AMC, a homeowner might find a lien filed against their property, regardless if payment was paid at closing to the lender. Consumers should not be risking their homes due to AMC irresponsibility.
Virginia legislators passed laws effective 7/1/2010 regulating certain AMC aspects, yet responsible appraisers are “blacklisted” by AMCs as AMCs blatantly violate those laws.
The Commonwealth of Virginia Legislators have again passed regulations regarding the registration, bonding, and practices of AMC’s to be enforced by the Virginia Attorney General’s office, with additional regulations to be determined and regulated by the State Real Estate Appraisal Board effective 7/1/2014.
VaCAP supports implementation of fair and necessary regulation of AMC in order to protect the citizens of the Commonwealth of Virginia and welcomes suggestions and examples of difficulties which might be utilized to strengthen the rights of Virginia consumers.
- We the People… - April 9, 2023
- Federal Valuation Agency Impact on Appraisers & the Public - July 22, 2022
- Is Georgia Going Rogue? - June 13, 2022
Recent Interview With Head Of Banking Lobby
Kickbacks? What kickbacks?
(Speaker holding hands behind his back while $1,000 bills fall to the floor)
Truth In Lending Regulations? Why, the appraisal fee is listed on the correct line of the HUD-1…along with our kickback…I mean service fee.
[Speaker leaves stage…picking up cash he’s dropped on his way in…muttering something under his breath that sounds like “assholes” on the open mic.
Here is a thought for appraisers who are disgusted with your pay and ready to quit. Fly for a regional airline; they are begging for pilots (and with good reason). I’ve put together a list of the lowest paying regionals for you to review. As disgusting as these numbers appear to be it would be a substantial raise to the net pay of the average residential appraiser when they subtract their expenses and divide by the number of hours they put in each week.
10 Lowest-Paying Airlines
Estimated First-Year Salary as of July 20, 2014
Atlantic Southeast Airlines
Trans States Airlines
This is a well written article. As I was reading it I was thinking it could be used as the rational reasoning for the next housing crash, which I believe is going to happen unless we get real reform. In my experience as an Appraiser, I will tell you some of what is happening here. I will get an assignment for an appraisal, usually on a complex property, whether it’s lakefront or a farmette with acreage in a rural area. I will tell the AMC I won’t do it for the fee they want to pay. I usually charge 100 more for complex assignments, though in some cases I will charge 250 more just because comp selection is extremely limited, which requires more explanations for the AMC and more driving time taking comp pictures. They tell me they can approve a fee up to 495, which is still too low for some appraisals. So I can either take it or leave it. So what is happening, I believe, is many Appraisers are faced with this dilemma and will give into the AMCs 9 out of 10 times. As you know, appraisal is not a science, and the market is far from perfect. Sometimes I will look at a property and see recent sales and current listings in the neighborhood and everything will come together making the adjustments seem logical and supported in every way, but sometimes you can’t make sense of it because there is no logical pattern between sales, and it basically comes down to providing a range of value, and putting most weight on 1 or 2 sales in the adjustment grid. So now what if you have a range, and the most similar sales support an opinion of value which is $2,000 below the contract price, but the other sales you have, which hold less weight for whatever reason, indicate an adjusted sale price of $2,000 more than the contract price. The subject was exposed for a normal period of time, and the average sales to list price ratio in the neighborhood in the last 3 months was 98%. inventories are low with a 2 to 3 month inventory. The contract price is 100% of list price because there were multiple offers. Median selling price was fairly stable over the past two years and over the past 6 months, but median list prices have been increasing. This could be a sign of an increase in values, but based upon statistical analysis there is not enough data to support it. So no time adjustments are made as a result. If this were a Refinance I would come in at a value opinion of X based upon what comps 1 and 2 indicate; being the most similar to the subject, but since it’s a purchase I come in at the contract price, which is 2,000 more because although sales 3 and 4 are slightly superior they support the contract price, the contract was negotiated between two parties, and there were multiple offers after a reasonable exposure time. For whatever reason the buyer thinks it is worth what they are willing to pay. There are no issues with the report and value opinion is supported. About a week later, after appraisal is complete an amendment to the contract changes the contract price to x minus 2,000. The amendment was signed after the effective date of the report. The Lender wants the appraisal to show the amended contract price in the report. The Appraisal was completed with a value of x and the Appraiser doesn’t modify the value; just the contract price with an addendum stating so. So now the Appraisal is $2,000 higher than it would have been if the lender would have waited for the final contract before ordering the appraisal. Then the Lender asks why that value! Please explain your reasoning. There is still pressure from Realtors. Lenders ask for consideration of sales without even checking to see if they are comparable. owners appeal your value opinion without understanding the difference between above and below grade finish. builders won’t supply contracts for new construction comps, and then throw a fit when their construction cost per square foot is above market and can’t be supported. There are numerous stupid things that the appraiser has to explain which have nothing to do with value. It is more difficult to be a good appraiser now more than ever because it is less profitable when you have to deal with people questioning everything you do, and don’t get paid for the extra time spent responding to those concerns. The process would be better for the Appraisers, Realtors, Buyers and Sellers if the value opinion was a range instead of an exact number. A purchase assignment should not be ordered until after all parts of the contract have been signed and provided to the appraiser, after all inspection contingencies, so we are provided with the final contract. If the effective date of the report is prior to any signed amendments to the contract it shouldn’t be our problem to fix. We should be able to charge a fee that is the same for AMC as non-AMC clients especially considering the numerous revision requests we get over dumb things that have nothing to do with value. until these things are fixed your’re going to keep seeing Appraisers leaving the industry and fewer entering. AMCs, Lenders and Realtors need more regulation to create more uniformity in this marketplace. Every client should have the same requirements. Every MLS should be required to verify property details, and provide all salient features, including all fields that Fannie wants on their forms. All property records for every municipality should be required to be online using data from assessors, builders, MLS records, and department of Revenue for verification purposes. All sales should be recorded in an online searchable database. All builders should be required to furnish contract details for all new construction contracts. There should be absolute transparency and no one should be able to keep property information confidential. The idea is to have one giant searchable database for all property records that includes everything you need to know about every house ever built in the U.S.
Two excellent articles! The original and Clint’s.
Well done VaCap and well done Clint!