Earthworm AMCs and Free Appraisals
Quit working for the earthworm AMCs
I love reading Jonathan Miller’s Housing Notes blog each week.
Here is one of his entries from last week. Below this I’ll add my own $0.02. Actually, it’s worth a nickel!
Let’s explore the concept of free appraisals.
The idea that “you get what you pay for” doesn’t seem to apply to real estate.
Appraisers have been under siege for the past decade and the industry is decimated. There are only a few good appraisers left in each market as lenders and the Appraisal Management Companies (AMCs) they use have pressed hard to convert a professional expertise to a commodity. The only catch is that the appraiser has to work for half the market rate and they (the AMC) keep the other half. In addition, we have Estimates that are now so ubiquitous most consumers just assume the results are right. Tom Horn of the Birmingham Appraisal Blog writes a good overview of the phenomenon of “free” home appraisals.
A byproduct of commoditizing appraisals since the financial crisis through AMCs has created a new army of form fillers that don’t do appraisals. As a result, they are not responsive to changing market conditions. I read articles like this all the time: Low appraisals threaten central Ohio home sales. All participants in these types of articles just can’t understand why all of a sudden there is a burst of inaccurate appraisals across the market. Doh!
- 90% of bank appraisals are now done by AMCs since the financial crisis versus the inverse before the financial crisis.
- AMC appraisers generally work for half the market rate without AMC involvement, reducing the quality of appraisers staying in the profession.
- AMCs and banks require unrealistic turn around times that incentivize these less qualified “experts” to cut corners.
It’s in everyone best interest to protect the neutrality of the appraiser which would increase industry competence. Unfortunately I think this appraisal battle has been lost and banks have won.
In many ways, Jonathan is spot on. His observations are especially true with the bottom feeding, third tier, earthworm located, broadcast emailing ‘opportunity’ AMC’s who place very little worth on the appraisers they attempt to entice to do assignments at rock bottom fees, often at extraordinarily fast turn times.
Those are the kind of skuzzy earthworm AMC’s I won’t work for.
At the other end of the spectrum are higher echelon AMC’s. The ones who, in many cases, are owned by appraisers. Those who have experienced appraisers on staff who do report reviews. These AMC’s understand the plight of independent fee appraisers. They work hard to maintain positive relationships. These kinds of AMC’s generally have what is called a ‘cost plus’ business model. That means they pay the appraiser a proper fee that is ‘normal’ in the particular area, and then obtain a service fee from the lender for the AMC’s services.
By ‘normal’ I don’t mean the knuckle dragging fees paid by the earthworm situated AMC’s who syphon off a portion of the borrowers “appraisal cost” payment for their own overhead and profit, leaving the appraiser with a lower percentage of the total paid by the borrower. ‘Normal’ to me means a fee at or very close to what I would charge a local or regional bank, or a private party. Read that again! I don’t discount private party assignments.
The ‘normal’ fee is not based on the misguided assumption that ‘normal’ is equal to what unsophisticated appraisers charge as they fight to the bottom of the fee range in their area. But some AMC’s feel justified in operating this way. Because the Federal Reserve Bank’s compliance dual standard in their final rule regulation enforcing the Dodd-Frank Customary and Reasonable fee provision. Their ‘appearance of compliance’ using one provision allowing appraiser-accepted AMC fees is 180 degrees out of sequence with the intent of the law.
So what are appraisers to do?
Quit working for the earthworm AMC’s. Quit accepting fees that are demeaning. Quit being pushed to produce the appraisal report ‘yesterday’ after receiving the assignment ‘today.’
But, and this is important, to rise to a higher level of income and stature, appraisers have to do better quality reports. And they have to quit being, as Jonathan says, form fillers. Increasing competency will earn appraisers more respect from the higher echelon AMC’s and their respective lender clients. That way, the appraiser, and not just the bank, wins.
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I agree 100% !!!
It’s that simple.
The issue of permanently dropping those companies that started out as AMC’s is that most now have several business models that they operate from and doing so removes you from those clients that simply use there Software as a Service (SaaS) programs. These systems allow for the AMC to be the firewall for regulation purposes (no true AMC service), while the lender pays full fee and No AMC is indicated on the appraisal report. To those that say the answer is to boycott all AMC’s (and I guess their SaaS systems too), is to not fully understand the current makeup of our industry.
AMCs have so many in house appraisers working for them directly that a boycott would now be largely ineffective. It could have worked in 2009 and 2010 and brought AMCs to their knees when the country hated every entity remotely connected to lenders.
“I had a dream…that one day appraisers would sprout a brain, organize, take a stand, and take back their careers.”
[Unfortunately that dream has a 0.0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1 percent chance of transforming into reality.
Martin Luther Appraiser
In my dictionary “earthworm AMC” = ALL AMCs
I really do understand that each of us have a totally different location and circumstance. I honestly do feel sorry for my fellow appraisers who believe they have no choice but to work for AMCs. Some of us have a license and some have a general certification. Therefore some have some limitations as to what assignments they can accept. Also, some of us live in areas where appraisers are “a dime a dozen” and some are located in areas with zero appraisers.
I am a history buff. I remember reading about the development of this country from before Columbus until today. Slaves were traded 50 years before Columbus and then he took the Arawack (SP) Indians as slaves to Spain. That was just the beginning of hundreds of years where the RICH exploited the poor. Somehow I see this Banker/AMC bullshirt as a bit of that same crap. I refuse to play the game where I am ruled, dictated too and told what I will do and for what fee. That is just not me! (Actually the rich had been exploiting the poor for thousands of years before this) If enough of us refuse to play the game….the loss of income to the Bankers/AMCs will result in some changes. But, I realize that will never happen with our current crowd of appraisers!
I will continue to refuse ANY AMC assignment. I will continue to set my own fees and delivery times. When the day comes that I am unable to do that….I will retire. Wish everyone the best!
Thomas Jefferson – 1816 in a letter to John Taylor / Possibly slightly altered due to time and uncertainty of the quote. But the words ring true today like never before.
Quotation: “If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around them will deprive the people of all property until their children wake up homeless on the continent their Fathers conquered…. I believe that banking institutions are more dangerous to our liberties than standing armies…. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs.”
Am I the only one whom whole heartedly believes in auditing the FED? Stand and be counted amongst the 3%, do it now. If you love liberty like I do, you know the history which led to this point. Or in modern terms; Quit being a slave to debt.
A colleague forwarded this info to me a couple of hours ago. Apparently, StreetLinks is giving bonuses to appraisers accepting unreasonable turn around time. And I bet that even with the $100 bonus they are still not paying C&R fees!
Dave I really like this article dude. It’s one of your best ones ever possibly.
The concept of contrasting fees from the form fillers vs the manually orientated appraisers should not be over looked. I talked about this to a master carpenter guy whom I’m fielding this appraisal for currently. Boy he’s got amazing skills, but navigating the lending system with his solo efforts and associated business general contractor assistants is quickly turning his dream home project into a nightmare. Luckily he got me for the job, but like my buddy appraiser told me; You really took it in the shorts with that one. He’s right, I should get 4x fee, but I’m just rolling it normal fee for a special client favor which they likely deserve. I was talking to this guy about how people like himself would make better appraisers than me, because he knows all about the details of land, utility, and construction. Like all the details. I appreciate those orders because that’s just about the only time I actually learn something about real property and real estate. This new breed of appraisers which come after will think the power of the market rests in some extracted algorithm or measured market reaction. When I was a consumer of real estate a few years back for the first time, I learned the most valuable lesson of my appraisal career; It would have been impossible to apply my purchase towards a market measurement, because I certainly skewed the deal in my favor while the rest around me were apparently unable, not interested in, or not capable of acquiring service representation which would allow them to engage in a similar manner.
Here are a few of my recent tag lines which I sincerely hope other appraisers will adopt in their communications with lenders and distributors:
Some of the other reader commentary is disappointing to me though, because in the big picture, there is practically no difference from most direct distributors to most amc distributors. They all answer to lenders. Period. End of story. I think all individual employees of amc’s and direct distributors, just absolutely everyone involved in appraisal distribution process top to bottom should have to be individually licensed. But like this other AppraisersBlogs article about fdic complaints today, Be careful what you wish for.
In climates like CO where for one reason or another C&R is actually being met, the result is convoluted and represents a new form of time drain and operational capacity uncertainty. When they’re all scared of C&R, they just go per diem bid quote requests instead. I’m not kidding you when I say if I would not have fired, blocked, spammed, and gone vacation with so many of these, I would literally field 100 fee quotes a day. Even with constant blocking and such, I still field around 20 bid requests a week, no kidding. No time for that nonsense.
Third and final tag line:
Your pal, Tyler Durden. Yes, I’m actually the 4th Tyler. Nobody knew about me. Just kidding. May as well have been.