Inside the AMC Ernest W. Durbin II, SRA, CRP
First A Li2le History
History AMCs has been around for 30+ years. AMCs were born out of demand for a bundling of closing requirements such as title insurance, credit reporting and appraisal. Solved national lenders problems managing appraisal panels on such a large geographic basis. The national AMC was very attractive to national lenders; it made sense to outsource to them. But things changed in 2009.
HVCC the proliferation Required Fannie and Freddie to institute new policies regarding appraisal independence. Many lenders made a decision to outsource the process. National, Regional and Local Lenders, saddled with the new requirements, decided AMCs were the easiest most cost-effective solution. Suddenly, there was great demand for outsourcing the appraisal management process.
HVCC the proliferation In response to this demand, many companies entered the AMC space with no history in valuation at all. As a result, numerous new AMCs sprung to life--most without the necessary capitalization, knowledge and resources to meet the task. Most of the startup organizations provided poor and unprofessional service, subsequently giving the whole AMC industry a black eye. Created a whirlwind of controversy ensued
Realtors and Lenders The controversies Appraisers traveling 150 miles to perform an assignment AMCs hiring from the bottom of the barrel--only those appraisers that are willing to work for slave labor rates. Many complain that this incompetency frequently results in a low appraisal and subsequently a lost home-buying transaction. Does a low appraisal indicates an incompetent appraiser?
Appraisers The controversies Interrupted good relationships with honest lenders Reduced fees Bombarded with requests for changes and additional information. May 1, 2009, was supposed to be Appraiser Independence Day, but for many appraisers it marked a large downturn in business volume and income.
With all the problems and controversies Why do AMCs continue to survive?
Why AMCs? - Nationwide coverage. Merger after merger of regional lenders, creates Large Nationwide Lenders AMCs spend considerable resources developing and maintaining a nationwide panel. Lenders decided to let someone else find a competent appraiser in rural Montana or downtown Los Angeles. AMCs are able to source appraisers in urban areas as well as in Western counties where the livestock outnumber the people thousands to one.
Why AMCs? - Panel management. License information has to be kept up-to-date on an annual basis. Errors and omissions (E&O) insurance is required, and the policies also have to be annually audited. Appraisers are scrubbed against lender blacklists to ensure only those approved are utilized. Quality audits are performed and appraisers are ranked by their competency to perform differing assignment types.
Why AMCs? - Right size staffing When a lending institution has an internal appraisal department, staffing for market fluctuations can be nerve-racking. If not prepared for a rapid increase in the marketplace, it can result is a loss of business. Upper-level management hates watching people update their Facebook profiles rather than doing something productive. Outsourcing all or a portion of the appraisal management process is a good fiscal decision.
Why AMCs? - Appraiser independence Outsourcing appraisal management completely from a lending institution creates a distinct firewall between the appraiser and commissioncompensated staff. AMCs do not have a dog in the value fight; they are compensated for their service, not for the closing of a loan. Mature AMCs have whole departments to resolve value disputes factually and professionally, satisfying the questions of the lender and at the same time not pressuring the appraiser.
Drawbacks to the AMC Loss of control the selection process is entrusted to someone else Lack of confidence that an assignment will be done correctly and on time Complex and confusing communications isn t it easier just to pick up the phone?
AMCs appear to be here to stay Should I work with them? The pros and cons
Why work for AMCs? - Marketing done for you AMC allows the appraiser to focus on what appraisers do best: valuing property. A lot of effort goes into promoting appraisal services on the local level. The time and money spent on this activity does not immediately add to the bottom line. Time away from the desk is time not billed for appraisal services. If you spend several hours a week attracting new business, those are hours that you cannot spend fulfilling those orders.
Why work for AMCs? - Billing and Collections As funny as it seems, those people with the most money (to lend) seem to take the longest to pay you. Out-of-town lenders You may never receive payment. This frustrating aspect of small business AMCs may pay less, but they do pay on time and do not have to be nagged about it. Reputable AMCs understand that without appraisers, they are out of business. Most pay as expected.
Why work for AMCs - Appraisers are workaholics Appraisers take very little time for holidays or vacation because they fear losing good clients when they cannot service them 52 weeks a year. What happens when your best client orders twice the number of appraisals it usually does in a week? AMCs can help appraisers scale their business volume. Professional AMCs encourage appraisers to turn down work when they cannot handle it.
Why work for AMCs? - Appraiser independence Appraiser independence is most obvious benefit of working with an appraisal management company. Pressure on the appraiser is minimized by the effective firewall created by the AMC. Seldom are stories told of AMCs pressuring appraisers related to value. It may occur, but when it does, the appraiser should not work with that company.
AMCs The irritations - Lower Fees AMC s margin is taken directly from the appraiser s pocket. While some lenders are willing to pay for management services separately, most expect the service without cost. it adds to their bottom line. Appraisers should decline orders from appraisal management companies that gouge fees to increase their margins. These less reputable AMCs will have a hard time soliciting business if they do not have an appraisal panel to service it.
AMCs The irritations - Loss of connectivity Honest relationships with clients forged over many years suddenly disappear. There are lenders that did not pressure appraisers and appraisers who did not succumb to pressure. Decades of marketing and good service evaporate when valued clients no longer work directly with the appraiser. Of all the unintended consequences of appraiser independence, I believe this loss of connectivity is the most significant.
AMCs The irritations - Time compression AMCs create time compression on the appraiser. AMCs are required to provide standard turn times to their clients. Built into this process is a certain amount of time to account for the additional layers of communication. Appraisers still have to complete their due diligence and research irrespective of mandatory turn times. Appraisers should not accept orders if the return time is unreasonable. When delays are not a result of the appraiser, the AMC should be informed immediately. This will stop the clock.
AMCs The irritations - Scope creep AMCs have laborious lists of requirements and instructions for most of their appraisal assignments. These are sometimes the result of an amalgamation of client requirements There are three levels of requirements: industrystandard, AMC specific and client specific. The vast majority of requirements our client specific. AMCs prefer minimum requirements. Appraisers should adjust their fees to the scope of work and requirements indicated.
AMCs The irritations - Incompetent reviewers AMCs employee quality-control are perceived as not knowledgeable or inexperienced in appraisals and valuation methodology. Two levels of review. Quality assurance and Standard 3 Review. Quality assurance does not require the reviewer to be licensed or certified. Standard 3 reviews must be done by a licensed or certified appraiser. Never make a modification or correction to a report that reduces its credibility.
How to thrive working with AMCs
Managing Your Management company The key to success is performing high-quality work on a consistent basis. Sign up with as many management companies as possible. Weed out the worst AMCs and develop relationships with the best. Always keep a cool head. Don t take low fees offers personally. The person you re dealing with did not set the fee. As with any client relationship, it requires trust. Trust is like a bank account; deposits and withdrawals.
Managing Your Management company Triage the assignment when it s offered. Only except profitable work. Do not accept orders from management companies that broadcast the order. This is not appraisal management! Always, Always, Always negotiate your fees. Don t be afraid to turn down an assignment for whatever reason. Use their website for status updates and you will not receive the annoying phone calls.
Managing Your Management company Read the instructions thoroughly before inspecting the property and again before submitting your report. Respond to QC requests promptly and succinctly. Indicate where your correction or additional commentary is located. Escalate your concerns to their Chief Appraiser Never, Never, Never make a change that would reduce the credibility of your appraisal report. Choose your hill to die on.
The Future of AMCs
The Future of AMCs There are only going to be more and more bank mergers AMCs will be around for a long time. Their services are validated in the market. Given the conditions of the recent real estate market, an appropriate demand for accurate, unbiased valuation has been stamped into our psyche. The structural firewall that appraisal management companies provide will remain in demand.
AMC Statistics Currently, there are more than 500 AMCs nationwide Of the states requiring AMC registration, there are over 3200 registrations nationwide This averages 26.24 state registrations per AMC 49% of all AMCs are registered and just one state 20% of all emcees are registered and 2-5 states 30% of all AMCs are registered and 6-24 states Less than 1% of all agencies are registered in 25 states
The Future of AMCs Dodd-Frank amends Truth in Lending Act (TILA) and the Financial Institutions Reform, Recovery and Enforcement Act (FIRREA). Within these amendments are sections that directly speak to the practices and regulation of AMCs. The TILA changes require appraisers to be paid customary and reasonable fees. Violations draw a heavy penalty, equating to fines of up to $10,000 for each day any violation occurs. FIRREA has been modified to require AMC registration with the Appraisal Subcommittee (ASC). The ASC will be required to maintain a national registry of AMCs will be required to register within 36 months after the minimum standards are set by the ASC.
The Future of AMCs The Appraisal Subcommittee will have the authority to remove AMCs from the national registry on an interim basis, pending outcome of disciplinary proceedings. In addition, there will be a national registration fee ranging from $25 to $80 per appraiser per year levied on the AMCs. Appraisal management companies are now facing additional regulation and fees at the federal as well as the state level.
The Future of AMCs Given the growing regulatory requirements and additional fees, the future is not bright for all appraisal management companies. Those that sprang up as a result of sudden market demand will most likely wither under heavier regulation, higher costs and market reaction to substandard service. Expect consolidation in the AMC arena as well. The era of AMC proliferation is over.
The Future of AMCs All AMCs will have to face one major problem in the future: a scarcity of appraisers. From an industry perspective, the fees that are customary in the marketplace now cannot reasonably sustain a future for real estate appraisers. Customarily low fees are preventing the entrance of new appraisers into the business while at the same time causing the exit of our most seasoned professionals. If AMCs want to have a panel to manage in the future, they must solve the fee problem
Contact Ernie Durbin, SRA Chief Valuation Officer Axis Appraisal Management Solution Valuation Vision edurbin@valuationvision.com edurbin@axis-amc.com ernie@durbin.com