Reader Question: Your recent article about why consumers cannot pick their appraiser was excellent, but only reviewed the process from the lender point of view. Residential appraisers hold a more educated viewpoint on appraisal management companies (AMC’s) than the lender as we do the work. My question is why didn’t you interview real estate appraisers? David C.
Monty’s Answer: The question originated through a lender’s comments to our reader. Asking for their thoughts was logical. Your suggestion of asking real estate appraisers for their impressions because they do the work is relevant.
Why have Appraisal Management Companies?
The AMC theoretically prevents the consumer from overpaying for the home. Congress created this firewall to prevent lenders from influencing the outcome of appraisal work. For example, the lender today does not know the identity of the appraiser.
The Appraisal Institute (AI) research reveals there are 83,000 real estate appraisers in the United States. According to the AI, the number has declined during the past 10 years in part because of challenging business conditions and increasing government regulation. Here is what two very active appraisers had to say about appraisal management companies.
Some feel AMC’s are harming the consumer rather than helping them. They point to the cost of an appraisal; Daniel Hagen, a Payson, Ariz., appraiser with over 30 years experience admits, “I have had to raise my fees considerably because of the extra time involved in working with AMC’s and for the additional appraisal requirements the Consumer Protection Act requires,” Hagen goes on to say. “AMC’s are a costly waste of time and money. The AMC is a new middleman taking profit for basically shuffling paper. AMC’s most often or typically seek the lowest fee and quickest turn time.”
Joel Tetzner, an appraiser in Green Bay, Wis., who began his career in 2008, said, “There are positive points and negative points to AMC’s; there is a definite lack of communication between the lender and the AMC that further slows the process down.”
While he also has increased his fees, Tetzner sees the independence of the AMC as a positive for consumers. When asked what a borrower could do to improve their chances for a positive experience, Tetzner answered, “Some AMC’s, to attract new clients will offer services, such as underwriting review, which duplicates what the lender will do. This further review delays the process, and the AMC sometimes come up with issues their client could care less about,” Tetzner added. One point both appraisers agreed was there is much work to be done to work out the kinks with AMC’s.
Dear Monty receives questions from consumers seeking answers when conflicts arise with the appraisal. These questions come from buyer and seller as they are both affected when something goes wrong. Here are a few examples:
* “ The appraiser lived over an hour from our house and was unfamiliar with the market. The appraisal was far below the offered price and almost killed the sale, but the buyer was able to get a new one. ”
* “ We are not sure where she found the comparables, but we have seen many homes and had better comparables. How do we save this sale? ”
* “ Not sure what is going on. The appraiser missed the appointment and has not called. What should we do? ”
Another cost invisible to consumers is the lender’s additional compliance staffing made necessary to ensure internal policies are within the law. Whether or not AMC’s and the Consumer Protection Act are increasing the cost to consumers and extending the closing period is beyond the scope of this column.
Can a borrower or seller have input?
It may be difficult for the borrower, as they have no contact with the AMC. Consider requesting the listing agent be there to ask the appraiser the following questions before granting access to the property:
1. How many home appraisals have you completed in the past 24 months?
2. Where do you live?
3. How many appraisals have you done in this neighborhood in the past ninety days?
4. Is most of your work in a particular price range?
5. Do you do appraisal work full time or do you have other employment?
Also, coach the seller to inform the appraiser when they call for access that they must call the listing agent to coordinate access. If the listing agent does not feel comfortable with the appraiser’s answers and declines entry, the listing agent could then inform the selling agent.
Richard Montgomery gives no nonsense real estate advice to readers most pressing questions. He is a real estate industry veteran who has championed industry reform for over a quarter century. Send him questions at DearMonty.com.