Have you ever wondered how the appraiser is chosen for a particular assignment? You would think it was because the appraiser is good, experienced in the area and able to provide a supportable appraisal. However, there is a disturbing trend which started several years ago and has been gaining in popularity ever since.
This is how it works - when the AMC (appraisal management company) receives an order from the lender, many will email all of the appraisers on their approved appraiser panel who have indicated they work in that particular area. That could be anywhere from 1 to 40 appraisers or however many have indicated they work in that county. The AMC then asks the appraisers to, “provide us with your best fee and turn time”. You would not think that asking that question would be concerning, until you look a little deeper into the possible reason for the appraiser’s response and the reason for the AMC’s question to begin with.
The AMC, of course, is in business to make money. But what few realize is that they take a significant portion of the fee charged to the consumer for the appraisal. I have seen instances where the AMC takes more than half, with the appraiser getting the remainder. When appraisers respond to the AMC with their fee and turn time, most often the order is placed with the appraiser who will work the fastest and cheapest.
Seems logical, right? The AMC wants to make more profit so it’s great if they find an appraiser to do the work for less money. But, let’s examine this. The thing I think is really concerning is that these appraisers are rewarded for quoting a low ball fee. Does that necessarily make them a “good, knowledgeable and experienced appraiser”? Well, they may be. Or perhaps they are a fast and cheap appraiser, just trying to get a report out quickly and make up the fee on volume. Perhaps they quote a low fee because they feel their experience is not valuable enough to warrant a reasonable fee. And how unfortunate it is that quality and experience is not valued and that a job is awarded to a professional based solely on the lowest available fee. Lenders are making decisions based on these reports. A cheap appraiser does not necessarily make a good appraiser providing a quality product for the lender to base a decision upon. But the AMC is not concerned with this.
Many appraisers will not yield to the fast and cheap models AMCs use. They are experienced and know the value of their work and expertise. And not all appraisers who work for AMCs are willing to undercut and work inexpensively just to get a job. I certainly don’t and none of the experienced appraisers I know will. But the few who will should concern everyone.
I don't think many are aware of the AMC’s business model and how it is putting appraisers in the position of working cheaper and faster, just to pay their bills. And while I understand the AMCs function is to separate the lender and appraiser, I believe many of the low rate AMCs (there are some really good ones who provide a good service and are not just concerned with profit) have created more problems than they solved and the consumer and financial industry as a whole is the potential loser in it all. ...