Rise of the AMCs

Stafford mentions that regulators over-corrected in their zeal to reform the appraisal process, and for Robert Wessel, the president of R.C. Wessel & Associates, an appraisal/brokerage services firm, no change has had quite the impact as that of AMCs, which have dramatically altered the appraiser profession. When appraisers were allowed to communicate directly with loan officers, Wessel explains, the process was a direct one, with the appraiser receiving calls straight from the lender and knowing full well what the lender’s fees were and what his or her expectations were of the process.

Now, however, the process has been inverted, in Wessel’s mind, and has become bureaucratic, indifferent and focused more on profit than on quality.

“The appraisal management companies have taken over the position that the appraisers used to have with the lender directly, and the appraisal management companies are more interested in the lowest fee and the quickest turn time; they say they are interested in high quality appraisals, but you can’t have all things all the time,” Wessel says. “You can’t have high quality and fast turn time and low fees together; something has to give. And in this case, I think the quality of the appraisals has been sacrificed.”

The process today, in Wessel’s experience, follows somewhat of a lottery system. AMCs send out e-blasts to their network of appraisers, and whoever responds the quickest is awarded the appraisal job; but as Wessel explains, the offers themselves do not really amount to much.

Not only are the fees offered by the AMCs often consistent with what Wessel was receiving 25 years ago for his appraisals, but also, the deadlines for the completed appraisals are a fraction of what Wessel formerly worked with, they require much more paperwork and documentation than before, and the assignments are sometimes far away from one’s place of work. Hence, to maintain pre-HVCC incomes, appraisers now juggle a much higher volume of appraisals.

In the late ‘80s, Wessel says, the typical appraisal would take, for his firm, around three weeks, but AMC-managed appraisals now have windows of just three to five business days – and while the volume has increased, the quality of the appraisals and caliber of the appraisers has fallen, as many of the market’s more experienced appraisers left the profession. Though Wessel still appraises properties on occasion, he has reformed his own real estate business, and now focuses more on the transaction side of the business.

With the most experienced appraisers now gone from the industry, and a new breed of appraisers operating under a new, demanding system, Wessel says he has witnessed some truly suspect behavior, including: appraisers with no sales experience, and who therefore possess no understanding of how the buying and selling process works; appraisers who drive in from 140 miles away and only use a single comp in their report; and appraisers who, after nonchalantly averaging the prices of their comps and delivering an evaluation below the sale price, either force a renegotiation or a contract failure.

Another appraiser who was impacted by the rise of the AMCs is Maureen Sweeney, who owns her own Chicago-based appraisal practice, Real Estate Appraiser, Ltd. Like Wessel, Sweeney observed a dramatic decline in the appraisal compensation model following the housing crash, as AMCs, rather than loan officers, began contacting her for appraisal jobs where speed and cost, not quality, were the primary concerns. And also, like Wessel, she was forced to re-calibrate her business model in response.

“In 2006, 99.9 percent of my business was lender/mortgage-generated work,” Sweeney says. “Now, I can tell you that is 10 percent of my business.”

Sweeney says that the initial shock of the HVCC regulations in 2009 – when she’d often debate even the most basic aspects of the appraisal process with representatives from AMCs – has largely worn off, and in her experience, the situation now is “100 percent” better. And with the Appraisal Management Company Registration Act now in place – a bill passed by the Illinois state government and signed by Governor Pat Quinn that requires AMCs to register with the state – she foresees the situation improving even further, now that AMCs are beholden to IDFPR regulators.