REQUIRED READING: The residential appraisal landscape has undergone a seismic shift over the past five years. Due to new regulations – such as the Dodd-Frank Act, the Appraiser Independence Requirements and the now-defunct Home Valuation Code of Conduct – lending professionals have less input on the appraisal process and less control over nuances such as inspection timing and appraisal pricing.
These new guidelines have been accompanied by their own set of challenges, and though a few of those challenges may make some loans slightly harder to close, there is no arguing the truth – appraiser independence regulations have accomplished their goal of severely diminishing the amount of value pressure in the industry. For this reason alone, these types of policies aren't likely to go anywhere anytime soon.
Because personal appraiser selection is no longer a truly compliant option, loan professionals must often order appraisals through an appraisal management company (AMC). But in order to choose the right AMC, lenders need to consider several key issues.
Does the AMC have a fully trained staff? This is easily one of the most important characteristics to look for in an AMC. Can you call and get a live person? Can that person help you or immediately get you to someone who can? Can you develop a relationship with someone in that company? If the answer to any of these is ‘no,’ then move on.
What is the quality of customer service? In an industry where direct communication between lending professionals and appraisers has been largely eliminated, it is essential to select an organization that has made customer service its top goal.
Remember that AMCs are managers of independent contractors and will naturally be subject to a small number of uncontrollable situations. That being said, a management company should be judged on how it solves problems and rectifies mistakes, especially those out of its control.
How does the AMC choose its appraisers? Too many AMCs allow any interested appraiser to sign up for their panel. This is a sign that the company does not put a strong emphasis on the quality of its reports. Instead, choose an operation that has a rigorous appraiser-selection process.
Only certified appraisers should be utilized, whenever possible. Appraiser submissions for approval should include samples, and the management company needs to develop a strict guide for what constitutes a high-quality report. AMCs should also favor user-friendly appraisers who are willing to develop a relationship with the organization. Contracting these types of vendors whenever possible will improve efficiency in closing loans while saving time.
How does the AMC operate internally? This trait may seem insignificant, but it is actually one of the best ways to grade an AMC. An A+ management company is one that appropriately disciplines problem appraisers and rewards its best with more work.
The AMC should also pay its appraisers a fair fee in a timely manner. Realize that this may mean higher prices on more complex properties and in rural areas. However, this is the type of company that reports the most reliable valuations and receives the best service from its panel. Further, appraiser independence guidelines mandate that appraisers be paid a reasonable and customary fee. Any AMC that gouges its appraisers in an attempt to increase its bottom line is acting outside the intent of the regulations and will most likely receive subpar service.
What is the state of the AMC's panel size regulation? Clearly, an overly small panel can be disadvantageous. Likewise, an exceedingly large panel can also cause unwanted results. Repeat business will cause high-quality appraisers to perform more efficiently while learning to meet lender/AMC-specific requirements faster. Therefore, a successful management company is one that is consistently altering the panel based on volume and appraiser quality to give its best appraisers as much work as possible – while maintaining the integrity of the rotation, of course.
What is the level of the AMC's quality control? Almost all AMCs employee at least one appraiser as an agent for quality control. Most of the good AMCs have multiple staff appraisers who complete different functions in the process. There are a few AMCs out there that both are owned by appraisers and utilize staff appraisers to complete reviews, teach appraisal theory, serve as a forum for appraiser discussions, and lend support to the AMC's staff and clients.
Is the AMC relationship-oriented? This is perhaps the most overlooked quality in selecting any kind of partner company. Although extremely important in any industry, being relationship oriented is vital in appraisal management.
The merits of strong appraiser relationships have already been explained, but developing strong bonds with loan officers, processors, underwriters, account executives and brokers is equally important. The elite AMCs are willing to do anything from teleconferences to travel in order to solidify connections. These AMCs are always the best at problem solving, as they generally understand their clients' needs.
How much will it cost? As in most industries, the cheapest is usually the lowest quality. Because of this, price should not be the No. 1 factor in the AMC decision.
While bottom-line impact is obviously meaningful, the benefits of a high-quality service easily outweigh the few extra dollars per assignment. It is recommended to choose a company that tries to keep its prices on par with the rest of the industry. If an AMC encompasses the other characteristics on this list but has an average or slightly above-average fee schedule, it should still be considered a strong candidate.
Looking for these traits in an AMC is the best way to ensure that a lending professional is receiving the highest-quality reports in the most efficient manner. However, the appraisal industry is currently a volatile place. Ever-changing regulations and outside market factors strongly suggest more change in the near future.
For instance, lenders should expect appraisal fees to rise significantly in the next three years. Due to the introduction of the Uniform Appraisal Dataset (UAD) and increasingly stringent lender requirements, appraisal reports are taking more time than ever to complete. Meanwhile, an unfortunate side effect of the AMC niche is slightly decreased fees for appraisers. These combined factors are forcing some appraisers out of the business while creating a less-attractive environment for prospective new appraisers.
The result is clear: The number of appraisers in the industry is drastically falling annually. As the supply of appraisers diminishes, the demand for them climbs due to continued low rates and a warming market. Basic economic principles would suggest that the cost of hiring an appraiser is sure to rise.
Another trend in the industry is the mass standardization of appraisal reports. UAD is the biggest catalyst in this shift. Basically, UAD sets out to force appraised properties into a set of condition and quality ratings based on a set of criteria. Where an appraiser used to adjust for the slight differences between similar properties, he or she is now likely to fit those properties into the same ratings and, therefore, may not make the same adjustments.
If this movement is the start to more criteria-based rating systems, then the result is appraisal reports that are less likely to accurately depict the nuances of the subject property. Instead, reports will slowly become over-standardized to the point where a lender may use a computer program or some type of algorithm to make a final lending decision. A secondary consequence may be a rise in appraisal-related lawsuits as appraisers struggle to disclose as much information about the property as possible.
This is just one possible development on the horizon, and there are sure to be others. The key to navigating this turbulent industry is to utilize the most knowledgeable, user-friendly, well-educated and well-trained appraisers available. That method relies solely on the selection of an appraisal management company.
Greg Bernstein is managing partner of Value Trend Solutions, based in Phoenix. He can be reached at info@valuetrendsolutions.com.
