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It’s Time to Rethink the Appraisal Management Company Concept​

The effort to establish appraiser independence has been a mixed bag

Mortgage brokers did not create the high-risk non-conforming loans with high margins, minimal downpayments and low credit score requirements of the housing crisis in 2008. Banks and Wall Street did. But mortgage brokers received much of the blame.

While it is true that occasionally appraisers were coerced by brokers, loan values were determined by both appraisers and the lenders’ collateral review departments. In the fallout of the financial crisis, lawmakers passed the Dodd–Frank Wall Street Reform and Consumer Protection Act to overhaul the mortgage financial regulations.

One of the provisions of the legislation was to establish appraiser independence. In effect, appraisals were to be ordered through a third-party company. This led to the rise in the number of appraisal management companies.

The third-party company would act as a buffer between the originator and the appraiser. In theory, it would ensure that the bank or broker would not engage in dialogue with the appraiser, eliminating any possibility of coercion. While it did eliminate dialogue between the two parties, the impact of the rule may have brought with it more negatives than positives.

Increased costs​

Appraisal management companies have been around for decades. But these companies really rose to prominence after the financial crisis. One critic is veteran appraiser Donald J. Sarley. He says that some appraisal management companies maintain that their services save lenders and brokers time, energy and money.

Sarley, who served as the president of the Southeast Florida Chapter of the Appraisal Institute in 2010 and is also a real estate agent, contends that this is false. In fact, he argues that the fee charged by the appraisal management companies adds to the overall appraisal cost.

“Management companies do little to help the industry and add an extra layer of bureaucracy and expense,” Sarley said. “They profess to keep the appraiser independent but simple facilitation inside a lending operation or utilizing a platform solves this issue for less cost.”

By one estimate, appraisals costs have risen from as low as $250 in the early 1990s to more than $1,000 for standard appraisals. For larger homes, remote locations and unique properties, these costs can rise even higher. Sarley also argues that the appraisal management company process encourages appraisers to work independently of each other, which means newer appraisers are not being mentored by older, more experienced professionals.

Additional shortcomings​

It's Time to Rethink the Appraisal Management Company Concept - Scotsman Guide

The effort to establish appraiser independence has been a mixed bag

www.scotsmanguide.com

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