Sept. 11, 2014–Pilgrim, Joni (Joni Pilgrim is director of sales and business development for Nationwide Appraisal Network, Oldsmar, Fla. She can be reached at firstname.lastname@example.org.)
Appraisal management companies provide critical, indispensable services to appraisers and to lenders for which they are paid an average of 22 percent of the fees they collect, according to Nationwide Appraisal Network’s AMC Fee Report.
And for some categories of loans or property types, such as two-four unit multi-family properties, NAN collects just 13 percent of the fee paid to appraisers, fully 41 percent below the average fee paid to AMCs.
In exchange for providing those services, Nationwide Appraisal Network collects a small percentage of the fee to cover the costs of the services provided, including technology and integration, managing employees and continuous training, marketing and sales. Also, we provide regulatory compliance and state registrations, vendor payments, communication management, vendor approval and continuous monitoring and quality control.
To be sure, appraisers on our panel take home the majority of the fee income Nationwide Appraisal Network generates: Around 75 percent to 87 percent of the fee lenders pay us, depending on the type of loan as shown below:
• Conventional Loans: 78% paid to appraisers; 22% paid to NAN • 1004 – SFR Interior: 78%, 22% • 1004C – Manufactured Home: 80%, 20% • 1025 – Multi-Family (2-4 Unit): 87%, 13% • 1073 – Condo Interior Appraisal: 77%, 23% • FHA: 79%, 21% • 1004 – SFR Interior: 75%, 25% • 1004 – Single Family Interior/FHA: 78%, 22% • 1004C – Manufactured Home/FHA: 82%, 18% • 1025 – Multi-Family (2-4 units)/FHA: 84%, 16% • 1073 – Condo Interior Appraisal: 78%, 22%
Total: 78% Paid to appraisers; 22% paid to NAN.
As an industry, appraisers have a great knowledge of the markets in which they work, and their ability to value residential property is critical to a smooth-working mortgage market–as revelations that emerged in the wake of the real-estate bubble demonstrated.
The business is well on its way to panels that specialize, which require more sophisticated skills than in the past; the appraisers that provide those skills will be paid better, and the AMCs that support that effort will attract the best appraisers.
Many appraisers, however, would like to return to the days before AMCs, particularly the years before 2009, but the scope of regulations and the regulatory scrutiny that exists makes that as unfathomable as it is impractical.
I’m not completely convinced that many appraisers would be able to provide technology, regulatory compliance, marketing and all the rest of the services that AMCs provide if they were to do it on their own again after all of this time has passed and the expectations of the lenders are much higher than ever. In the absence of AMCs, each appraiser would have to do this work on his own, which would result in higher costs and more redundancies and inefficiencies.
What I am convinced of is that the appraiser’s previous ways of doing business are no longer viable, though the opportunities–for appraisers to practice their craft and increase their incomes–have never been better. This is because they are indispensable professionals that deserve to earn a good living, one commensurate with their skills, and their incomes will increase over time as technology improves efficiency and specialization becomes commonplace, and the new regulations are digested by the mortgage industry.
Although the stereotype paints AMCs as bleeding appraisers for every dollar they can, the truth is most AMCs recognize their value, and don’t begrudge them the money they are paid. Most AMCs recognize that paying appraisers well will lead to better evaluations, which benefits the mortgage market.
Although a marketplace devoid of AMCs is tempting to some appraisers once they factor in the expense, the time required to perform all of the services that has been effectively outsourced to AMCs, and the opportunity costs of doing fewer appraisals as a result, the business case for replacing AMCs is weak at best. That’s especially true when AMCs provide those services for 13 cents to 22 cents on the dollar.
Among the services that AMCs provide to appraisers and lenders are the following:
• Establishes a panel comprised of experienced, qualified appraisers that have liability insurance.
• Ongoing marketing and sales to lenders that order appraisals that are distributed to appraisers to complete.
• Performs a background check of appraisers and monitor them on an ongoing basis.
• Ensures licenses and continuing education requirements are current and they are compliant with the Uniform Standards of Professional Appraisal Practice.
• Assigns work to appraisers and monitor when the appraisal reports are complete.
• Bills and collects fees from lenders and pay appraisers.
• Ensures appraiser independence.
• Serves as a liaison between the lender and appraiser regarding questions or issues about a residential property appraisal.
• Develops a technology platform that speeds communication, and improves accuracy between AMCs and appraisers.
• Performs quality control reviews of appraisals before they are sent to the lender.
• Transmits appraisals in the formats that Fannie Mae and Freddie Mac require.
• Follows regulatory changes and ensures compliance through the use of technology.
Too often it is overlooked that the role of the AMC actually frees the appraisers to do their work, remove the burdens of having to select, deploy, and purchase technology, monitor and comply with regulations, as well as perform the continuous marketing and sales that help keep them gainfully employed.
Consider the regulations of the past few years with which AMCs had to contend, and ask yourself, “How many appraisers could have implemented them?” The regulators and the government-sponsored enterprises unleashed a regulatory onslaught, one few appraisers were or are equipped to handle on their own, one that challenged the resources and infrastructure of many AMCs.
In 2009, Fannie Mae, Freddie Mac, and FHFA released the Home Valuation Code of Conduct, designed to ensure appraisal independence, through rigorous separation between mortgage lending and appraising residential properties. HVCC regulated how lenders selected appraisers as well as how mortgage brokers, real-estate agents, and other third parties could compensate them.
That rule was replaced with the Interim Final Rule, that amended Regulation Z, implemented changes to the Truth in Lending Act by the Dodd–Frank Wall Street Reform and Consumer Protection Act, from the Federal Reserve Board in 2010.
Moreover, AMCs ensure that appraisers can devote more time to perform work they excel at and generate more income than would be possible if every appraiser purchased technology, implemented regulations and monitored compliance with them, or hired a quality-control staff.
Although AMCs take criticism from frustrated appraisers for being unnecessary, under-productive, over-paid companies that hard-working appraisers have to carry, the work AMCs perform is critical to the economic vitality of appraisers and the mortgage market. Most AMCs perform their work for a modest fee.
Over time, the work of appraisers and AMCs will fuse–becoming more symbiotic, punctuated with teamwork, as well as shared business values and a commitment to providing the best possible service and products to lenders and borrowers.
Some appraisers may prefer to eliminate the role of AMCs, but they should be careful what they wish for because their costs will increase, and the number of appraisals they can complete would decrease. That environment is a rough one to do business in, a long and winding road that undoubtedly will lead appraisers to experience acute, ironic nostalgia for AMCs.
(The views expressed in this article do not necessarily reflect policy of the Mortgage Bankers Association, nor does it connote an endorsement of a specific company, product or service. MBA NewsLink welcomes your submissions; articles and/or Q/A inquiries should be sent to Mike Sorohan, editor, at email@example.com.)