Appraisal management companies have been around for decades, but they became more important after the subprime mortgage crisis of 2007 and 2008, when new federal regulations limited the amount of direct contact that lenders could have with appraisers. The U.S. federal government created appraiser independence requirements to prevent lenders from influencing appraisers to inflate property values. Thus lenders would be prevented from issuing mortgages based on inflated appraisal values, a problem believed to have contributed to the housing crisis.
Neither mortgage brokers, loan officers nor homeowners may select the appraiser for the property on which they want to lend/borrow funds. Since the former parties have a financial interest in the transaction, there is a risk they might attempt to influence the appraiser to assign a higher value to the property than market conditions support so the transaction will go through. When the system works correctly, the AMC chooses an appraiser with local knowledge of the market for the property being appraised.
For federally-related transactions, which most mortgage loans are, AMCs must select state-licensed or state-certified appraisers. In addition, federal regulations require AMCs to register with their respective state appraisal boards and require AMCs to follow the Uniform Standards of Professional Appraisal Practice (USPAP). AMCs are regulated under the Dodd-Frank Wall Street Reform and Consumer Protection Act and the Truth in Lending Act.
Here are some items in that process in my opinion that need improvement:
• The lender has to supply disclosures up front on costs for the loan. The lender reaches out to AMC (referenced above) whom puts the appraisal out for big. ACM then provides the lender with an idea on cost for the appraisal. The appraisal then ends up sometimes being higher by $100-$200.
• In addition, the appraisal company might state they are backed up and if the lender pays $199 more they will have the appraisal in a week. What if the buyers’ lender doesn’t want to pay the additional fee’s and the loan expires or drags out? Shouldn’t AMC monitor how long it takes for an appraisal who accepts a bid to stick to their quote and complete in a timely matter.
• Other cost associated are possible field reviews of $300-$800+ if AMC scores the appraisal of anything over a 3 out of 5. Should AMC or the appraisal firm pay for field reviews?
• If the appraiser notes a condition that needs to be completed before lending (such as CO2 monitor or hot water heater straps) the buyer has to pay sometimes $100-$175 for the appraiser to come back out to verify those conditions have been meet. Conditions that should have been followed up on by the seller or listing agent. But why the added cost to “stop in”?
• I’m finding appraisals up front to average about $800 in Thurston County. On a high level an appraisal could come out to be about $1800. The good news is the person purchasing the loan still only pays their disclosure quote but the lender is out $1200+ sometimes in addition. Where is the consumer protection act on this one?
• I’m looking at 4 FHA buyers right now for Thurston County Washington. 2 rural bids came in at $640 & $600. Their actual order cost came in at $690 & $735. Why $50 to $135 more? I have 2 in town appraisals (4 miles apart), both around the same loan amount, houses similar. One quote was for $890 and the other for $920. In my opinion it seems Dodd-Frank Wall Street Reform and Consumer Protection Act and the Truth in Lending Act need to re-evaluate this process.