An appraisal management company essentially does just that: manage appraisals. Yet AMCs have been around only a relatively short period of time compared with the rest of the mortgage industry. An AMC works directly with a lender to receive an appraisal order, place the order, receive it from the appraisal and then ultimately forward to the lender ordering the appraisal. Why all the steps?
AMCs were created as a result of the Dodd-Frank Act which laid out several new legislative guidelines that oversaw the mortgage industry back in 2008-2009. Of these various new requirements, ordering a property appraisal took on an entirely different process. Prior to this time, a mortgage lender would simply contact an appraisal company directly and place the order. The order would include pertinent information such as the property address, borrower’s estimation of value and other data. Yet during the mortgage overhaul during that period, the appraisal ordering process was changed.
The thinking at the time was to put a form of a firewall between the lender and the appraiser to avoid any perceived pressure instituted by the lender. For various loan types, an appropriate value must be established in order to further the application process. A lender that needed a minimum value in order for the loan to be approved could in fact shop the appraisal around before placing an order to see if the proper value could be reached. Both the lender and the appraiser would then have an incentive to arrive at the needed value, regardless of recent comparable sales in the area. To avoid any possibility of value manipulation, the creation of appraisal management companies was mandated.
Today, when a lender needs to order an appraisal, there is no direct contact with an appraiser. Instead, the AMC takes the order directly from the lender and then sends the appraisal order out to one of the approved appraisers on the AMCs list. The AMC will have multiple appraisers in its database and will forward the new order to the next appraiser in line. Another feature of the changes required appraisal management companies to divide up its appraisal orders evenly among its database. These changes provided the confidence mortgage lenders needed that the final valuation was made independently and without any bias.
In fact, mortgage lenders are not allowed to speak directly with an appraiser about a specific property. The request for more information must be made directly to the AMC who then forwards the request to the selected appraiser. However, a mortgage lender that sees a mistake on an appraisal does have the ability to speak directly to the appraiser about the obvious error. In the event of a questionable value, the mistakes can be delivered directly to the appraiser, yet most lenders still prefer the AMC channel when there are any questionable comparable sales, valuation or other issues.
AMCs will have multiple appraisers they work with and depending upon the type of appraisal needed, the order can be placed among various qualifying appraiser. Of course, due to the extra steps involved, it follows that an appraisal order would take a bit longer from start to finish due to the introduction of AMCs. Yet in today’s marketplace, there really is very little friction whatsoever. One of the qualifications a lender may have is speed. A borrower has a contract in a property that is closing in 15 days. Knowing this time frame would mean the lender calling up its favorite appraisers to see how fast an appraisal could be completed. When speed is a concern, while property values are an issue, so too is the all important deadline. Today however, the pass-thru from the lender to the AMC to the appraisal is negligible.
The industry long ago has adapted to these new changes and as a result the lending industry as well as investors appreciate the independent valuation of properties by working with an AMC instead of the appraiser directly.