By John Dudley
When Selecting an Appraiser, Make Sure the Bulk of Their Work Isn't from Appraisal Management Companies (AMC's)
Today is the day the appraiser is coming: The real estate agent gets up and runs over to the home, hoping to have an intense chat, one where local home prices for the area will be discussed. Instead, the local appraisal management company has sent out a paper pusher, one who has never been to the neighborhood, and probably doesn’t even know the city. How is this person going to make an accurate appraisal? The choosing of a qualified appraiser needs to be more than just the selection of anyone that works with the lender’s appraisal management company.
The purchase of a home or commercial property is one of the largest financial decisions a person ever makes. Yet, it is also an infrequent purchase so the experience level needed for such transactions is rarely attained, unless the buyer continually buys and sells property. This makes the reliability and competence of a real estate appraiser’s services very important. It is on this professional’s decision that you make a final buying evaluation. Yet, these days, finding a qualified appraiser seems to be of general lament in the real estate industry.
Any appraiser worth his salt is probably getting on in years and those entering the field – well, at the price being offered by the AMCs for an appraisal, these young professionals leave a lot to be desired. This deterioration of an industry lies in stark contrast to that of the industry of the mid 1980’s.
Prior to the appraisal licensing legislation of 1991 almost anyone could become an appraiser, but this licensing law has changed that. Becoming qualified to appraise requires a bachelor’s degree and 300 hours of qualifying appraisal education (courses that are expensive and not available in all areas.)Add to the fact that becoming an appraiser is difficult; the housing crisis of the last decade put a severe strain on the industry, especially as appraisers were often blamed for creating the housing bubble. Consequently, in the current up-trending market - we can certainly say that finding a good appraiser can be very challenging.
Because of the stringent requirements made of appraisers, and because of the difficulty in finding qualified appraisers at an affordable price, the AMC model has become popular with lenders. Some, even suggesting that the use of the AMC is a requirement, when they aren’t. Lenders are only required to be separate from the legal representative who hires the appraiser. But this doesn’t mean the AMC is the best appraisal platform, and in many cases problems arise when using these companies.
Appraisers Make Less Money
Now that there is a middleman, the AMC, the appraiser makes less money. So not only do appraisers have to go through stringent educational requirements, but they also have to deal with working through the form requirements of an AMC.
In fact, the AMC is now offering to produce more appraisals at a lower cost, and this opens a whole new can of worms. This means they hire cheap and fast appraisers. So, where before, an appraiser was better qualified when he had specific geographic competency, under these new standards an appraiser’s work will be across country and he won’t have that deep knowledge of a specific location.
To save money, and complete the appraisal quickly, most AMCs are using appraisers that never step into the neighborhood and have no historic knowledge of the area. They are paid less to do the appraisal and the result leaves a lot of holes in the deal. Appraisal Management Companies are requiring lower fees, so good appraisers are taking fewer jobs, and those that are performed by less qualified professionals are coming out with problems.
Most good appraisers aren’t going to turn in an appraisal in 24 hours, and for about half the normal fee. And if that is the goal, then this means hiring less qualified people who have less experience. These are the people that are willing to take these fees and that means limiting the art and science of good appraisals.