A cornerstone of the mortgage business is that everyone in the process, borrower, lender, and ultimate investor, can rely upon the sanctity of the appraisal process. Lenders require that appraisers be licensed, something that is required by law in every state. Many lenders place additional requirements on appraisers, perhaps that they be licensed for a minimum number of five years.
The good lenders also have requirements that mortgage brokers must meet and they rely upon the mortgage broker to select a qualified appraiser in the area. In the overwhelming majority of cases, this works just fine because the underwriting process also includes an appraisal review. This is beginning to change.
Many large lenders are beginning to require that appraisals be ordered through appraisal management companies, AMCs, with whom they contract. We have now had experience with a few of these and they are disasters. They do nothing more than insert another level of bureaucracy into the process. We have found that the "management" is nothing more than clerks passing paper back and forth between the ordering company and the appraisal.
Their internal "review" is a joke. It does not increase appraisal quality to have one more so-called expert review appraisals. Worse yet, they take a large fee for the process which ultimately adds to the cost paid by the consumer.
In one case, we needed to have field review of an appraisal we already had. We had to order it through an AMC who apparently could not find anyone in the county to do it for the fee they paid, $150 out of the $210 we had to pay. Ultimately the order went to someone who is 133 miles away from the property who had to drive across three counties to get to the subject property. After paying for gas to drive 266 miles, how much is left for a day’s work? How much does someone that far away know about the local market?
In a more recent case, we waited three weeks for an appraisal, compared with a normal one week turnaround. I ended up paying over $500 in lock extension fees because the delay caused us to blow the lock.
The worse news is that the appraiser selection process at that company is, in my view, horribly tainted. To get on that AMC’s panel, you don’t have to meet some stringent quality or experience requirement. You just have to pay $10,000 to “buy” a zone, a territory consisting of a couple of ZIP Codes. Appraisals ordered with the AMC in their zone would be routed to them.
A lender ought to expect an AMC to recruit a panel of the most highly qualified appraisers in an area. What they are really getting is the appraiser who was willing, in effect, to “bribe” the AMC to send it orders. Are they the most qualified? I doubt it. To see this for yourself, click here and then select your state and area.
Frankly, it looked to me that the "best" areas were taken while in what appear to be predominantly minority areas, no one had signed up. The implications of that are insidious.
The economics are rotten too. Appraisals cost between $300 and $400 these days and if you add $10,000 to an appraiser’s cost of doing business, the cost to the consumer has to increase.
It just stinks!