Management Companies -
should you work for them?
Recently, a local
appraiser called me saying that one of her major client was going to be
using appraisal management companies. She asked me what she should do.
Large lenders using
appraisal management companies (AMC) is an
increasing trend. Although the percent of lender appraisals done through
appraisal management companies is relatively low (estimated at about 5%
by some), it can make a big difference if one of your main clients
starts using one.
Many appraisers are very upset by appraisal management
companies, saying they are destroying their livelihood by asking them to
work for very low fees. But lenders use them for good business reasons.
Working for one or more AMCs is a business decision for a fee
appraiser. You choose who you work for. Not all appraisers have to work
for low fees (say 50% to 60% of standard). Not all AMCs pay low fees.
Why do lenders use Appraisal Management Companies?
Lenders use AMCs because they offer "one-stop shopping" for
appraisals (many also offer title reports and other services). With more
and more mergers creating larger and larger lenders, managing a national
or large regional fee panel is too much of a hassle.
The appraisal fees they pay to the AMCs are typically higher than
they would pay to fee appraisers, but they don't have the expense of fee
panel management, and managing their appraisals (ordering, reviewing,
The most likely lenders to use AMCs are large regional or national
banks, thrifts, and mortgage banking companies. Finding an appraiser for
a one-time loan in a remote area can be a challenge unless you have a
very large fee panel.
What are the minuses for lenders?
When lenders use AMCs they give up control over the appraiser and
the appraisal. In some parts of the country, the majority of loan
originations are done by mortgage brokers, who like to be able to choose
the appraiser. Real estate agents also like to have some control on
Local lenders using a relatively small local fee panel don't have
much incentive to use an AMC. They lose feedback from their appraisers,
and the fees paid to the AMCs are typically higher than are paid to the
fee panel appraisers.
When appraisal volume picks way up, AMCs have difficulty finding
appraisers willing to work for a reduced fee.
When did Appraisal Management Companies start?
The oldest AMC I know of is Lenders Service, near Pittsburgh, PA,
which is almost 30 years old. It is also the largest AMC. In the past 5
to 6 years, many new ones have started in response to the predominance
of the mortgage lending business by large banks, thrifts, and mortgage
banking companies. Recent trends in mergers and acquisitions has
increased the number of large mortgage lenders.
Quality of work
I regularly hear questions about how "good" the appraisals prepared
for AMCs are. I really don't have any information, but doubt they are
worse than those done by "lets make a deal" appraisers working for some
mortgage brokers. There is data to show third party originated loans
have a higher default rate. The most significant problems seem to
occur when an associate is working for half the fee you're getting,
i.e., half of 50%. It's very tempting just to throw something on the
Doing a 48-hour turnaround can be a real problem when the appraisal
is not a "slam dunk." In order to complete it on time, corners may have
to be cut.
The minuses of working for an AMC
The biggest minuses are lower fees and sometimes having to purchase
special software. For many appraisers the biggest problem is
having to purchase special software for electronic transmission. This is
both a financial and time burden as you have to learn how to use the
software. If you work for more than one AMC you may have to purchase
several different software programs and learn how to use them.
Many appraisers are personally offended when asked to work for less
than their "standard" fee. But the fees paid by AMCs do vary. Some
appraisers (i.e., rural areas) get higher than their standard fee, and
some (in urban areas) get 50% of their standard fee. Some AMCs pay
relatively low fees and some pay relatively high.
Some appraisers have mentioned slow payment from some AMCs.
Why work for an AMC?
Some appraisers don't like the fast turnarounds, i.e., 3 days.
Working for a low fee and a fast turnaround are definite minuses.
However, there are some benefits to working for appraisal management
- If you don't have any other work, it's better than nothing and having
your house go into foreclosure.
- Unless you work for an appraisal management company, you won't be able
to get work from certain lenders. Citibank, for example.
- You won't be hassled by mortgage brokers and underwriters.
- Access to lenders without having to be on a lot of fee panels.
- Only one company to deal with instead of many with conflicting
- Some are very loyal to their appraisers, especially if they have
worked for them when business was strong several years ago.
Typically you don't communicate with the lender who ordered the
appraisal. That can be a plus or a minus. The plus side is no phone
calls. The minus side is not being able to communicate and problems or
ask any questions.
Should you work for an Appraisal Management Companies?
It's a business decision, depending on how busy you are, how likely
you will be able to get new clients if a current one goes with an AMC,
whether or not you use associate appraisers, etc.
However, this is an increasing industry trend. Lower fees are in the
future for most residential appraisals.
Give it a try and see how well you like it.
This article was published in Appraisal
Today in November, 1996, and was written by Ann O'Rourke.