What Does an Appraisal Management Company (AMC) Do?
Short answer – the most capable and best-performing AMCs step in to remove the following burdens off mortgage lenders:
- Staffing – Recruiting and managing the large panel of appraisers
- Production – Managing end-to-end appraisal and valuation orders
- Tech – Leveraging the latest technology to drive control, compliance, and quality
- Regulatory – Navigating the ever-changing regulatory and compliance framework
Granted, a list of four major areas may appear to be an over-simplification, unless you begin to break down the amount of expertise, time, and cost to effectively and efficiently manage the entire infrastructure. We will dive deeper into each of the four components.
AMCs have been around for roughly 50 years. However, AMCs truly came into their own as a result of the 2008 Great Recession, when Congress and regulators deemed the need for complete independence between lenders and appraisers. Inserting a true third-party into the process, the AMC, was the primary solution, and the model has continually grown. Adding to this growth has been the trend for lenders to stick to their core competencies – underwriting loans – and looking to outsource other roles and departments. The above referenced Top-4 reasons often rise to the top of a lender’s analysis and compels them to engage an AMC instead of struggling to manage appraisals and valuations in-house.
Every year, it gets exponentially harder to recruit appraisers, as it is well-publicized that the profession has a shortage of new entrants. This is a major burden. Recruiting and staffing a panel of appraisers requires:
- Processing of candidate applications
- Evaluating a candidate’s overall experience, plus experience in the various appraisal methodologies and property types
- Assessment of required credentials (e.g., licensing, jurisdictions, certifications and designations, federal tax IDs, etc.)
- Validating Errors & Omissions (E&O) insurance
- Negotiating fees
This list just names a few of the many tasks required to recruit and staff appraisers.
There is also a very sizable requirement to provide ongoing vendor management and oversight to the entire panel of appraisers. They need feedback, coaching and development, disciplinary action on occasion, and annual recertifications of all components of the initial application process.
All in all, these requirements take great expertise and technology to be done right.
Production & Technology
These go hand-in-hand, intricately dependent. Technology is the ‘Great Enabler’ in any production environment, especially true in the expert management of appraisals and valuations.
- Assigning orders based upon specific qualifications, experience, proximity and past performance on turn-time and quality
- Auto-executing a virtually endless set of rules and regulations that may differ by product, property type, jurisdiction, lender client, investor and more
- Affording the ability for borrower appeals and lender questions in a timely fashion
- An uber-flexible production platform that can be dynamically updated to meet the myriad of client, investor, and regulatory expectations
AMCs have the advantage of scale and purpose to continually invest in the latest and greatest technologies, that which supports their entire client base, which is not the case for a lender. It can drive some real heartburn for lender executives to invest in the valuations technology when there are such competing priorities on the point-of-sale (POS) platform, loan origination system (LOS), loan servicing system – and the list goes on… and on.
Simply put, we rarely see sweeping efforts to REDUCE the amount and complexity of regulations. And, given that accurate and reliable valuations are the backbone of lending against real property, being in the business of managing the appraisal and valuations process is a beast, unlike all others. Lenders have a choice, do whatever it takes to tame that beast internally, or outsource to partners dedicated solely to this rigorous environment - AMCs. Most lenders concede that AMCs are better suited to be the ingestion engine of new and changing regulatory and compliance mandates, ultimately deciphering and implementing them with precision for all clients.
Since we are talking real estate here, consider this parallel on ‘what we CAN do, versus what we SHOULD do.’ When it comes to home repairs, you COULD do your own minor plumbing and electrical work. But never fail, mistakes happen and you end up calling in trained professionals to resolve your mistakes, and it ALWAYS costs more in the long run. I've learned there is never anything minor in plumbing or electrical.
You CAN do your own appraisals and valuations – your question is… SHOULD you?