Why Lenders Use Appraisal Management Companies

• Seeking consumers with financial needs
• Developing products
• Underwriting and funding loans
• Navigating legal, regulatory, and compliance frameworks
• Servicing portfolios of loans

This skinny-down trend has steadily dismantled prior decades of the seismic sized scope-creep pursued by lenders, especially the big ones, trying to do absolutely everything in-house. It’s not our place to judge how well that worked, although the industry-wide retreat from those days likely tells the tale.

Today, almost every internal department and function can be up for consideration for outsourcing, even underwriting. Some of the areas that often loom large in such evaluations are loan servicing, IT, operations, and appraisal management. Being an AMC, we shall focus on the dynamics in play that generally cause lenders to outsource to AMCs.

Why Consider Using an AMC? 

Like an iceberg, a lot is going on below the water line that lenders must contend with as they evaluate their appraisal management process.  

 Comparatively, third-party title, settlement, and closing vendors usually handle the closing process.  Why?  The vendor’s experience and technology, as well as the arduous responsibility to manage a large panel of closing attorneys, settlement agents, and notaries.  Lenders gladly outsource this to quality vendor partners.  And, for the EXACT same reasons, lenders also outsource appraisal management.

What does it mean to manage an in-house panel of appraisers?  At its core, it’s everything related to: 

1. Recruiting Appraisers – processing applications, assessing required credentials (e.g., licensing, jurisdictions, certifications and designations, federal tax IDs, etc.), validating Errors & Omissions (E&O) insurance, fee negotiation, overall experience, plus experience in the various appraisal methodologies and property types – and more 
2. Vendor Management & Oversight – ongoing performance management (e.g., quality, turn-time, etc.), order assignment adjustments, one-time order-level fee adjustments, consumer value disputes, and more
3. Training, Coaching and Appraiser Development – including incident investigations and disciplinary actions
4. Annual Re-Certifications - of all appraisers

According to Scott Roller, CEO of Vendor Surf, and a former Director of Vendor Management at a Top-5 U.S. mortgage bank, there are a handful of primary reasons lenders prefer to outsource appraisal management, including: 

• Lenders tend to stick to their core competencies… lending.
• Compliance has become increasingly more rigorous and expensive, best left to appraisal experts.
• Some see the AMC model as more regulator friendly with appraisals managed by a third-party.
• Lender cost and staffing headaches – it just keeps getting harder for lenders to find enough qualified professionals – and getting exponentially worse.

“Competency and costs reign supreme here, with many lenders simply no longer interested or able to manage appraisals in-house,” Roller said.  “Increasingly rapid deployment of technology is also a major factor, as most reputable AMCs continually deploy cutting-edge tech that drives efficiency, quality, and customer satisfaction,” he added.  Roller went on to advise that banks and lenders are not known to dedicate much of their IT budgets to the appraisal process, usually bogged down by trying to keep up with legal, regulatory, and compliance mandates instead.   

Key Considerations 

While not all-inclusive, as every organization is unique, here are some key considerations when evaluating your options. 

Motivation 

What is driving your need to review your model?  What do you hope to accomplish? Compare the pros and cons of the two models.

Compliance 

Can you execute against all rules and guidelines?  Are you adept at tracking and implementing the necessary changes?  Do your regulators have any thoughts on in-house vs. AMC?   

Cost 

Yours is a fixed cost when in-house, regardless of volume.  AMCs provide a variable cost model. 

Efficiency & Tech 

AMCs have a sole focus, and many continually invest in technology, workflow, etc.  Will you? 

Staffing 

AMCs generally have some staffing buffer and can share resources dedicated to other accounts.

There is no right or wrong model. You know your business better than anyone else and you should continually evaluate your optimal model.