What’s the Best Way to Ensure Appraiser Independence?

Professional appraisals are the foundation on which stable real estate markets are built, so ensuring appraisers are able to do their jobs to the best of their ability is vital to the industry. That’s why a report from the federal government on appraisal quality is welcomed. Two economists with the Federal Housing Finance Agency in a working paper found that appraisals ordered by appraisal management companies, AMCs, are no more likely to be overvalued than appraisals ordered directly by the lender.

“The results indicate no clear evidence of any systematic quality differences between appraisals associated and unassociated with AMCs,” say the economists, Jessica Shui and Shriya Murthy.

Although both types of appraisals have similar levels of overvaluation, according to the researchers, AMC appraisals tend to be more prone to contract price confirmation and super-overvaluation (above 6 percent). And both types have the same level of mistakes, even though AMC appraisals tend to use more comparable properties in the analysis.

AMCs are entities that are intended to let lenders maintain an arm’s length distance between them and the appraiser. They’ve been a part of the industry for decades but it wasn’t until after the mortgage crisis about a decade ago that their use became a big part of the industry. That’s because the Federal Housing Finance Agency entered into an agreement with the state of New York to encourage their use for Fannie Mae and Freddie Mac transactions. Once their use in New York was set, Fannie and Freddie extended it to all of their transactions, making the use of AMCs a national policy. Later, their use became even more standardized by the federal government.

NAR takes the position that AMCs are one way to encourage appraiser independence. Under its Responsible Lending Principles, NAR supports the principles of appraiser independence that AMCs are designed to facilitate, but the association also recognizes that alternatives to AMCs can provide the same conformity to appraiser independence rules.

The FHFA’s report is a top segment in the latest Voice for Real Estate news video from NAR. The video also looks at the upcoming General Data Protection Regulation from the European Union. The rule takes effect later this month and while most web companies have been aware of the rule for a while, for many people it comes as a surprise and they wonder if it’s something they have to concern themselves with. The short answer is, they probably do. That’s because the E.U. has said it plans to enforce it across the board, which means it could try to take action against a company even if it’s American and caters to Americans.

Under the rule, anyone who resides in the European Economic Area is entitled to certain privacy rights. Thus, if you have a website and a European resident comes to it to, say, browse listings, you can’t put a data-tracking cookie on their computer without getting their permission upfront. Right now, that permission is implied and they have to choose to opt out. So, this rule flips current U.S. practices on their head. Instead of them opting out, you have to ask them to opt in.

The rule requires other things as well, but, bottom line, expect to make changes to how you track people who come to your site.

You can expect lawsuits once the E.U. tries to enforce the rule in the United States, but separate from that, large web operations that want to cater to as many people as possible are probably going to make the changes regardless of what the E.U. does. Eventually, that will change the standard in this country.

The video also looks at the latest home sales figures, which are up, despite persistent inventory shortages, and an upcoming webcast NAR is hosting to let people know what REALTORS® will be talking to members of Congress about when they come to Washington for the 2018 Legislative Meetings later this month. There are four talking points: indexing some tax reform provisions to inflation, reauthorizing flood insurance, improving Fair Housing, and protecting net neutrality.

Watch video now.

Robert Freedman

Robert Freedman is director of multimedia communications for the NATIONAL ASSOCIATION OF REALTORS®. He can be reached at rfreedman@realtors.org.

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  1. Rick Hemry

    Regarding the use of AMCs, if only that were true that it is required. Many lenders still utilize an appraiser panel, no different from what they had 20+ years ago. The AMCs are no longer the firewall in which they were initially designed to act as after HVCC. Several AMCs now employ appraisers on their staff. That is no different from a large appraisal shop that is directly engaged by the lender, just like 20+ years ago. The firewall has disappeared. Appraiser selection by AMCs tends to be based on the fastest and cheapest, not on quality, experience or local market knowledge. The AMC may collect $725 from the lender for an appraisal but only offer the appraiser a fee of less than $350, again similar to fees of 20+ years ago. Nothing has changed.

  2. Sunshine Day

    If you are not an Appraiser please DO NOT SPEAK FOR ME! If you have never worked for an AMC as an Appraiser DO NOT SPEAK FOR ME! AMC’s are the worst at pressuring and trying to manipulate Appraiser with their 8$ an hour henchmen. These henchmen and henchwomen call Appraisers all hours of the days and weekends, sending them numerous emails asking for updates when the home owner has not returned a phone call or email. I could go on and on about how horrid AMC’s are but they really are not worth my time. But I will say if you are not an Appraiser that has to work with these none negotiable leaches then DO NOT SPEAK FOR ME!

  3. FYI – Loan Officers put appraisers they want on their AMC “short list”. The appreance of appraiser independence is a fraud. As an appraiser I can tell you first hand that if you would like to get work from a specific local mortgage company, go to one of the high producing LOs in that company and ask them to add you to their list. AMCs maintain short lists of two or three “preferred appraisers” for specific local lenders or LOs and those people get the work. Appraisal assignments are not offered to the most experienced or qualified appraisers. They go to the “preferred appraisers”.

  4. Jesse Ledbetter

    You clearly have no earthly clue what an AMC is, how they operate, or the current appraisal climate under their existence.

  5. Ian Hatfield

    I think you make some excellent points. It’s the truth that “professional appraisals are the foundation on which stable real estate markets are built, so ensuring appraisers are able to do their jobs to the best of their ability is vital to the industry.” Independence is a key to success for appraisals. The first thing a financial institution can do is make sure their loan production staff are independent of the appraisal process. For more tips on how to keep independence intact at your bank or credit union check out this post –> [https://mountainseed.com/2017/12/07/appraisal-independence/]. Thanks for sharing