Real Estate Appraisal Insight From the Expert

Do AMCs Really Eliminate Lender Pressure?

When HVCC mandated the use of Appraisal Management Companies (AMCs) earlier this year, the hope was to eliminate lender pressure on Appraisers.  Now as I’ve mentioned in previous posts, I’ve already worked with AMCs for a few years so the transition for my practice wasn’t as painful as it was for others who only had only done full fee work.  So the AMC’s I work with know the quality of my work, I understand their quirks and we’ve accepted the relationship.  I may have to work harder for less pay, but it’s something I’ve accepted as reality.  I now treat them like my client and I’d like to think that they respect the quality of my work.

I just did an assignment for an AMC.  This AMC provides services nationwide and their client list includes very prominant banks.  I know what each of these end clients require- whether it be specific verbiage or photos or additional forms.  We’ve worked together for a long time now.

So I received an appraisal request in San Tan Valley (which is a suburb of Phoenix) for the purchase of a custom home that is a short sale.  In other words, the sellers are financially unable to keep their home and they have to sell or face foreclosure, and their lender is negotiating the price for them.  I did the appraisal- it was  beautiful custom home built by the owner.  It had beautiful ornate wrough iron.  It had very nice upgrades.  It had a cool ramada.  It had a few stables.

I found the most appropriate comparables and did the report and finished with an appraised value.  The contract price was higher than the appraised value.  But I shouldn’t care right?  After all, I’m not in charge of making a deal happen am I?  Isn’t that called fraud if I appraised it for more that it’s worth?  Isn’t it lender pressure when I have to worry about future work depending on the results of current work?  But with HVCC and AMC’s I’m ok right?

So a few days later, I get a call from the AMC saying that the lender wants to reopen the assignment and that I should consider two additional “closed sales” that they provided.  Now some Appraisers might say “no way”, but I will NEVER be too cocky to think that I’m immune to errors.  So I look at these two “closed” sales.  One was a NON closed sale- in fact a home not even under contract that has been on the market for 670 days.  Oh yeah, and that home was in another county with a different city name.  The second one was a closed sale, was similar in size to the subject but was in a different city, wasn’t horse property and was actually part of a large tract home neighborhood.  I send an email back to my contact at the AMC and they agreed that this was a stupid request.  However, at their request, I filled out an addendum which explains why those two sales were not applicable for this assignment.

Fast forward to 24 hours later.  I now get an email condition saying that the lender wants me to now include two more closed sales, but that these sales must NOT be distressed situations.  Distressed situations include short sales, preforeclosures or bank owned.  So I redo my search and find nothing new.  Then I expand my search.  Then I expand my search more.  Here’s what I came up with:

I searched all closed sales from January 1, 2009 though October 13, 2009 with a size range of 1500 square feet smaller and 1500 square feet larger than the subject and I came up with 40 closed sales.  Of those 40 closed sales, 38 were “distressed” situations.  That’s right, only 2 sales were not distressed.  One of those two sales indicated a value significantly lower than what my appraisal was and the other was higher than my appraisal by $120,000.  This high transaction also was the highest transaction in the area by a very large amount.  So any “good” Appraiser would treat this oddball high comparable as an anomaly and eliminate it from consideration.

Bottom line is that with their newly requested two additional sales, the appraised value remained the same.  When all was said and done, I had now spent an additional two hours on this report.  Did I receive any additional fee for my services? No comment.

But my commentary is this: If you are a bank and you want a true appraisal for a home, then you accept the results as is.  If you don’t like the value because it doesn’t meet the contract purchase price, then you are not the bank- you are the specific morgtgage broker who has a vested interest in closing this specific loan.  And when you ask the Appraiser (through a third party) to jump through more hoops to try to find comparables that support the deal, then that’s lender pressure and that can lead to fraud and that can lead to more of what we are seeing every day in our country with defaults and broken families and more government bailouts.

But what is the Appraiser to do in situations like these?  Back in the day, if a loan officer pulled this sort of stuff, I could talk with him or her.  And if that wasn’t getting anywhere, I could talk with the manager or whomever it took to ensure that rules were being followed.  Or I could stop working with them altogether.  But that’s because I can speak intelligently and defend my work.  With HVCC and the new layer of AMC’s, I am now unable to speak with the client. I have to trust that the AMC understands my report and can speak intelligently about it.  And quite frankly, that’s a level of trust that most Appraiser’s simply don’t have.

Sure, they’ve set up what is known as the Independent Valuation Protection Institute– sounds good eh?  Well, if you visit the site you’ll see that it might as well be one of those “under construction” animated gifs.

animated construction gif

And say that with one specific deal like this, the client is now so upset about the results that they now feel that they need to take some sort of recourse.  They can’t really fire the AMC in this situation since the AMC does so much work for their company as a whole, but what if the client now refuses to accept any more work from that one Appraiser.  And now what if that AMC cannot assign orders to that Appraiser from that specific client?  They might find that so inconvenient that they simply stop ordering appraisals through that one Appraiser- all rooted in the results of one assignment- not a sloppy report, not one fraught with errors, but one that a client was simply unhappy about because it killed their deal. 

Is lender pressure eliminated by HVCC?  You tell me.

Visit our website at www.advantageappraisalsllc.com, and if that doesn’t roll off the tongue, just try www.appraiserdude.com. Or now you can follow us on Twitter at @appraiserdude.  Give me a call at 480-544-1217 if you have any questions. I look forward to working with you.