The value proposition lenders can't afford to ignore.

By Charlie W. Elliott, JR., MAI, SRA
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Lately Appraisal Management Companies (AMCs) have been in the news. In fact, few people had heard of AMCs until recently. Perhaps that is because they are business-to- business entities, usually not catering to the general public.

AMCs, by definition, are vendor management companies acting on behalf of appraisal users. AMCs are becoming more popular among lenders and not everyone is pleased. Why would anyone care whether a bank outsources its appraisals? Further, why would a bank want to farm out its appraisals?

Lenders outsource these services for three reasons. 

• First, it helps reduce fraud between the lender's salespeople and the appraiser, thus reducing losses while pleasing the regulators. Fannie Mae and Freddie Mac recently implemented new rules regarding this which some say favors outsourcing to AMCs. 
• Secondly, it saves the bank money. Banks have high overhead and cannot compete with the efficiencies AMCs offer. 
• Finally, some banks are subscribing to vender management because of federal RESPA laws. RESPA, in part, is designed to protect consumers from fee gouging. Banks must account for closing cost fees charged to customers. It is hard for them to define and recoup all of these costs. 

Collectively these issues cause banks to outsource their appraisals. It is easy to explain to regulators, it protects their bottom line and it frees management to do what they do best, make loans.

Now, back to who would object to banks outsourcing appraisals. Ironically, the idea seems to be okay with everyone except some in the appraisal profession. One may think that all appraisers would appreciate the reduced loan officer pressure offered by the AMCs. This is simply not always the case. 

Some appraisers villainize AMCs. Appraisers and appraisal organizations are banding together to promote anti-AMC legislation at the state level that would require, among other things, that AMCs register with state appraisal boards. Among those other requirements are large registration fees and complex regulatory demands. Some say that requiring AMCs to register in 50 states and to comply with all regulations will put AMCs out of business. This would appear to be the goal of those sponsoring the legislation.

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