Due to the shortage of appraisers in Portland, Oregon (and other places around the country), appraisers are bombarded with requests from Appraisal Management Companies (AMCs) requesting that they fill out mountains of forms; provide copies of identification, licenses, and insurance; submit to background checks, provide examples of work; and apply to be on the AMC’s roster of appraisers. So how do appraisers know if the AMC will be a trusted client? How do appraisers know if the AMC will treat them fairly? Will appraisers be confident that private information will be safe? The AMCs vet appraisers, but do appraisers screen AMCs? Perhaps appraisers need to scrutinize AMCs just as diligently before doing business with them. Here is a list of seventeen things appraisers could do before signing up on that next AMC roster.
I hope that you find this list helpful even though it is written partly in jest. My goal is to elicit thought and discussion about the imbalance of power and liability in our industry as it relates to appraisals done for AMCs and lenders. Remember that if an AMC fails in parts of your vetting process, the appraiser could charge a complex client fee to account for the shortcomings. If you missed my interview with The Appraiser Coach Dustin Harris, about my blog and how our business focuses on non-lender (non-AMC) type appraisal work, Click Here.
Did I leave anything out or do you want to join in the conversation? Let me know in the comments below.
If you find this information interesting or useful, please subscribe to this blog and like A Quality Appraisal, LLC on Facebook. Also, please support us by making Portland real estate appraisal related comments on our blogs and YouTube videos. If you need Portland, Oregon area residential real estate appraisal services for any reason, please request appraisal fee quote or book us to speak at your next event. We will do everything possible to assist you.
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At a Portland appraisal home viewing last week, the owner
had two little dogs that would not stop barking as a result of my visit. Each time the dogs barked, the owner gave
them a small treat. The barking would
stop for a moment, but then the dogs would start again and so would the treat
process. The owner was inadvertently
rewarding wrongful behavior, thereby perpetuating the process. This made me
think, unintentional reward of improper behavior is something that also happens
regularly in appraisals contracted by mortgage financing, lending, and
appraisal management companies (AMCs).
Home appraisals for lenders or AMCs typically pass through several
layers of quality review. Often, the
examinations involve a checklist of things that generally characterize a well-supported
or lower risk appraisal opinion.
Rightfully so, lenders want to know that the appraisal can be confidently
used for evaluating collateral and avoid the dreaded forced loan buyback. If a lender’s checklist items are missing,
the appraisal becomes flagged as higher risk and often goes back to the
appraiser multiple times for additional clarification, comments, or comparable
data. Appraisers with fewer red flag issues
will often be rewarded with more work, first choice of assignments, and fewer
requests for revision or clarification.
Appraisers can usually receive more work and fewer revision
requests from lenders simply by working harder, explaining issues, and
supporting adjustments. However, often
appraisers who work longer hours (for the same pay per assignment) will still
receive red flags because the reports are not read thoroughly by the client or because
the properties are complex with few comparable sales data. Some appraisers learn quickly that there are
shortcuts to receiving more work and fewer clarification requests.
Real estate appraisers are highly trained and regulated
professionals who are required by law to be independent, unbiased, and to not
mislead. Most appraisers work very hard to maintain high ethical standards. However, an incentive based system exists in residential
finance that rewards appraisers who mislead by making an appraisal look
stronger than actual. From experience I know
that this happens all the time. Here are
some ways that appraisers may mislead a lender’s quality checker into thinking
an appraisal value opinion is stronger than it is.
and close proximity comparable sales make an appraisal look strong, but the
most recent and closest comparable sales are sometimes not the strongest nor
most like the subject (particularly on a unique property). An appraiser looking to reduce questions from
a lender might use recent and close sales over the most similar sales.
2. Fewer and
smaller comparable sale adjustments can make an appraisal look stronger than it
is. For example, an appraiser might take
a comparable sale that requires a large positive adjustment for living space
but a large negative adjustment for view and just make a smaller adjustment for
each. In this case, the indicated value
will be the same, but the comparable sale looks really strong to a reviewer
because it has few adjustments. (Here
is an article that explains more about how appraisers can
use different adjustments and come to the same value conclusion.) Fannie Mae, the nation’s largest buyer of
loans, has recognized small adjustments as an appraisal issue and is fighting
back with big data and automated review of appraisals. Click
this link to read a Fannie Mae announcement that explains more and
shows evidence that the majority of appraisers were adjusting too low for gross
living area (GLA). Also, view a video here showing
how an appraiser might support a GLA adjustment that is not artificially low.
or downplaying issues like a busy road or a necessary repair can reduce red
flags. If an appraiser can conceal an
issue or convince a lender that it is not a big deal, then the report will
likely receive less scrutiny unless the deception is uncovered. This is a particularly dangerous tactic that
can cause an appraiser to be sued or placed in serious trouble with their
The takeaway from this is that appraisers who work for
lenders are often conditioned, sometimes unknowingly, into softly misleading
practice that is only uncovered with more thorough appraisal review
processes. Here are my recommendations
for lenders and AMCs to avoid encouraging misleading appraisals.
and AMCs should be very careful to select and hire the best appraisers.
and AMCs should make sure that appraisers are paid a sufficient fee so that
they are able to take the time necessary to do the assignment correctly without
and AMCs should judge appraisers using well trained individuals and make sure
that appraiser grading and subsequent job assignment is not tied to appraisal red
flags, something that might also relate to property complexity, not just
Here are my recommendations for appraisers who do work for
should be cautious about working with the type of lenders and AMCs who
regularly reject well documented and explained appraisal reports just because
the subject properties are unique.
should be extremely careful not to compromise their work quality just to avoid
the headache that often comes when appraisers tell it like it is.
should seek out working for clients that have well trained appraisal review
departments. In my experience, these tend
to be the smaller local or regional banks and credit unions; not the nationwide
Did I leave anything out or do you want to join in the
conversation? Let me know in the
If you find this information interesting or useful, please subscribe to this
blog and like A Quality Appraisal, LLC on Facebook. Also, please support us by making Portland
real estate appraisal related comments on our blogs and YouTube videos. If you need Portland, Oregon area residential
real estate appraisal services for any reason, please request
appraisal fee quote or book us to speak at
your next event. We will do everything we
can to assist you.
A Quality Appraisal, LLC specializes in appraisals for non-lending or private parties (divorce, estate, presale, etc.), but we receive emails and phone calls almost every day from Portland area homeowners wanting to price or order an appraisal to use for home refinancing or other lending purposes. Some of these callers just want to know what we charge to compare with the lender’s good-faith estimate and to make sure that they are not being overcharged. In these cases, we are always happy to provide a quote.
Other callers want to order their own appraisal before refinancing. I explain to such callers that lenders typically have their own networks for ordering appraisals and that the caller will need to check with the lender before proceeding with an appraisal from our company. There are two reasons for lenders stipulating who and where your appraisal is ordered.
1. After the recent mortgage crisis, rules adopted that made it mandatory for government-sponsored loans like Fannie Mae and Freddie Mac to ensure stricter appraiser independence. (For instance, no pressure is permitted for appraisers to meet a number.) Prior to these new requirements, it was common for appraisers to receive calls from loan professionals asking if the appraiser could perform an appraisal on a particular property at or above a particular value. Some lenders would incentivize the appraiser by saying, “We will send you lots of work if you can get this done for us.” I received such calls almost daily prior to the mortgage crisis, and some appraisers got themselves into trouble by accepting these offers.
Now, lenders are required to ensure that appraisals are ordered and paid for by people who do not benefit from the appraisal value (This includes homeowners and lenders.). If a homeowner provides an appraisal to the lender that the homeowner ordered, the lender cannot ensure regulators that the homeowner has not influenced the appraiser. The easiest way for a bank to confirm compliance is by outsourcing appraisal orders with an Appraisal Management Company (AMC). The AMC locates and engages the appraiser, provides instructions to the appraiser, usually checks the appraisal for quality, pays the appraiser, and delivers the appraisal report to the lender without any direct communication between the lender and the appraiser.
2. Lenders typically have proprietary requirements regarding appraisal development and reporting. Homeowners ordering an appraisal likely do not have the specific instructions required by the lender for the appraisal. This could also apply to private lenders who may “portfolio the loan” or do not plan to sell the mortgage on the secondary market. If the lender orders the appraisal through normal channels, the lender can make sure that the correct guidelines are provided to the appraiser.
Have I left anything out or do you want to join in the conversation? Let me know in the comments below.
Real estate appraisers are responsible for protecting public trust by producing credible appraisal reports. Users of appraisal reports, like banks and appraisal management companies (AMCs), also have a role in protecting public trust. Consequently, those entities should select only the most qualified appraisers to perform an appraisal.
What if we lived in a world where home appraisers were not selected based on their experience in the geographic area, property type specialties, and quality of work? What if home appraisal orders were sent out simultaneously to large groups of appraisers in bulk emails, with the first to login and accept the job receiving it? What if this were done out of the view of the public, who rely on accurate appraisals? Such a practice would award the largest volume of appraisals to those who quickly accept the work with no relationship to their skills as an appraiser. This would be like the winner of Jeopardy being based solely on the ability to click the buzzer first.
If all appraisals were assigned from AMCs using broadcast, would we start to see logos like this one popping up on appraiser advertisements? This logo suggests that the most important trait an appraiser has is the ability to accept an assignment quickly. I think appraisers should be judged on traits like quality and experience.
The practice of broadcasting appraisal orders is already the process used by many of the largest AMCs. The companies that assign jobs this way tend to be the lowest paying appraisal clients. The best appraisers tend to be able to get work elsewhere, thru other more respectable clients, and this leaves the less established or less experienced appraisers waiting by their computers and fighting over “fast finger” jobs.
If this practice reduces appraisal quality, then why do many AMCs choose to do business this way? AMCs are regulated; they are an industry that grew as a way to increase public trust in appraisals by separating biased lender parties from the appraiser assigning process. The reason AMCs choose to broadcast orders this way is simply time and money. If an appraisal assignment is sent to only one appraiser (who has plenty of work) at a lower than average fee, that appraiser is likely to decline the job, which costs the AMC time to look for another appraiser and the possibility of needing to increase the fee. However, if that same low fee appraisal is sent to many appraisers simultaneously, someone is bound to need the work and accept it. The AMC benefits by getting the job assigned quickly at the lowest price possible. Who can blame them? However, low price and speed might seem reasonable for something other than appraisals, which function as an important safety device that helps to support the financial system.
The AMCs who broadcast appraisal orders defend the process by saying that all of the appraisers on their panel are carefully screened and the reports are carefully checked for quality. The AMCs also argue that if they have 50 appraisers who are all equally qualified for one appraisal, then it is reasonable to offer the job to all appraisers and to look for the lowest price. In the short term, these AMC arguments may be somewhat true. AMCs do not recognize that the practice is slowly pushing out the best appraisers thru natural selection. In reality, there are rarely a large number of appraisers who are equally qualified for any one job.
I understand that in business, as well as nature, it is survival of the fittest. However, when the natural environment is out of balance, the hungry bears come looking for food. Broadcast ordering AMCs are feeding the hungry bears. I believe that AMCs need to spend more time grading appraisers on quality (something that requires highly trained individuals and not just automated systems or list checkers), tracking appraiser activity and experience by location and property type, and assigning fairly priced appraisals to the best appraisers, rather than just feeding the hungriest. Lenders should also do their part by rejecting AMCs who broadcast appraisal orders. Doing so is more costly, but the result is stronger appraisals, more efficient mortgage closings, fewer loan buybacks, and increased public trust.
The next time you apply for a home loan, do you want your appraisal assigned to the appraiser who likely has difficulty finding work elsewhere and who does business through broadcast order AMCs, or an appraiser with a successful practice including a diverse clientele of satisfied customers who likely does not do business with broadcast AMCs? The trouble is, if you’re just a borrower on the loan, it could be difficult to find the answer to this question. Your lender may not even know how your appraiser was selected.
If you find this information interesting or useful, please subscribe to my blog. Also, please support us by making Portland real estate appraisal related comments on our blogs and YouTube videos. If you need Portland, OR area residential real estate appraisal services for any reason, please contact us. We will do everything possible to assist you.
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