The AMC AKA “Appraisal Management Company” serves as the buffer between Mortgage Loan originators and Appraisers . . . a requirement that came into effect as a by-product of the fall-out from the Economic slide.
Many “experts”had entertained themselves with a very high profile blame game during which much of the blame for the economic crash fell on the real estate industry . . . my own analysis begged to differ, but that’s a different (and much longer story for another day).
They would argue that “collusion between Mortgage Lenders and Appraisers” to drive house values up in a hyper-inflationary way, was a predominant culprit.
So . . . the resulting legislation created these AMCs which had good intentions but were hastily implemented . . . the execution and transition were tumultuous as Lenders, appraiser, and REALTORS sorted through the mountain of new regulations and scrambled to retool their operations into compliance.
This proved to be VERY expensive for everyone involved because it inserted a new layer of people in the process . . . Increased appraisal fees to the borrowers, decreased the income of appraisers, and cost EVERYONE additional time.
Now, we’re a few years into it and have found a nice rhythm. The time from start to finish for a normal loan processing is now in the 3-4 week range . . . or has been for the past 10 months or so.
Recently, something seems to be awry. Lender delays resulting in missed closing dates are now becoming common . . . and I think unnecessarily . . . so it’s beginning to feel like another shift in our process.
This time, I KNOW that many of the issues I am seeing DIRECTLY stem from the AMC issues . . . and mostly due to the fact that values are now RISING, and the volume of sales in the market is scaling UP.
That AMC process was geared for a market with less volume – with an increase of volume and pace, there’s no margin for error.
The Appraisers are coming up short on value with many deals for one of 3 reasons:
- The property is in an area of which the appraiser is not familiar because the AMC’s random assignment has picked the next one on the list rather than assigning a truly local appraiser.
- The Appraisers either don’t understand the appreciating market environment or are scared to push values higher because of fear of being implicated should the market slide again.
- The appraiser is LAZY because the orders are now steady and is not taking any extra steps (research) to determine a real market value based on the CURRENT trend.
I’ve written other blog posts in the past few weeks about these new market trends . . . in a nutshell:
- Inventory of available homes is near zero in many areas
- Unemployment in TN has declined significantly
- We have a steady flow of jobs relocating INTO the area
- Building Material and Labor costs are increasing QUICKLY (5%/month)
- MANY “Multiple Offer” scenarios
All of this to say that any Professional REALTOR or Appraiser who is playing by the same “rules of valuation” now as 6 months ago is likely undervaluing.
Because so much inventory has moved since January 1, 2013, the most pertinent sales data is within the past 30-60 days (NOT 6 months to a year as in 2012).
If the Pro who is attempting to determine valuation does not work in the market of the subject property, I believe there is NO WAY the valuation will be valid. There are simply too many nuances and local variables that wreak havoc with standard CMA analysis based on MLS closed comps.
There’s necessity for on-the-street knowledge . . . along with a measure of “gut feeling.”
I believe this current shift is going to be painful for a lot of people as I see appraisals showing up late in the game . . . and LOW thereby spoiling the brew sometimes on the week of closing.
I think everyone in the process deserves better.
Is it time to revisit this AMC process?
Should we be thinking of ways to ensure that the appraisers have knowledge of the areas they serve (Perhaps live or office within a 5 or 10 mile radius)?
What say you?