But, over time, and through the myriad of changes brought about by government, the market, and never ending changes by the secondary market, society, The Uniform Standards of Professional Appraisal Practice, the HVCC, and most recently federal legislation in Dodd-Frank; the market, appraisers, lenders, sellers, borrowers, and just about everyone else has been left reeling. Add to that, misinformation about who can order an appraisal, who can pay the appraiser, and even who can speak to an appraiser about an appraisal, and by that we have set the stage for AMCs to envision a greater role, and convince others that they are the solution to the concerns that lenders, in particular, have about compliance.
There is a role for the AMCs and what they provide to some lenders, particularly small lenders who may not have the means or staff to set up a separate department to order and manage appraisal services. But, for many lenders, they do have the resources, the personnel, and can, if they so desire, manage appraisal services as a separate department within their institutions. Some not only do that but have created their own AMC companies as a money making department for their institution.
I certainly do not advocate or imply that AMCs should not make money at what they do. But, their service is very similar to the service provided by a real estate brokerage, more so than any other type of business. Real estate brokers work on a commission basis. That is not possible for an AMC; as such an arrangement would be unethical and illegal under most state and federal laws, for the same reason that an appraiser cannot base their fee for an appraisal on the appraised value of a property. But, the fees that AMCs charge has gotten out of hand, at the same time fees for appraisal services are cut drastically by AMCs who agree to pay the appraiser for the appraiser’s services.
Dodd-Frank was supposed to clear that up. It has not. And, the fees for appraisal services vary greatly from one AMC to the next. AMCs charge fees, in many if not most cases, higher than is reasonable and customary in a given market, and compensate appraisers (who do the actual work) at rates significantly lower than what is reasonable and customary in a market. Some AMCs may charge $500-$650 for an appraisal in a market that has a customary and reasonable fee of $400 and pay the appraiser a fee of $150-$350 retaining for themselves the higher percentage of the fee, for less work than most appraisers provide in completing an appraisal. I believe that is unreasonable, unethical, and should be illegal.
I am not suggesting setting fees for anyone. I am suggesting that an appraiser should be compensated at least by 75% of any fee collected. Real estate brokers charge commissions of anywhere from 3% to about 7% for brokerage services depending on what services are provided. That is a far cry from 25% or something similar to that, that I am suggesting as fair compensation for an AMC. If they cannot survive at those rates then they do not need to be in business. But, 50%-75% of an appraisal fee that some AMCs charge for their services is outrageous, and is, in my opinion, usury.
Add to the above, that an individual borrower or seller, property owner usually has no idea that this is transpiring, and the public, society, and our free market system will and does suffer as a result.
In my opinion, the solution is either for every state to pass legislation to regulate the services of AMCs and what they can charge, and the customary and reasonable rate they must compensate appraisers by, or for the federal regulators, the Federal Financial Institutions Examination Council (FFIEC) and the Appraisal Sub Committee (ASC) be given the authority by a change to the Federal Financial Institutions Reform Recovery and Enforcement (FIRREA) act by the U.S. Congress, and enacted into law. Only with such a law in place, will there ever be a change to current practice, which I think is grossly unfair to appraisers and to the public.