Good appraisers are unable to compete with the fly-by-night form fillers that proliferate the AMC industry.
We have done some work for the AMC of a global bank who provides mortgages in Manhattan when they are willing to pay the market rate for appraisal services. They send us requests to appraise a variety of co-op apartments in Manhattan. We recently received an appraisal request for a very large co-op apartment in a unique building (property probably worth well over $10M). The AMC offered a generic fee which is roughly 1/3 the local market rate for this type of property.
We sent them a request to be paid the market rate and was then asked to make an “exception request” and explain the reason for the higher fee so they can go back to the borrower to get approval. We are nearly always rejected.
Problem 1: Conflict of Interest Unbelievably the AMC is aligned with the borrower’s interest in cost savings without concern for quality. The AMC is in business to manage the appraisal process and therefore help protect the bank’s exposure to risk. When you get right down to it, the only value-add an AMC provides to a bank is cost containment (and they are not cheaper than banks doing it themselves) so why would an AMC be incentivized to allow the appraiser to collect a fair fee? It makes them look ineffective at cost containment.
Problem 2: Paying Lip Service to Quality The reason an appraiser is requesting a higher fee is the complexity of the assignment. What else would it be? Yet we have to write a specific request to this property which we haven’t inspected yet. In reality, the next appraiser on the conveyor belt will be selected and given a higher rating for being cooperative. This is a sham process – it is merely a way to document the appraisal process in case the regulators show up.
Here’s the standard BS response that this AMC gave to our request – this AMC is located in a rural location in the upper reaches of the northeastern US – they are concerned whether the borrower would feel comfortable paying a higher fee on a 50% cash co-op building on Park Avenue. The sender is a clerical (non-appraiser) individual who is giving the appraiser the following boilerplates response and doesn’t really understand what they are saying:
When you became an approved appraiser, you agreed to follow the processes and procedures required by [XXXXXX] by signing our Engagement Letter. We require all vendors to submit a fee exception form when they feel the work is outside of the norm. We need that information to justify your fee request to our borrowers. We are not looking to force an appraiser to complete work at low fees, we are looking to provide the best possible work at the best possible price for our borrowers. We expect that you are the expert in your market and we are looking for your expertise and explanation to make our borrowers understand why the fee may be warranted. However, we also expect the fee to accurately reflect the work involved and borrowers have the right to refuse to pay that fee and request that another appraiser be assigned. While, it may be frustrating for our appraisers, it is our current system and all of our vendors are required to follow the process.
No, it’s insanity.
Question How much do you think this clerical person understands about our specific submarket and whether they understand how much another appraiser who will work for a lowball fee does understand about our specific market?
Answer Nothing. This is merely canned comment process designed to blunt the impact of an investigation by a regulator in the future.
Here are a few other thoughts on this whole sham process:
Why Appraiser Robots Rule The World of AMCs
- In a market like Manhattan, especially for a substantial property, you could say that there is no such thing as a standard property and fees are based things like time spent on the assignment and the experience needed to handle the complexity….unless you see appraisers as robots and every assignment is the same.
- Beyond saying things like this is a unique property with limited data and would take a longer time to work on to provide a credible result aren’t enough to justify a higher fee to a borrower who wants to keep the fee low. Does the bank (AMCs client) even understand that this is happening?
So what would help an appraiser get a fee approval of any kind from this AMC? Here are a few reasons I might use next time when I have to substantiate a higher than generic appraisal fee:
-There are attack dogs in the building lobby that we have to run from and I am expecting them to tear at my clothes and force me to seek out significant medical attention.
-The flooring of the co-op apartment is believed to be covered with shards of glass and we therefore have to buy steel toed work boots to do the inspection.
-The occupant is known to carry a weapon, having assaulted visitors and did jail time as a result – so we need to buy a Kevlar vest
You get the idea. Good grief.