Guest Appraiser Columnist:
Martin Tessler, CRE

Fee Simplistic is a regular post by Martin Tessler, CRE whom after 30 years of commercial fee appraiser-related experience, gets to the bottom of real issues by seeing both the trees and the forest. Marty has never been accused of being a man of few words and his commentary can’t be inspired on a specific day of the week.
…Jonathan Miller

The Wall Street Journal article of June 9th entitled, “Appraisals Roil Real Estate Deals” should be required reading for anyone who has opined to an opinion of home value. For those who missed it, the article details the swing of the pendulum from the high flying days of pre- 2007 when appraisers could not come in with values or, should I dare say, “numbers” high enough to justify a loan. In comparison, today’s lending world has swung 180 degrees to the low end of the pendulum where no value can presumably be low enough. The article goes on to portray the “usual suspects”- house values that have plummeted from the sky high years to todays’ nadir with some added color such as:

    • A Fairfield County CT appraisal that came in at $50,000 below the contract price necessitating either a new appraisal or renegotiation.
    • A JPMorgan Chase home equity line of credit predicated upon a 2,650 sq ft Manhattan duplex appraised at $1.475 MM in 2005 being reduced due to the bank’s estimate coming in at $600,000. The borrower then was able to produce a new appraisal that valued the property at $1.8MM. A spokesperson for the bank said that they use “an automated appraisal system on our portfolio” and that they encourage borrowers who feel that if their valuation is too low to order an outside appraisal and will reimburse them if it supports their claim.
    • Banks requiring appraisers to use sales comps that closed within the past 90 days with some asking for at least one sale within 30 days.
    • Agreement by the appraisal industry and Fannie/Freddie to adopt the Home Valuation Code of Conduct intended to prevent loan officers, mortgage brokers or real estate agents from selecting appraisers. This is to shield them from pressure on coming up with pre-ordered values, a major issue raised by NY State Attorney General Cuomo and on several postings in Matrix/Soapbox last year.

A significant issue not quelled by the Code is that it allows if not encourages lenders to outsource the selection to appraisal management companies or AMC’s who will charge the appraisal firm anywhere from 30%-40% of the fee for administration, overhead and, pardon the sarcasm, quality control. Exacerbating the problem is that lenders can own stakes in AMC’s. Thus, the conflict of interest is ever present.

Reports are prevalent that AMC’s shop around for the lowest appraisal fees that frequently end up on the desks of appraisers who are geographically distant from the subject property’s market, are not fully familiar with the local market and thus present sales that are not directly relevant.

It is obvious that AMC’s are clearly conflicted if owned either partially or fully by a lender. They are recipients of profits generated by a company that is not arm’s length from their fiduciary role where they require the borrower to buy the service. As for tools such as JPMorgan Chase’s “automated appraisal system” these are only rough guides to average or ranges of value from a large data bank of properties and extreme care must be taken in applying such macro data to a specific property or micro set. It is therefore not surprising that Chase allows for an independent appraisal although I’m not sure that it allows the borrower to select the appraiser as the article implies and, if so, it’s a violation of FIRREA if not the Code.

If no reforms of the Code are made to disallow AMC’s from ownership by lenders it is my opinion that history is doomed to repeat itself in the next frenzied lending cycle. Let’s get the stake ready now.

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3 Responses to “[Vortex] Fee Simplistic: Needed – Driving the Wooden Stake In the Bank/AMC Vampire”

  1. Edd Gillespie says:


    Thanks for keeping up the commentary about chronic appraiser abuse. It really is evidence of system, taxpayer and consumer abuse. Too many appraisers are trying too hard to make sense of HVCC and it never will make sense. Nominally it is supposed to have something to do with honesty ensured by independence, but if you follow the money you know that it’s real purpose was to keep Fannie’s records a secret from Cuomo. Why Cuomo went for it must have had another story like he was otherwise too busy, bored or didn’t have the resources to dig through an Everest sized mountain of files. I don’t know if our profession has the chance of a snowball in July of getting legislation that makes sense of it all, but given the track record of the past I sort of doubt it, especially since the President is having difficulty getting the banks to behave as if they had any responsibility to the rest of us.
    I suspect that when money talks Congress will listen. Do you know any appraisers with money? I don’t, but I think some of the banks still have some. I will help in any organized or disorganized effort to make appraising count because I believe in it and I’d like to do it for a living, but until then I recommend refusing cheap and fast Fannie form mortgage work unless you can talk to the client and are convinced the appraisal is taken seriously. I don’t know about where you are, but here in some areas house values doubled between 1994 and 2004 for no reason other than the credit bubble. So considering the facets of supply and demand, why is it so unreasonable to expect them to fall by that much now that the financing fizzled? Incidentally, did you make an effort to point out to the WSJ that once again their reporting is lopsided? Where is the balance?

  2. marty tessler says:

    Edd-I’m in NYC where we have seen the skyrockets of value go up & now the deleveraging so nothing is a surprise as I was awaiting the bursting bubble starting back in 2005 in the commercial property world and a scan of my previous Fee Simplistic posts would reveal same. But as long as the American Bankers Association has the clout to outflank & outmaneuver honest appraisers and convince state legislatures & Congress that they offer the best legislation & certainly the funds for re-election we are going to be sticking our fingers in the dike. The AMC’s are a travesty and will remain so until a decoupling with banks & mortgagees so watch for a redux of the past.

  3. Edd Gillespie says:

    I agree and I don’t think there is a decoupling yet scheduled for the future. Will popcorn be served with the deja vu? The way the banks have it is the way they want it. If not they’d change it. It will, by gum, be a free market or no market.

    Why are the banks still waiting to lend (last quarter FRB survey is still 79%+ tighter loan standards)? Maybe if you keep the water off long enough the horse will drink no matter what.