:max_bytes(150000):strip_icc()/business-people-reviewing-paperwork-in-modern-lobby-558270417-a6d2ea0e8c194101afa468ceb95f445b.jpg "The Role of Appraisal Management Companies in Real Estate")
Key Takeaways
- An appraisal management company (AMC) is an independent entity facilitating real estate valuation services for mortgage lenders considering extending loans.
- AMCs help ensure unbiased appraisals by acting as intermediaries between lenders and appraisers, aiming to prevent conflicts of interest.
- AMCs are regulated by federal and state laws to ensure compliance, transparency, and ethical practice in property appraisal processes.
Definition of an Appraisal Management Company (AMC)
An appraisal management company (AMC) is an independent firm that connects mortgage lenders with professional appraisers to help manage property valuations for home loans. AMCs help ensure that property appraisals remain fair and unbiased. They also help lenders follow federal rules and reduce the risk of conflicts of interest between lenders and appraisers. This system helps lenders obtain reliable property values so they can make more informed lending decisions.
How Appraisal Management Companies (AMCs) Operate
AMCs have been a part of the real estate landscape for the past 50 years. However, their numbers remained limited until the financial crisis of 2007 to 2008.
In 2009, the New York Attorney General, government-sponsored enterprises Freddie Mac and Fannie Mae, and the Federal Housing Finance Agency (FHFA) established the Home Valuation Code of Conduct (HVCC) appraisal guidelines. The HVCC guidelines, no longer on the books, laid the foundation for the appraiser independence found in the Dodd-Frank Wall Street Reform and Consumer Protection Act and the Truth in Lending Act. Laws obligating lenders to use independent appraisers led to a sharp rise in the use and number of AMCs.
The HVCC and later federal regulation sought to limit the amount of direct contact that lenders could have with appraisers. Essentially, the U.S. federal government created appraiser independence requirements to prevent lenders from influencing appraisers to inflate property values, a problem believed to have contributed to the housing crisis.
With an AMC, mortgage brokers, loan officers, nor homeowners may select the appraiser for the property on which they want to lend/borrow funds. Since the former parties have a financial interest in the transaction, there is a risk they might attempt to influence the appraiser to assign a higher value to the property than market conditions support so the transaction will go through.
Important
When the system works correctly, the AMC chooses an appraiser with local knowledge of the market for the property being appraised.
Regulatory Requirements for Appraisal Management Companies (AMCs)
AMCs maintain a pool of state-licensed or state-qualified appraisers to meet requests from lending institutions. An appraiser is then assigned to provide an appraisal report for the property.
AMC appraisers are not provided with any prior information regarding the property or put in contact with the lending institution. The appraiser’s assessment must meet the Uniform Standards of Professional Appraisal Practice (USPAP) guidelines. If there are any issues, the AMC can legally assist.
