Welcome back! This weeks REAL Vocabulary topic is Appraisal Management Companies. While most people understand what an appraisal is and why lenders require them, I thought I would dig a little deeper into the world of AMC. It is important to know why its used in the mortgage world and how it can affect the home buying and selling process.
Remember that amazing financial and housing market crash in 2007-2009? If not, I’ll attempt to summarize. Because of the excessive lending that was done previous to 2007 the government decided they needed to tighten the reigns on lenders. The borrowers blamed the banks for saying they could afford a home they probably shouldn’t have qualified for, and the banks blamed the appraisers for saying homes were worth more than they were. Fast forward and…In step the parents (government) to break up the fight and instill some discipline (lenders). If you want more details on the financial crash check out Investopedia’s quick recap: you can get a quick breakdown here.
The AMC was created out of necessity. Essentially, they want Appraisers to provide true value of the home and not be swayed or coerced by the lenders, mortgage brokers or homeowners. In order for lending institutions to stay compliant with federal statues they implemented a third party company to manage the appraisal process. An AMC- also known as an Appraisal Management Company is now hired to facilitate the assignment of an appraiser (at random) to a property, have a database for the report and all communication goes directly through the AMC to lender.
Investopedia states “The goal was to create a level of oversight between lending institutions and appraisers. The U.S. federal government created appraiser independent requirements to prevent lenders from influencing appraisers from inflating property values. Thus lenders would be prevented from issuing mortgage based on inflated appraisal values, a problem believed to have contributed to the housing crisis.”
All in all these new regulations had the best of intentions. However, as with most things, it has its downfalls as well.
- Reaching out to the appraiser directly is no longer allowed, making it hard to correct errors when they happen. Which they do.
- Sometimes the appraiser assigned to the property hasn’t appraised in that area for years making it harder for them to accurately assess the value.
- Scheduling the appraisal in a busy market, like Denver, can be a bit challenging when the only thing to rely on is an AMC. Sometimes speaking human to human helps express the need for a rushed appraisal…but as with most government issues, we all wait patiently.
If you have anymore questions about how an AMC can affect you in your real estate transaction please don't hesitate to REACH OUT
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