Real estate appraisers are responsible for protecting public trust by producing credible appraisal reports. Users of appraisal reports, like banks and appraisal management companies (AMCs), also have a role in protecting public trust. Consequently, those entities should select only the most qualified appraisers to perform an appraisal.
What if we lived in a world where home appraisers were not selected based on their experience in the geographic area, property type specialties, and quality of work? What if home appraisal orders were sent out simultaneously to large groups of appraisers in bulk emails, with the first to login and accept the job receiving it? What if this were done out of the view of the public, who rely on accurate appraisals? Such a practice would award the largest volume of appraisals to those who quickly accept the work with no relationship to their skills as an appraiser. This would be like the winner of Jeopardy being based solely on the ability to click the buzzer first.
If all appraisals were assigned from AMCs using broadcast, would we start to see logos like this one popping up on appraiser advertisements? This logo suggests that the most important trait an appraiser has is the ability to accept an assignment quickly. I think appraisers should be judged on traits like quality and experience.
The practice of broadcasting appraisal orders is already the process used by many of the largest AMCs. The companies that assign jobs this way tend to be the lowest paying appraisal clients. The best appraisers tend to be able to get work elsewhere, thru other more respectable clients, and this leaves the less established or less experienced appraisers waiting by their computers and fighting over “fast finger” jobs.
If this practice reduces appraisal quality, then why do many AMCs choose to do business this way? AMCs are regulated; they are an industry that grew as a way to increase public trust in appraisals by separating biased lender parties from the appraiser assigning process. The reason AMCs choose to broadcast orders this way is simply time and money. If an appraisal assignment is sent to only one appraiser (who has plenty of work) at a lower than average fee, that appraiser is likely to decline the job, which costs the AMC time to look for another appraiser and the possibility of needing to increase the fee. However, if that same low fee appraisal is sent to many appraisers simultaneously, someone is bound to need the work and accept it. The AMC benefits by getting the job assigned quickly at the lowest price possible. Who can blame them? However, low price and speed might seem reasonable for something other than appraisals, which function as an important safety device that helps to support the financial system.
The AMCs who broadcast appraisal orders defend the process by saying that all of the appraisers on their panel are carefully screened and the reports are carefully checked for quality. The AMCs also argue that if they have 50 appraisers who are all equally qualified for one appraisal, then it is reasonable to offer the job to all appraisers and to look for the lowest price. In the short term, these AMC arguments may be somewhat true. AMCs do not recognize that the practice is slowly pushing out the best appraisers thru natural selection. In reality, there are rarely a large number of appraisers who are equally qualified for any one job.
I understand that in business, as well as nature, it is survival of the fittest. However, when the natural environment is out of balance, the hungry bears come looking for food. Broadcast ordering AMCs are feeding the hungry bears. I believe that AMCs need to spend more time grading appraisers on quality (something that requires highly trained individuals and not just automated systems or list checkers), tracking appraiser activity and experience by location and property type, and assigning fairly priced appraisals to the best appraisers, rather than just feeding the hungriest. Lenders should also do their part by rejecting AMCs who broadcast appraisal orders. Doing so is more costly, but the result is stronger appraisals, more efficient mortgage closings, fewer loan buybacks, and increased public trust.
The next time you apply for a home loan, do you want your appraisal assigned to the appraiser who likely has difficulty finding work elsewhere and who does business through broadcast order AMCs, or an appraiser with a successful practice including a diverse clientele of satisfied customers who likely does not do business with broadcast AMCs? The trouble is, if you’re just a borrower on the loan, it could be difficult to find the answer to this question. Your lender may not even know how your appraiser was selected.
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