What Is an Appraisal Management Company (AMC)
An Appraisal Management Company, or AMC, is an independent entity through which mortgage lenders order residential real estate valuation services for properties on which they are considering extending loans to homebuyers. AMCs fulfill an administrative function in the appraisal process, including selecting an appraiser and delivering the appraisal report to the lender. Individual appraisers who work for AMCs provide the actual property valuation services.
Understanding Appraisal Management Company (AMC)
Appraisal Management Companies 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 joint efforts of 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 2010’s Dodd-Frank Wall Street Reform and Consumer Protection Act and the Truth in Lending Act. The use and number of AMCs have grown over the past decade as lenders now need to stay in compliance with federal statutes.
The HVCC and later federal regulation wanted to limit the amount of direct contact that lenders could have with appraisers. The goal was to create a level of oversight between lending institutions and appraisers. The U.S. federal government created appraiser independence requirements to prevent lenders from influencing appraisers from inflating property values. Thus lenders would be prevented from issuing mortgages based on inflated appraisal values, a problem believed to have contributed to the housing crisis.
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. When the system works correctly, the AMC chooses an appraiser with local knowledge of the market for the property being appraised.
How Do Appraisal Management Companies Work?
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.