The appraisal process has never been more stringent — and for good reasons.
Leading up to the 2008 recession and housing market crash, more than half of appraisers cited experiences where they felt pressured from another party — a lender, a borrower or a real estate agent — to inflate their valuation of a home. In 2007 alone, that number was at an all-time high: nearly 90 percent of appraisers felt high or above-market valuations were demanded of them. Many of us know how that story ended.
For community banks and credit unions today, this pressure is a risk you can no longer ignore. Increased housing market legislation and tighter scrutiny of mortgage loans are only a few concerns these institutions balance, all while still delivering the sorts of financial services and securities society as we know it cannot function without.
To do so, banks are increasingly looking for risk-mitigating alternatives, with none providing the amount of coverage, cost-savings and competitive advantages as an outsourced appraisal management partner.
What are the real positives of outsourcing to an AMC, and should you jump on the bandwagon? Aren't these partnerships only for the "big banks," those with nation-wide operations and highrise corporate offices? We discuss the benefits of these independent appraisal management companies below, so you can make the most informed decision for your community bank.
The Benefits of Outsourcing Appraisal Management
There are dozens of good things about outsourcing appraisals to an AMC — things that begin with benefits to your employees' workloads and extending far into your bottom line.
What's more, independent AMCs have never been more reliable or accessible. They're not just for the "big guys" anymore, tailoring services nowadays to the credit unions and community vendors that have seen significant industry and compliance flux since 2010's Dodd-Frank Act and the recent amendments to Real Estate Settlement Procedures Act (RESPA) laws.
Knowing when to keep appraisals in-house and when to consider outsourcing their management means considering the following eight key benefits, weighing what operations currently work for your bank and which silo them. When all is accounted, the answers may surprise you.
1. Outsourcing Appraisals to an AMC Keeps Operations Compliant
Banks and credit unions must continually balance a laundry list of regulatory standards and laws guiding the activities of their industry. When it comes to property valuations and mortgages, this is no exception.
Federal guidelines first and foremost dictate banks have a firewall in place that separates loan officers, or lenders, from appraisers. This often translates into separate staff hired at a bank to perform operations in one category or the other — never both.
What's more, end-to-end appraisal operations must adhere to 2010's Interagency Appraisal and Evaluation Guidelines (IAG), RESPA and — most recently — the Uniform Standards of Professional Appraisal Practice (USPAP) updated every other year.
While these regulations make sense, serving an important function both for consumer trust and industry stability, they make internal processes and operating costs far more complicated for the average bank or credit union. An AMC lifts the compliance burden off your shoulders, creating that essential regulatory firewall between lenders and appraisers and curating compliance-first documentation and practices that go beyond routine order management.
2. Outsourcing Appraisal Management to AMCs Helps Lower Staffing Costs and the Workloads of Your Current Employees
Banks administering their own mortgages in-house, through their own selected appraisers, must set up separate and isolated processes to provide compliant, end-to-end valuations. In short, this means extra people paid to do extra beaurocratic work.
In an entirely in-house operation, staff must be brought in to review appraiser reports independent of bank objectives. It also means other individuals who seek out, review, hire and manage your team of appraisers available on-call. In some cases, it can even mean additional staff dedicated to compliance and legal documentation, crossing your T's and dotting your I's to ensure full regulatory rule-abiding with RESPA and more.
Financial institutions can simplify all this when they outsource appraisals to an AMC. They can then focus on their core business operations and more cost-effective services and resource allocation, all of which leads to a leaner bottom line.
3. Outsourcing Appraisals to an AMC Simplifies Lending Timelines
Lending timelines can be crunched. Closing dates creep up, rate locks offered by lenders expire and banks walk a tightrope between the report order and deadline they give appraisers and the actual dates which they're received. Then there's report reviews, processing, filing and final offers — all squeezed into less than a week.
These operations often take full-time administration. Strong lender-appraiser partnerships are those that are hands-off, reliable and efficient, with each party coming through on their responsibilities. Yet, these can take time to forge on your own, particularly if you're finding appraisers or specialty property evaluators for the first time.
Independent appraisal management companies help lenders keep timelines on schedule. It's the AMC's responsibility to vet and hire the right appraiser for the right job, relay expectations and deadlines, then touch base during every point of the valuation. Spending copious amounts of time on planning and follow-up are concerns of the past.
4. Independent Appraisal Management Companies Enhance the Quality of Appraisals
Working with a third-party appraisal management company gives you extra eyes, ears and minds on each evaluation order conducted. This puts the onus of researched, informed and top-quality appraisals on the AMC. Their entire reputation — and ability to stay in business — depends upon it.
In fact, many appraisal management companies today work hard to eliminate the negative stereotypes and past associations of their organizations. The industry has changed rapidly since the passage of Dodd-Frank, IAG, the Federal Reserve's Final Interim Ruling and more. AMCs reshaped to provide fundamentally accurate and unbiased reports are the norm, not the exception.
What's more, AMCs should view their work as both a service and a partnership, the success of banks' secure lending abilities as imperative as their own. Everyone wins in this kind of vested relationship.
All this results in improved reports and quality evaluations. Stringent quality control training and protocol are in place during every stage of an AMC's appraisal. Reports are justified by clear asset quality, market value and closed comparable sales data, and set processes reduce the likelihood of overvaluation fraud occurring between parties.
With accurate asset quality providing the backbone to profitable mortgage lending, banks and credit unions should do everything in their power to secure them, time and time again.
5. Third-Party Appraisal Management Companies Alleviate the Need to Search for and Vet Appraisers
Finding a new appraiser for your bank or credit union is like finding a new employee. They need to be the right "fit," with relevant professional experience, background, training, education and more.
This search takes time. What's more, it requires dedicated energy and personnel that — once again — could be spent on more value-oriented and business-critical banking operations central to the everyday workings of your customers.
Third-party appraisal management companies not only have a pre-set list of select appraisers they routinely rely upon, but they have chosen these appraisers for a reason, independently auditing and interviewing each one, running background checks and verifying credentials like state certifications, licenses and more.
In some cases, AMCs even include additional qualifications in order to hire appraisers on their team. For example, selected employed appraisers may have to adhere to the Appraiser Independence Guidelines, a series of ethical and professional practices they promise to commit to.
When considering working with an AMC, don't be afraid to inquire about their appraiser vetting processes. This will lend you important insight on the internal workings of the AMC, as well as what they value and prioritize within their own employees. It will also bridge the common concern community banks have over using unfamiliar appraisers, ideally leading to the sorts of lasting relationships that make these work partnerships thrive.
6. Outsourcing Appraisal Management to AMCs Provides One Established Infrastructure and System for Appraisals
End-to-end appraisals might seem straightforward enough. Yet so often, the simpler something appears, the more work that has been done behind-the-scenes.
Banks and credit unions conducting their own appraisals must have employees dedicated to a set, standardized appraisal review process. That process includes a regulated workflow with numerous checkpoints and a linear sequence that at the bare minimum incorporates the following:
- Valuation order acceptance
- Order proof and editing
- Appraiser vetting and selection
- Appraisal fee negotiation
- Valuation order placement
- Setting the overall work-order timeline
- Monitoring the appraisers' progress
- Receiving the appraiser's report
- Reviewing the appraisal, which typically runs between eight to 10 pages for a standard residential property and up to 100 pages for commercial or niche properties
- Proofing and editing appraisal changes and corrections
- Sending the appraisal to the borrower/client
- Fielding any client questions or concerns
After all this, there remains the final fee collection and partner payments alongside compliant documentation of the entire appraisal. Transparency must be maintained throughout this workflow, with the lender aware of what step the valuation is currently at, how that stacks up to the preconceived order timeline and managing real-time client expectations.
An independent AMC does all this for banks and credit unions. No process headaches, no new systems created, protocols drafted or surprise hidden fees. Their process pipeline has already been created and instated, translating to a greater likelihood of accurate appraisal success.
7. Independent AMCs Actually Support Appraisers, Not Undercut Them
Like any business, not all appraisal management companies are created equal.
In today's world of outsourced ACMs, there are two main factions: bank-owned and independent. While there are many operational differences between the two, one of the largest remains their relationship and treatment of the appraisers themselves.
Bank-owned AMCs are notorious for being the source of the industry's larger negative reputation, with traditionally higher fees yet lower compensation rates for the appraisers.
However, numerous studies — including one conducted by the National Association of REALTORS® (NAR) found the opposite to be true for independent AMCs. Independent appraisal companies actually pay their appraisers some of the highest rates in the industry — more than 152 percent of overall national fee average.
8. AMCS Save Banks and Credit Unions Money
Financial institutions going it alone face a cost-competitive disadvantage compared to those partnered with an AMC.
This is the reality for many reasons. First, under RESPA and complementary housing-market regulations, appraisal or cost-closing fees can only be passed along to the borrower if the appraisal is conducted through a certified outsourced AMC — not through a bank or credit union. This means financial institutions either pocket the loss or increase their own service fees if they conduct appraisals, which opens the door to other regulator incompliance issues.
However, AMC fees can be itemized onto the burrower's final closing cost. When that fee reduction gets added to the other savings AMCs provide to banks — from removing unnecessary staff labor to alleviating expensive USPAP and Appraisal Standard reviews — outsourcing holds the clear cost advantage.
How Outsourcing Is a Positive Decision With an Appraisal Management Company
In today's financial climate, independent appraisal management companies offer more positives than ever before.
Many banks and credit unions still have a funny taste lingering from ACM stereotypes or past horror stories. For the borrowers themselves, ACMs may also seem unnecessary, an arm they misunderstand or interpret just as a way to drive up fees.
These are understandable concerns — every industry tree has its bad apples. However, federal legislation in the past decade has fundamentally restructured mortgage lending and appraisal procedures, directly addressing such appraisal concerns.
Nowadays, banks and credit unions are poised for smoother compliance and streamlined risk-mitigation by partnering with an independent ACM. Simply put, AMCs are not what they used to be — and their advantages benefit local banks and credit unions the most:
- Are Value-Adding: In every sense of the word, independent ACMs streamline operating costs and save community banks precious money. Through them, fees are passed along to the borrower at closing while remaining transparent and compliant. Financial institutions are left allocating time and resources how they want, not getting tied up in a laborious and expensive branch of operations they aren't equipped for.
- Represent the Straightest Path to Compliance: Small and mid-sized financial institutions face an uphill battle when it comes to navigating today's regulatory landscape. From Dodd-Frank to the Federal Reserve's Interim Rules through RESPA, IAG and the USPAP, managing the market's ever-changing laws and regulations is more than a full-time undertaking. When you consider outsourcing to an ACM, you decide to wrap your hands around compliance fully and unequivocally — plus, you now have the resources to do so.
- Imbue the Appraisal Process With Ultimate Levels of Trust: Clients and borrowers can rest assured that a third-party appraisal management company is just that — a third party. They employ an objective, removed list of appraisers to tackle work orders. This decreases the likelihood of conflicts of interest or fraudulent lender collusion, with houses being purposefully over or undervalued. These were issues in the past and ones many speculate helped lead to 2008's housing burst but are directly addressed in today's regulatory climate, with AMCs offering an intuitive solution.
Independent Appraisal Management to Boost Your Bank's Operations, Profitability
Understanding when to consider outsourcing appraisal management is an essential crossroads for today's community banks and credit unions.
Whether you're weighed down by federal regulations or scouting ways to keep the business cost-effective — and therefore competitive — outsourced appraisals are not what they used to be. SAMCO Appraisal Management Company isn't your average ACM, either.
Let us illustrate the positive benefits that'll come to your bank through an outsourced SAMCO appraisal partnership. Whether you have questions, need a quote or have any concerns, we're here help.