What Is an Appraisal Management Company (AMC)?
An Appraisal Management Company (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.
Key Highlights
- An Appraisal Management Company (AMC) is an independent real estate appraisal company hired by a lender to perform valuations on potentially mortgaged properties.
- AMCs select state-licensed or state-qualified appraisers to valuate properties and deliver appraisal reports to lenders.
- Customers seeking a mortgage on a prospective property, lenders, and mortgage brokers cannot choose the appraiser.
- Government guidelines have been established to ensure appraiser independence, restricting the influence lenders have on appraisers.
Understanding Appraisal Management Companies (AMCs)
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, legal reforms were introduced by 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. Though HVCC guidelines are no longer on the books, they 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. In essence, the U.S. federal government created appraiser independence requirements to prevent lenders from influencing appraisers to inflate property values, which was 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 these 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.
Appraisal Management Company (AMC) Requirements
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.
Related Terms: Mortgage, Appraisal, Dodd-Frank Act, Home Valuation Code of Conduct, Federal Housing Finance Agency, Uniform Standards of Professional Appraisal Practice.
References
- Federal Housing Finance Agency. “FHFA Announces Home Valuation Code of Conduct”.
- National Association of Realtors. “NAR Issue Brief: Appraisal Management Company Q&A”.
- Appraisal Institute. “Appraisal Management Company Oversight”.
