The 3 Biggest Mistakes Lenders Make When Choosing Appraisal Management Partners

We all make mistakes–and making a mistake with a business partner can have huge consequences and effect your well-being in more ways than one. You need an appraisal management partner you can trust.  And you can’t afford to make these 3 mistakes when choosing your appraisal management partner:

Mistake #1: Lenders focus on the appraisal fee rather than total cost and value

First mistake mortgage companies often make in choosing an appraisal management partner, is not asking about the numbers. My dad always taught me in business to follow the numbers. As a sales guy it’s hard not to try the next marketing gimmick, or attend the next big event before looking at the numbers.  But the reality is you must look at the investment and what you get out of your efforts. Basically, calculate the cost, expenses, and see your profit or loss.  What is not measured lacks management and certainly is at a loss when trying to be improved upon. A couple numbers to focus on when choosing an AMC partner are revision rates or condition rates in ‘mortgage speak’, percentage of files in a given market assigned to appraisers, and the amount of orders completed in your perspective markets.  Of these three, revision rates are often overlooked. An appraisal management partner can have the best turn times, but if their files are constantly conditioned, the turn times are affected greatly. When measuring the number of completed orders in a given area, you can determine whether the AMC is familiar with that market and has the experience you require. By measuring the percentage of orders going to any one appraiser, you draw a conclusion on whether there are adequate resources in that market.

Mistake #2: Lenders don’t know (or care) about how much is being paid to the appraiser vs. the AMC

Another big mistake we see when choosing an appraisal management partner is not setting the right expectations with fees. In any form of sales, the inevitable question of pricing comes up. However, the true question is how they make their money. With appraisal management it gets a little more intricate, so I will do my best to explain.  First, and the most obvious is the appraisal management fee sheet or pricing list for you as the lender. This fee should be based on market factors, feedback from the appraisers, knowing what your competition is paying, and the pricing threshold your potential client has.  The second part to this equation is how the appraiser is paid, primarily in what time frame. This is a crucial question to understand because some of these transactions close and an accounting department does not get to the payables until months end or later. Find out how your appraisal management partners pay their appraisers and remember the sooner the better. Now back to how the appraisal management partner gets paid. In some cases, if there is an internal appraisal desk there is no management fee.  However when there is a fee, typically two different models present themselves. One, is a flat management fee, very straight and simple. You agree on a price to pay and the rest is paid to the appraiser used on the order. The second is not as upfront or transparent. The appraisal management partner sets their fee sheet and shops the orders to the lowest bidder or whom they feel has offered the best deal. Whether it is the best deal for themselves or their client is something you will have to determine yourself.  Only the amount accepted by the appraiser goes to the appraiser and the appraisal management partner keeps the spread, or difference between what is paid to the appraiser and what you have paid as the lender to get the appraisal completed. I am partial to the first model, but the second makes sense from a profitability stand point. In the end the right expectations need to be set, so know what you are getting yourself into with fees associated with the appraisal process.

Mistake #3: In an attempt to simplify, lenders seek single source solutions and get stuck without options 

The third mistake made by lenders and banks when choosing an appraisal management partner is disregarding the need of having a solid back up options. When you as a lender are in need of back up and don’t have options, it is most likely too late for anything to be done. Every market is different and no matter whether the appraisal partner is licensed across the country and able to work in every state, the truth is they have their niche markets. Having 2-3 options for your loan originators is important. It is competitive out there and they need a company that has their back. I spent time on the origination side of the transaction and know what it is like to ask that new potential realtor referral partners for business. If I only got the manufactured home on 10 acres every now and again, I knew I was just being used and not valued as a partner. The urgency faded and I knew it cost me more to work with this type of realtor and continue to appease her/his request, than not. Well, just like that scenario, my advice is to partner with 2 or 3 appraisal management companies, so when the need arises you aren’t begging or scrambling for help when you need it.

Don’t make these mistakes when choosing an appraisal management partner. This is your business and your livelihood. You have options and not all are created equal.