The journey to owning a home involves various intermediaries, such as real-estate agents, mortgage brokers, and attorneys, who play vital roles in finalizing deals and collecting fees once agreements are confirmed. While most homebuyers are familiar with these parties, there is a lesser-known group that operates discreetly in the background. Appraisal management companies (AMCs) often have their fees concealed within other charges or buried in documentation, resulting in many buyers unknowingly paying substantial amounts for their services in recent years.
AMCs have emerged as key players following the 2008 housing crash, facilitating the process of property appraisals for mortgage applications. When a lender requires an appraisal to determine a property’s value for loan purposes, they typically engage an AMC to oversee this task. The lender compensates the AMC, which then allocates a portion of the payment to the appraiser while retaining the remainder.
Essentially acting as transaction coordinators, AMCs connect lenders with independent appraisers to avoid any undue influence on valuation assessments. However, in some cases, the fees collected by AMCs from appraisals can rival or exceed the compensation received by the appraisers themselves. These costs are often bundled together under a generic label like “appraisal fee” on the closing paperwork, obscuring the breakdown of expenses for buyers.
Critics argue that AMCs do not effectively address the issues they are meant to solve, as they may prioritize cost savings over quality appraisals to maximize their profits. The cumulative impact of these fees from numerous home transactions can be significant, with estimates suggesting that consumers paid approximately $12 billion to AMCs over a recent five-year period.
Consumer advocates highlight opaque appraisal fees as a prime example of hidden expenses in the homebuying process, particularly as closing costs continue to rise. The Consumer Financial Protection Bureau has expressed interest in examining mortgage-related costs, including the influence exerted by AMCs on appraisers. While AMCs are likely to remain prevalent in the industry, experts recommend that consumers educate themselves about these fees and advocate for transparency in the appraisal process to ensure fair valuations and avoid financial pitfalls.
In 2023, a study by the National Association of Realtors revealed that many homeowners find themselves in a situation where they owe more on their mortgage than their property is currently worth. To determine the value of a home, a lender typically requests a valuation that costs around $500. This valuation involves a physical inspection of the property and research on recent comparable sales in the area. The fees for this valuation are usually passed on to the borrower.
The use of Appraisal Management Companies (AMCs) has become more prevalent since 2009. Prior to this, lenders often worked with in-house appraisers or independent professionals directly. However, these practices sometimes led to fraudulent activities, as appraisers were sometimes pressured to provide inflated values to ensure deals went through. To address this issue, regulations were introduced, such as the Home Valuation Code of Conduct and the Dodd-Frank Act, to create a separation between lenders and appraisers.
Under the new rules, lenders could still manage appraisals in-house as long as they maintained a clear separation between the appraisal and lending departments. Many lenders opted to outsource the appraisal process to AMCs for efficiency and cost savings. It is estimated that 70% to 75% of appraisals ordered by lenders in the US are now handled by 200 to 300 AMCs.
AMCs typically charge lenders a lump sum fee, which includes the appraiser’s payment. The total cost for a basic single-family home appraisal could be around $500, while more complex appraisals might exceed $1,000. The lender can choose which services they want the AMC to provide. The AMC then assigns the appraisal to a qualified appraiser from its network, who submits a bid for the job. The AMC reviews the appraisal for quality before sending it to the lender. Ultimately, the buyer is responsible for covering these costs, which are disclosed in the closing paperwork.
Though some states require the appraiser’s fee to be separated from the total AMC billing, it often appears as a single “appraisal fee.” Buyers can sometimes deduce the appraiser’s cut by reviewing the appraisal report for an itemized invoice. However, AMCs may discourage appraisers from including this information to avoid confusion for buyers. Despite these details, many consumers are unaware of the role of AMCs in the appraisal process. Buyers typically see a total fee on their bill and assume it covers the appraiser’s services.
Josh Tucker, an appraisal manager in Texas, has been investigating fee disparities through a nonprofit organization called the Appraisal …
The Regulation Compliance Council is dedicated to detecting fraudulent practices in appraisals. The organization has gathered numerous instances of appraisal orders from major AMCs such as Class Valuation, Clear Capital, Solidifi, and Nations Valuation Services, and compared them with the fee schedules provided by these AMCs to lenders. Internal documents reveal the fees paid to appraisers alongside the fees charged by the AMCs. In many cases, the AMC’s fee closely matches or even exceeds the appraiser’s compensation.
For example, a single-family home in California undergoing refinancing had its appraisal managed by Solidifi, a nationwide AMC based in Buffalo, New York. The listed appraiser’s fee was $375, while the AMC charged a hefty $725, totaling $1,100 for the client. Another case involving a townhome in Georgia showed similar fees of around $300 for both Solidifi and the appraiser. A spokesperson from Solidifi states that appraisers typically receive the majority of appraisal fees and that the company is transparent about fees, disclosing the breakdown for each transaction to lenders and appraisers. The spokesperson also assures that the company complies with all relevant state and federal regulations, ensuring that appraisers are paid customary and reasonable fees.
Critics like Tucker criticize AMC charges as excessive and harmful to consumers. Estimates from securities filings suggest that AMCs constitute a significant portion of appraisal costs, potentially amounting to billions of dollars annually. Real Matters, the parent company of Solidifi, projects substantial revenue from AMC services, indicating a sizable market share in the industry. Despite variations in AMC fees and revenue sources, the industry appears to have charged consumers billions of dollars over a span of five years.
While some argue that instances of AMC fees surpassing appraiser fees are rare anomalies, others emphasize the necessity for AMCs to cover their operational expenses. Industry representatives like Schiffman and Likens point out that AMC fees are typically in line with appraiser compensation, with some cases showing lower fees charged by AMCs. Both acknowledge that, in certain situations, an AMC may even incur losses.
Spending money on an appraisal can sometimes lead to unexpected complications. It is important to note that appraisers are not the only service offered by Appraisal Management Companies (AMCs). AMCs also play a crucial role in providing quality control after the appraisal process. This quality control is essential in safeguarding both lenders and consumers from inaccurate property valuations. However, a working paper released by the Federal Housing Finance Agency in 2018 revealed that both AMC and non-AMC appraisals exhibit a similar likelihood of errors. The study concluded that there is no clear evidence indicating systematic quality differences between appraisals associated with AMCs and those that are not.
One potential solution to enhance transparency in this process is to mandate lenders to clearly disclose AMC fees to consumers. This could be accomplished by including a breakdown of the AMC’s fee and the appraiser’s bill in the closing paperwork. Some nationwide AMCs suggest that the AMC should retain around $100 to $125 per appraisal, with the remaining amount going to the appraiser. Despite these recommendations, reports from the Appraisal Regulation Compliance Council have identified numerous instances where the AMC’s share greatly exceeded these figures. It is argued that if lenders benefit from understanding the fee allocation, consumers – who are ultimately footing the bill – should also have the opportunity to assess whether they are receiving fair treatment.
Josh Tucker, an appraisal manager and cofounder of the Appraisal Regulation Compliance Council, emphasizes the importance of consumer awareness in this process. While some states already require separate disclosure of fees in closing documents, there is no federal mandate in place. In a letter addressed to the Consumer Financial Protection Bureau, leaders of various appraisal industry associations pointed out that the Dodd-Frank Act empowers the agency to enforce such disclosure requirements. The CFPB had previously considered this provision during a rulemaking session in 2013 but ultimately decided against it, citing concerns about overwhelming consumers with information.
The decision to forego fee breakdowns was contested by appraiser groups, who argue that this has allowed AMCs to exploit the lack of transparency in fee distribution. These groups assert that AMCs have benefitted financially while disadvantaging both consumers and lenders. While the Real Estate Valuation Advocacy Association (REVAA) does not oppose a disclosure mandate, they raise concerns about potential administrative burdens and consumer confusion. On the other hand, Tucker believes that implementing fee disclosure should not be excessively challenging and emphasizes consumers’ right to understand the financial flow within the appraisal process.
Tucker voices concerns about an industry where middlemen wield significant control without clear oversight. James Rodriguez, a senior reporter on Business Insider’s Discourse team, originally shared these insights in an article on Business Insider.
This text has been professionally altered for clarity and readability, following the guidelines of journalistic ethics.
