Do you think appraisal management companies have increased appraisal efficiency in the California real estate market?
No (93%, 415 Votes)
Yes (7%, 30 Votes)
Total Voters: 445
With the introduction of appraisal management companies (AMCs), the newly created federal Consumer Financial Protection Bureau (CFPB) has taken a second look at the extent to which the HUD-1 Settlement Statement discloses appraisal fees. Contemplated changes include disclosing the amount of money received by the AMC in addition to the amount received by the appraiser in an effort to make the transaction more transparent. These changes, if adopted, would appear on the revised HUD-1 form effective July 2012. [See first tuesday Form 402]
The single sum recorded as “appraisal charges” on the current HUD-1 settlement is divided among multiple entities: the appraiser and the AMC, who is sometimes owned or partly owned by the lender. Before the insertion of AMCs into the appraisal process, appraisers received the majority of the appraisal charge; now, however, 40-50% of the appraisers’ fees are diverted to the AMC while borrowers’ costs have simultaneously increased.
Not surprisingly, the CFPB’s upcoming revision of the current HUD-1 form is supported by real estate agents, appraisers and builders, while lenders and AMCs dub additional illumination of appraisal charges unnecessary.
first tuesday take: Brokers win, buyers win; lenders’ feelings are hurt.
The itemization of appraisal fees is a step in the right direction towards better public policy for encouraging homeownership. Ever since the establishment of AMCs as government-mandated facilitators, appraisal costs have increased artificially, with homebuyers paying more in appraisal fees and appraisers receiving less pay for the same work. [For more information on AMCs role in the appraisal business practice, see December 2011 first tuesday article, Appraisal management to the rescue?]
With lenders and appraisers being unable to contract services directly, AMCs handle job assignments (which the lender used to do) with no oversight. Thus, these facilitators are unchecked in business transactions, creating incentives for AMCs to extract additional fees for mere logistical support (or just to take the money and run). By now, such overinflated prices and unfair business practices have riled appraisers, lenders and borrowers quite enough. [For more information on the AMCs driving up costs of appraisal, see September 2012 first tuesday article, The good faith estimate is designed for shopping around.]
Overall, real estate will benefit from more transparency within appraisal business practice. Increased transparency can only revitalize the public’s trust in the ethical standards of real estate providers and prove advantageous for agents and brokers. [For more information on the importance of real estate licensees obtaining public trust, see November 2011 first tuesday article, Damage control: restoring public trust in real estate professionals.]