If you're a certified appraiser or a mortgage lender, you may have heard about appraisal management companies (AMCs). However, since these companies are newer, you may be wondering what exactly an appraisal management company does. With that in mind, we've created a guide to these companies below. Keep reading to learn more about them.
What is an appraisal management company?
As the name suggests, appraisal management companies are independent organizations that facilitate the appraisal process. More specifically, they are typically in charge of ordering the appraisal, ensuring its quality control, and delivering the completed appraisal report to the appropriate parties.
It can be helpful to think of an appraisal service as filling an administrative role. Although AMCs are not responsible for completing the actual appraisal, they facilitate much of the process surrounding it. For example, they are often responsible for hiring certified appraisers, assigning them to conduct appraisals on properties, and performing an appraisal review once each report has been submitted.
Why would a lender choose an appraisal service over an individual appraiser?
While lenders are not required to use appraisal management companies, most do. As part of the Dodd-Frank Wall Street Reform and Consumer Protection Act, lenders must ensure that the appraiser they hire is independently engaged and not unduly influenced by the transaction.
Hiring a registered AMC is a way to ensure that lenders are adhering to those guidelines. For example, if they were to hire an independent contractor to do the job, there may be a bias that develops over time. However, lenders can take the hiring process out of their own hands by contracting with an appraisal management company to do the job. In this case, the appraisal management company will take care of assigning an appraiser to do the residential appraisal.
How to start your own appraisal management company
Now that you know more about what an appraisal management company is and why a mortgage lender might use one, the next step is to learn how to start a company of your very own. While building a business is never really something that can be boiled down to a simple set of steps, this information can help you get started.
Conduct market research
While many lending institutions have gone national over the past couple of years, most appraisal management companies still operate on a local level. With that in mind, before getting too far into the process, you'll want to do some market research on the area where you want to start your business.
In this case, you simply want to ensure that there will be enough business to go around. Ideally, you won't be in direct competition with another appraisal management company when it comes to trying to facilitate this part of the homebuying process.
Complete your AMC registration
Once you have picked your ideal target market, the next step is to complete your AMC registration. Regulatory compliance requires that all appraisers be registered with the Appraisal Subcommittee.
Keep in mind that registration and licensing requirements are usually decided on a state level as well. While every state has to meet the federal requirements, your state may have additional regulations that you need to follow.
Hire certified appraisers
After your business is part of the AMC registry, the next step is to reach out to independent contractors in the appraisal industry. Put simply, those appraisers will be the backbone of your business. They will be the ones to perform the appraisals and write up the appraisal reports.
While you don't want to hire too many people until you have a steady flow of clients coming in, having one or two independent appraisers whom you can count on will help you get your business off the ground.
Develop processes to ensure a quality appraisal process
The defining feature of appraisal management services is that they ensure a quality appraisal. To that end, you'll need to have processes in place to ensure that any appraisers you hire are doing good work.
For example, after you give someone an appraisal assignment, you may want to assign another person to read the appraisal report and ensure the accuracy of their valuation.
Market your appraisal service to local mortgage lenders
Once you're clear on your business model, it's time to start marketing your services to local banks and mortgage lenders. After all, these lending institutions will be the ones to hire your company to perform appraisals.
The Millionacres bottom line
At the end of the day, appraisal management companies perform an important service for the real estate industry. They ensure regulatory compliance on the part of the mortgage lender and guarantee the individual appraiser will perform a quality appraisal.
To that end, whether you're just curious about the role these companies play in real estate transactions or you want to start a company of your very own, feel free to use this article as your guide.