I am, and always have been a bit of a movie freak. So you will notice from time to time, when I am not busy interviewing myself, I will refer to a great line from a movie or steal a title. Today, I am stealing the title and the plot. The tag line for Victor Victoria was "A woman pretending to be a man impersonating a woman".
When is an appraisal firm an AMC pretending to be an appraisal firm? And even wilder when would an appraisal firm actually pretend to be an AMC? Who are these imposters and why?
While we wait on the FFIEC regulators to finalize the AMC Rules there is a lot of angst among the State regulators on what will be required of them on oversight of AMCs. After the agencies issue final rules the Appraisal Subcommittee has 3 years to issue policy statements to the new rules. Keep in mind that while there is currently a legal definition that an AMC is an entity that has a panel of 15 or more appraisers, there is no prohibition on the States to refuse registration based upon this minimum. I doubt anyone thought someone would claim to be an AMC when they are not and volunteer to pay registration fees. But it is happening, a lot, I think.
Let's examine why this is happening. There are currently close to 600 AMCs and the numbers continue to grow. But if you take a look at the list you will see that most of the registered AMCs do business in a single State. Some do not have websites. Some are single appraisers and if you call them they are in the field doing an appraisal. Why would anyone volunteer to register with the State and pay the fees and meet the bond requirements? Because State registrations give them an air of legitimacy and they can continue to accept broker business, phony firewalls and all. Nothing has changed.
In the meantime, there is high anxiety on the lender side of the equation regarding third party oversight of their Appraisal Management Companies. There are complicated issues regarding the oversight of AMCs. Many of these are reflected in the comment letters to the agencies. But today I am only going to address one issue or at least make an attempt.
Under the category of SRDH (Stuff Rolls Down Hill) appraisers have been asked recently if they are a sole proprietor or an appraisal firm. If they are a firm they are being asked if they engage independent contractors (ICs) or W2 employees. Many appraisers feel this is no one's business but their own. For third party oversight reasons, lenders should or do care and are making it their business.
If a lender engages an AMC and the AMC engages what they believe to be a firm but they are actually an AMC all sorts of unraveling begins. An AMC engaging another AMC would be a bad plan. Some lenders are beginning to prohibit that practice by specifically writing it into their contracts. Would an AMC engage yet another AMC to evade registration in all States where they do business? The FFIEC regulators are not likely to be pleased with third parties engaging other third parties for a multitude of reasons. The concerns go to risk.
First, a lender must vet their vendors and know with whom they are doing business. And they must know with whom their third party is doing business. The further you get away from the source, the greater the risk. This also makes compliance a costly endeavor. The guidance does not suggest a lender cannot engage a third party. It merely states that a lender cannot offload risk or accountability. And by proxy, an AMC, as the agent for the lender must perform proper due diligence of their fee panel.
If an AMC engages yet another AMC or Appraisal Firm (that doesn't know they are actually an AMC) all heck breaks loose. You can see why this gets important, yes? And there is no assurance that the field appraiser was properly vetted. Or that the appraiser selected is actually the one doing the inspection. On a go forward basis, neither lenders or AMCs, should be approving appraisal firms or a blanket approval for all appraisers on a given AMC's panel. The lender is 100% responsible for who is engaged.
Let's look at this scenario in reverse. There are quite a few appraisal firms that are functionally an AMC, regardless of their size. The IRS has very specific rules about independent contractors vs. employee status. I suspect much of the confusion is based on the legacy exemption for real estate agents. So for those appraisers who operate an Appraisal Firm, who criticize the AMC model so harshly, you might want to take a look in the mirror and assess whether or not you are indeed operating as an AMC. An appraisal firm is one who engages W2 employees, may offer benefits, training, QC support, and often has a non compete.
The moral of the story is… don't be an imposter. It will complicate your life. The advice is to figure out your business plan and be authentic to that plan. Make sure you engage a competent attorney and accountant to ensure that your business is properly structured and aligns with your goals.
Joan N. Trice is the founder and CEO of Clearbox, LLC, publisher of Appraisal Buzz, and host of the annual Valuation Expo, the largest conference for the valuation community. Joan also hosts the Collateral Risk Network, a members-only group of more than 300 dedicated chief appraisers, collateral risk managers, regulators, and valuation experts who are focused on resolving the many challenges facing our profession.
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