The 1 – 2 Punch – Ending the AMC Nightmare and starting the path to Realtor® Education

The AMC dog and pony show has been going on for the better part of a decade. Appraisers have been called out for every problem associated with a real estate closing. Ever silent is any talk of better educating Realtors®. They are the ones with the most power in the pricing process, and the majority of so-called “appraisal problems” are because they say it’s a problem. That’s a LOT of power. But somehow, they manage to stay under the radar and no one seems to be challenging their integrity, as they constantly do with appraisers. Realtors® are the least educated people in the entire home buying process. It seems everyone, their brother, and their cousin has a real estate license. How many times do we hear about how easy it is to get a license and sell houses. “Oh, we love making a little part-time money and it’s so easy.” Of course selling homes is not so easy, but getting a real estate license – that’s much easier. The Association of Real Estate License Law Officials (ARELLO) estimates that there are about 2 million active real estate licensees in the United States. According to the Appraisal Institute, as of December 31, 2017, the number of active real estate appraisers in the U.S. stood at 82,208. Let’s see – 2,000,000 vs 82,208?? Must be a little easier and that’s two million opinions based on the least required education in the entire home buying system.

Realtors® have always seemed to have some unwritten power. When it comes to home prices, it’s always assumed a “low appraisal” rather than an “over-priced listing.” Realtors® have a magical credibility that appraisers have not been afforded. AMCs and their underwriters seem to question every comment and adjustment appraisers make. But, no one questions how a Realtor® comes up with a listing price. There’s something wrong with that picture, but it seems to get lost in the smoke and mirrors of the cheaper and faster appraisal rush, a rush that no one except the AMCs have ever demanded. And, no one appears to have any interest in protecting consumers, only making money from the appraisal process. The entire “faster and cheaper” appraisal argument remains all about potential profits and consumer protection is totally lost.

AMCs were given their power overnight which was unearned and undeserved, and have now grown into billion-dollar businesses (on the back of every appraiser). They are also playing hardball with their new-found wealth by promoting every policy that benefits only them, such as Hybrid Appraisals. These products benefit only the AMC. They are bad for the appraisal industry and especially for consumers. The AMC decade will leave a lasting impression on the appraisal industry that will not soon be forgotten. The appraisal industry has lost over 10% of the entire workforce with those who flat out refused to work for AMCs. That’s a large chunk of appraisers who did not need to be lost. And, what about fees? I won’t get into that too much here, but I still find it amazing that consumers are not allowed to see the breakdown of the fees paid for an appraisal. Who’s rule is that? Exactly, the AMCs. They seem to have lots of power these days.

Appraiser voices are being heard more and more often and the true value of an appraisal management companies is coming to light, but it may be too little too late. AMCs are touting record sales volumes and more power than ever, as they continue to drive the best appraisers out of the industry. They don’t want or need good appraisers. That’s not their goal. Only cheap, fill out the form to meet minimum requirements and run to the bank with their profits. Appraisers were chartered to protect consumers and mortgage investors. That’s the exact opposite of an AMCs charter. It is a business model that only grew with the force-feeding

businessman with red boxing glove punch to the goal business concept

of a government agency, not of the free market. Appraisers were not offered a choice the same as lenders were not offered a choice. Basically, overnight AMCs were handed the keys to the world of mortgage lending and appraisal ordering. Perhaps justice would also come with the stroke of a government pen, signing AMCs out of business just as quickly as they entered.

Of course, there are some very good management companies. But, the model that dictates any one service over another, without free choice in the market, is over-government control at a time in history when less government is the objective. AMCs have been offered a long and fair test in the market. They have failed miserably and can only blame delays caused by them on appraisers. Surprisingly, when lenders order directly from appraisers, with truly qualified underwriters reviewing the work, the speed rises dramatically. Faster appraisers would come with the total removal of the AMC system. The question is, will the powers that be, and all the talk of big data and big money, take control over reason and logic – and of course consumer protection.

I think in an open market the best AMCs would survive. They have changed and grown to work with appraisers, not as dictators but as partners. However, the majority survive because they are mandatory or the least expensive option under current government rules. From the HVCC to today, can we really say the mortgage lending system has improved due to AMCs? The short answer is NO, not even a little bit. A wasted decade with lots of evidence if anyone really wants to see the truth.

AMCs need to be removed from the mortgage system just like the 1004 MCA. AMCs failed miserably and it’s time to move back to sanity and move forward to focusing up Realtor® education about pricing real estate. Then we can talk of “low appraisals” vs “over-priced listings” and mortgage loans.

Consumer protection is lost in the rush to commissions

We hear all about low appraisals, but we never seem to hear about homes that are flat-out over priced, often by an agent who wants to prove they are smarter than everyone else and will take advantage of any unusual feature or circumstance to push the value beyond any other homes in the local market.

For example:

A buyer finds a house in need of some updating. Medium sized market and things are selling between 90-120 days on average. The neighborhood is good and the house has a three level deck that cost twenty-grand and a $10,000 water garden running beside the deck. These features are way above other things in the neighborhood, but they are still desirable. They buy the house for $220,000 and spend $45,000 on renovations; kitchen and bathrooms, paint and flooring, etc.. The agent tells them they can list the house at $394,900. The most expensive house in this area sold for $450,000. It was 1,418 sqft larger and sat on two lots, and had been totally remodeled. It was probably the best comp available. There were several other comps closer in size and age, but they all needed updating. They sold between $295,000 and $315,000. So, how much does remodeling add to a house? Of course, there are a lot of “it depends” with any real estate deal, but with an investment of $265,000, with a $394,900 list price, that could be a profit of around 50% in four months. We would all like to find a few of those investments! However…

The house appraised at $346,000, which was still a great return for four months work. But, this agent chose to file a complaint against the appraiser for “killing her deal.” Two other appraisals were ordered later in this transaction. One came in at $349,000 and the second at $334,000. The agent still bad mouthed only the first appraiser and told every she knew what a idiot he was. She said he didn’t understand the local market and she was the expert. She didn’t care what other homes had sold for because she is the local expert. She set the price and found a buyer willing to pay it and that should be enough. She knows better than any appraiser and they should listen to her experience. Her Blog post said “All my hard work was wasted by a backwards appraiser.”

They are too many examples of where agents push values just to see what they can get. The deal falls through and everyone involved is convinced the appraiser ruined everything for everyone. There are usually two agents involved in each transaction. One working for the seller and one for the buyer. The buyer’s agent is supposed to be watching out for their clients’ best interest, but far too often they only want to make the deal go through so they can get paid. They say the buyer is okay with the value and that’s all that matters. Consumer protection is lost in the rush to commissions.

Of course, every real estate valuation is partially subjective. But, most values can be logically developed with the experience and skill in the local market. No buyer should want to pay more for a property that it’s worth, but it happens every day, all across the country. And, Realtors® seem to push the pricing wheel higher and higher all the time. It’s like a numbers game about who can get the most. It’s very personal when you price a house. And, once you put that price out there, if someone comes along and says you were wrong about the value, well those are fighting words. “How dare you, I am the expert here.”

The listing agent is part of a much bigger problem no one seems to want to talk about. Realtor® education and responsibility should be a high priority in this day and time. After a decade of real estate problems, there are agents who still have not been properly trained and get into the business only to “make a little extra money.” A part-time agent is dangerous when it comes to most people’s single largest lifetime investment. I would think after all the discussion of appraisers and mortgages, and runaway real estate prices, this topic is something that should be on the radar. Blaming appraisers for every real estate problem is not the answer and it’s time to look at the heart of the problem – Realtors®!

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