Definition
An Appraisal Management Company (AMC) is a firm that acts as an intermediary between licensed real estate appraisers and clients, who are frequently mortgage lenders or financial institutions seeking property appraisal services. The main function of an AMC is to ensure that appraisals are conducted in an impartial and consistent manner by employing certified appraisers, thus preventing undue influence from interested parties such as lenders.
Example
Appraisal management companies became firmly entrenched in the real estate market following the U.S. housing crisis of 2008. The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 mandated lenders to use an intermediary to order appraisals. The intention was to prevent lenders from exerting influence over appraisers, ensuring an unbiased and accurate property valuation.
Scenario:
A mortgage lender needs to evaluate a property’s value to determine how much to lend to the borrower. To ensure the appraisal is impartial, the lender contracts an AMC, which in turn hires a certified appraiser to conduct the property appraisal.
Frequently Asked Questions
Q: Why are AMCs needed in the real estate market?
A: AMCs ensure that the appraisal process is impartial and standardized, preventing undue influence from interested parties like lenders.
Q: Who regulates Appraisal Management Companies?
A: In the United States, AMCs are regulated under the Dodd-Frank Wall Street Reform and Consumer Protection Act. Additionally, various states may have their own regulations governing AMCs.
Q: How do AMCs select appraisers?
A: AMCs typically have a roster of certified and licensed appraisers and select them based on their qualifications, experience, and proximity to the property being appraised.
Q: What fees are associated with using an AMC?
A: AMC fees vary depending on the scope and complexity of the appraisal request and are usually included in the overall appraisal fee charged to the lender or borrower.
- Appraiser: A certified professional who evaluates the value of properties.
- Property Valuation: The process of determining the current worth of a property.
- Mortgage Lender: An institution offering loans secured by real estate.
- Compliance: Adherence to laws, regulations, and guidelines.
- Dodd-Frank Act: Law aimed at reducing risks in the financial system.
Online Resources
References
Suggested Books for Further Study
- “The Appraisal of Real Estate” by Appraisal Institute
- “Real Estate Valuation and Strategy: A Guide for Family Offices and Their Advisors” by John Wisdom, Jay Rollins
- “Appraising Residential Properties” by Appraisal Institute
Real Estate Basics: AMC Fundamentals Quiz
### What is the primary role of an Appraisal Management Company (AMC)?
- [x] Act as an intermediary between appraisers and clients.
- [ ] Provide mortgage lending services.
- [ ] Sell real estate properties.
- [ ] Offer property insurance.
> **Explanation:** An AMC acts as an intermediary between appraisers and clients, often mortgage lenders, to ensure that appraisals are conducted impartially and consistently.
### Why was the use of AMCs mandated by the Dodd-Frank Act?
- [x] To prevent undue influence on appraisals.
- [ ] To decrease the cost of appraisals.
- [ ] To facilitate better mortgage terms.
- [ ] To streamline property sales.
> **Explanation:** The Dodd-Frank Act mandated the use of AMCs to prevent mortgage lenders from exerting influence over appraisers, ensuring that property valuations remain unbiased and accurate.
### How do AMCs choose appraisers for a job?
- [x] Based on their qualifications, experience, and proximity.
- [ ] Randomly from a list of registered appraisers.
- [ ] By choosing the least expensive option.
- [ ] Through recommendations from real estate agents.
> **Explanation:** AMCs select appraisers based on qualifications, experience, and proximity to the property needing appraisal in order to ensure accurate and efficient valuations.
### Who generally pays the appraisal fee when using an AMC?
- [ ] The appraiser
- [ ] The real estate agent
- [x] The lender or borrower
- [ ] The government
> **Explanation:** The appraisal fee, which includes the AMC's fees, is generally paid by the mortgage lender or the borrower as part of the closing costs.
### What does the term 'property valuation' refer to?
- [x] The process of determining the current worth of a property.
- [ ] Estimating the property's future market value.
- [ ] Setting the sale price of a property.
- [ ] Calculating the property taxes.
> **Explanation:** Property valuation refers to the process of determining the current worth of a property, often facilitated by licensed appraisers.
### What legislation significantly impacts the operation of AMCs?
- [ ] The Sarbanes-Oxley Act
- [ ] The Patriot Act
- [ ] The Clayton Act
- [x] The Dodd-Frank Act
> **Explanation:** The Dodd-Frank Act significantly impacts AMCs by setting regulations to ensure that appraisal processes remain fair and unbiased.
### Why is it crucial for AMCs to maintain a roster of certified appraisers?
- [x] To ensure impartial and accurate property valuations.
- [ ] To offer competitive appraisal prices.
- [ ] To maintain real estate sales data.
- [ ] To comply with local building codes.
> **Explanation:** AMCs maintain a roster of certified appraisers to ensure that property valuations are impartial, accurate, and compliant with industry regulations.
### Which of the following entities usually requests an appraisal from an AMC?
- [x] Mortgage lenders
- [ ] Homeowners
- [ ] Real estate agents
- [ ] City planners
> **Explanation:** Mortgage lenders commonly request appraisals from AMCs to obtain an unbiased property valuation necessary for mortgage approval decisions.
### How does an AMC contribute to the real estate market?
- [ ] By buying and selling properties.
- [ ] By providing financing options.
- [x] By ensuring impartial property appraisals.
- [ ] By managing rental properties.
> **Explanation:** AMCs contribute to the real estate market by ensuring that property appraisals are conducted impartially and accurately, thus maintaining trust and integrity in property valuations.
### Which organization's guidelines might an AMC follow to maintain appraisal standards?
- [ ] The Federal Trade Commission (FTC)
- [ ] The National Association of Realtors (NAR)
- [x] The Appraisal Institute
- [ ] The Environmental Protection Agency (EPA)
> **Explanation:** AMCs often follow the guidelines set by organizations like The Appraisal Institute to maintain high standards in appraisal practices and ensure accurate property valuations.
