Appraiser Selection: How does it work?

Does HVCC policies require a certain selection method? AIMSdashboard President Chris Williams answers this question for a concerned lender.

He asked:

How are appraisers assigned?  As part of HVCC, does the lender and/or AMC assign appraisals based on the company itself (ex: 1 company = 1 assignment) or individual appraisers (ex: 5 appraisers = 5 assignments). I would just like to know how assignments are typically sent out and is it per HVCC regulation?

Answer:

The short answer is: HVCC doesn't require any selection method specifically; it just calls for a method that yields appraiser independence.

Moving beyond the requirement of a rotation within HVCC (or any other appraisal independence standard): What the code does require is arms length selection from the “loan production staff” and undue influence on the appraiser at the point of selection, candidacy for selection, or future opportunity for selection.

Rotation is a method that one can use to help create and demonstrate fairness in the selection process. For the same reasons, random selection is another way. And even prescriptive assignment can be yet another (i.e. policy based “If…, then…” policies). Many AMCs are using broadcasts to try to decrease turn time on appraisals. Using this method, vendor management companies/AMCs send out a notice to a large group at the same time, and the early bird gets the worm. Since they are not “selecting”, and the act from *outside* is leading to a selection, it could be argued that this may result in an unpredictable selection. If unpredictable, then it must be fair..right? I’ll save that discussion for a different thread.

All of these methods are "allowable" with one catch...the selected appraiser must meet the variety of requirements surrounding the appraisal. Things like geographic competency, market knowledge, subject property type, interest or prior services provided for the property, and loan program requirements all factor into determining a qualified appraiser.

Since each individual appraiser has different backgrounds (education, prior careers, supervisors, etc.), competencies, experience, etc, it is less effective to look at the appraisal firm as a candidate. The complementary logic also yields that an appraisal firm carries no competencies, and therefore assigning to a firm doesn't make sense. Certainly it is fair for an appraisal firm to represent the firm’s market coverage to be the aggregate of the entire firm. But the competencies and experience still remain with each individual appraiser.

Since the individual appraiser has the unique skills only that appraiser can leverage, the individual appraiser should be the entity considered for selection for an appraisal assignment. The collection of qualified candidates for an appraisal would then be the collection of appraisers (not appraisal firms) qualified for an appraisal. And I would contend that the selection method should be used exclusively with the qualified candidates (i.e. qualifies individual appraisers) to select the appraiser for a given assignment.

So to the nested questions: 1) How do Lenders select a AMC from multiple AMCs; and/or 2) How does a lender or an AMC select an appraiser: by appraisal firm/company or by individual?

I think any of the selection methods can be used for nested scenario #1. Whatever makes sense to the lender is fine.

Concerning #2, the goals of the outcome must be considered.

At a broad brush level, AMCs tend to use commodity based methods (they assume the all appraisers are equal) and tend to follow the polar match to their business model. If high profit is the biz model, then the candidate pool (of willing appraisers) self-grooms itself by accepting a low-ball fee arrangement. If the company touts itself as the “Quick turnaround” company, then their polar attractor is the broadcast method – quick assignment and aggressive SLAs. Other AMCs are moving towards the quality point in the business model (typically regional AMCs or internal subsidiary AMCs).

The lenders (lender executives) who are managing in-house or want to regain their appraisal operations are motivated by entirely different factors. These lender executives tend to see their operations and customer experience (borrower’s experience) as their differentiators. They want great appraisers who understand the business, the market, the role of the appraisal, etc. They want the appraiser to positively contribute to their loan operations. They want cooperative professional appraisers to help them determine the viability of a loan by helping determine the soundness of the lender’s (and respective investor’s) safety net (the collateralized property).

With those motivations, the lender execs tend towards quality appraisers as the gold ring, and secondarily [but still critically important] is the optimized operations of “high quality”. So these lenders are looking for the evolved methods that take into account the various dimensions of a given appraisal to determine the best appraisers for the assignment. The ability to dial in on high quality appraisers is a critical path issue and drives these lenders to selection methods that consider the subject property, the loan program, the lenders policies, and the individual appraiser’s competencies/experience. The final act of selecting becomes less significant if the other dimensions are covered.

Long way of saying: if a firm has 20 appraisers and 10 are qualified by the lender to perform an appraisal, then only 10 candidates should be considered. So it is not a 1 company = 1 assignment; nor is it 5 appraisers = 5 assignments. It should be more 1 qualified appraiser = 1 assignment opportunity at a given instant.