New state licensing going into effect is making it more and more costly—and difficult—to operate as a small appraisal management company (AMC). But the new licensing is also coming as a surprise to some lenders as state-by-state, the new licensing goes into effect. It could have strong implications for the future of AMCs as well as the lenders that work with them.
For the 20-plus states that currently require state licensing, lenders should react accordingly, says Erik Richard, CEO of AMC Landmark Network. “We’re hearing from lenders that regulators are starting to verify that [AMCs] are licensed,” he says. And as more states require the licensing beginning January 1 and in the first quarter of 2012, the issue could even become more prevalent.
“Lenders have a lot on their plate as it is,” he says. “They haven’t paid much attention to the appraisal changes.”
The state licensing is new for AMCs, and is being phased in over the next three years. It requires that AMCs that employ more than 25 appraisers are licensed in the states where they do business. For national companies that work with lenders who operate in many states, it can be a costly requirement, AMCs say.
Those costs are causing some small AMCs to close up shop or go up for sale, positioning larger AMCs to acquire them. For many, it’s not just the cost, but also the enforcement of the licensing that can be tricky.
“Enforcement is relatively new,” says Erik Richard, CEO of Landmark Network. “Lenders aren’t knowing to ask and AMCs that don’t want to go through the proper licensing are waiting to get caught.”
The AMC faces the cost of surety bonds required in some states as well as the cost of licensing itself, which can be $25-$50 per appraiser in an AMC’s appraiser panel. It can add up quickly, Richard says, noting Landmark’s 9,000-appraiser panel.
“If you’re a little guy you may be able to support regional costs, but the problem with that is you’ll be limited to the client you can work for,” he says. “National lending institutions are not going to bring on a regional AMC.”
It is changing the landscape for the AMC industry, the companies say.
“With the smaller AMCs, it’s a major deal,” says Brian Coester, CEO of Coester Appraisal Group. “It’s a direct expense for the 20-25 states that require licenses. It’s a pretty hefty cost.”
Landmark, likewise, has seen the acquisition space change as a result of the state licensing going into effect.
“Smaller AMCs will be forced to be more regional,” Richard says. “[This has been] part of our effort to acquire management companies.”
It could be a whole new world of appraisal management as the changes kick into gear, Coester says.
“There is no middle class. You’re either really, really big or really, really small.”
Written by Elizabeth Ecker