The hidden middlemen who cost homebuyers $12 billion and counting

The path to homeownership is lined with middlemen. Real-estate agents, mortgage brokers, attorneys — all help push a deal through and then claim a fee when the ink dries. Most buyers are aware of these parties, but one group mostly flies under the radar. Their fees are often hidden, lumped in with other charges or buried in paperwork. If you bought a home in the past decade or so, there's a decent chance you unknowingly paid hundreds of dollars for their services.

These are appraisal management companies, little-known players that have flourished in the aftermath of the 2008 housing crash. The job of an AMC is fairly straightforward: When someone wants to get a mortgage for a house, the lender will order an appraisal of the property to determine how much it's worth (and, by extension, how much they're willing to lend). But the bank or credit union typically won't hire an appraiser directly; they'll enlist an AMC to manage the process. The lender pays an agreed-upon sum to the AMC, which uses a chunk of that money to pay the appraiser and keeps the rest.

The AMC is basically a transaction coordinator that matches the bank with an appraiser, ensuring independence so that lenders don't pressure appraisers to contort their valuations. In many instances, however, the AMC's haul from an appraisal can match or exceed the amount paid to the person actually determining the value of the home. Most buyers will never realize this, since the AMC and appraisers' costs are often lumped together under an innocuous title like "appraisal fee" on closing paperwork. Appraiser groups complain that AMCs don't even solve the problem they're supposed to address — the middlemen, they say, are incentivized to find the cheapest appraiser so they can pocket more money, resulting in shoddy appraisals and a bad look for the industry. All those fees from millions of home transactions each year add up: Data on the industry is scarce, but an analysis of public filings from one of the country's largest AMCs suggests these companies charged consumers about $12 billion in a recent five-year span.

Some consumer advocates consider opaque appraisal fees to be one of the most egregious examples of hidden costs in homebuying. As buyers face a rise in closing costs — the pesky fees, like title insurance, that pile up at the end of a transaction and usually total thousands of dollars — AMCs are attracting more scrutiny. The Consumer Financial Protection Bureau, as part of its crusade against junk fees, announced over the summer that it would look into various mortgage costs as well as "the growing power that appraisal management companies can wield over individual appraisal professionals."

The appraisal is a notorious pain point in the home-sale process: A low valuation can sink a deal, since the buyer may have to pick up the difference between their mortgage amount and the sum they've offered to the seller. Both buyers and homeowners are known to gripe about appraisals they see as faulty, delayed, or needlessly expensive, but few are aware of appraisal management companies' hand in the process. AMCs are unlikely to go away anytime soon, but people familiar with appraisals tell me consumers should at least know exactly what they're paying for — and have the chance to push back.

An appraisal is a critical part of any home purchase or refinancing. Sound appraisals don't just protect lenders from risky loans; they may also prevent consumers from overpaying and ending up underwater on their home, with more left on the loan than the house is worth. A typical valuation, which a 2023 survey by the National Association of Realtors found tends to cost a lender about $500, is based on a physical inspection of the property and research on comparable sales in the area. Those fees are typically passed directly to the borrower.

AMCs have been around for decades, but it wasn't until 2009 that they gained prominence. Before the financial crisis, lenders mostly worked with in-house appraisers or contracted directly with independent professionals to carry out the job. These cozy relationships offered ample room for fraud. Low appraisals were undesirable to a lender, because a borrower might not have the money to cover the gap between their offer and the mortgage amount. To avoid losing out on a deal, lenders pressured appraisers to deliver the goods (and blackballed the ones who refused). Both sides worked to pump up home values and keep the good times rolling — until the entire facade collapsed.

A web of new regulations — first through the Home Valuation Code of Conduct, then the Dodd-Frank Act — aimed to create some distance between lenders and appraisers. A lender could still technically manage appraisals in-house under the new rules, provided they separated the two sides of the business. Most decided it would be easier and cheaper to outsource the whole process to an AMC. Mark Schiffman, the executive director of the Real Estate Valuation Advocacy Association, the leading trade association for AMCs, estimates that 200 to 300 AMCs handle 70% to 75% of appraisals ordered by lenders in the US.

AMCs start by billing the lender a lump sum, which includes the amount they'll eventually pay the appraiser. The total fee for a simple single-family home could be about $500, while a more complicated job could run more than $1,000. The lender gets to select the services it wants the AMC to provide. The AMC will then send the requirements to its network of qualified appraisers, who submit bids for the work. The AMC chooses an appraiser, checks the quality of the appraisal, and then submits the report to the lender. The burden of paying for all of this, though, ultimately falls on the buyer, who foots the bill alongside their other closing costs, detailed in paperwork before a sale or refinancing wraps up. In some states the lender is required to separate the appraiser's fee from the total amount billed by the AMC, but it often appears as a single "appraisal fee."

There are other ways for a buyer to deduce the AMC's cut — the appraisal report, for instance, might include an invoice that shows exactly how much the appraiser made from the job, which could then be subtracted from the total appraisal fee. But appraisers tell me AMCs often discourage them from including an invoice for fear of confusing the buyer with two numbers — I saw one order from an AMC that specifically told the appraiser not to include an invoice in their report. The typical consumer probably wouldn't know to look for a difference anyway. Pretty much everyone I talked to for this story agreed that hardly anyone outside the appraisal world knows of AMCs. A buyer sees a bill for $600 or $700 and assumes all that money goes to the guy who crunched some numbers and nosed around their house for a few minutes.

Josh Tucker, an appraisal manager at a bank in Texas, has spent the past two years gathering evidence of the fee imbalance through a nonprofit he cofounded known as the Appraisal Regulation Compliance Council, which aims to root out fraud in appraisals. His organization has collected hundreds of examples of appraisal orders from some of the largest AMCs — Class Valuation, Clear Capital, Solidifi, and Nations Valuation Services, among others — and compared them with the standard fee schedules the AMCs provide to lenders. Other internal documents show the appraiser's fee alongside the AMC's fee. In many instances the AMC's cut roughly matches or exceeds the amount paid to the appraiser. Take, for example, a single-family home in California that was up for refinancing. The appraisal was managed by Solidifi, a nationwide AMC based in Buffalo, New York, that says it handles about one in nine appraisals in the US. The appraiser's fee was listed as $375, but the AMC fee was a whopping $725, for a total cost of $1,100 to the client. In another case, a townhome in Georgia, both Solidifi's and the appraiser's fees were about $300. A Solidifi spokesperson tells me that appraisers generally receive the majority of appraisal fees, adding that the company provides fee transparency to the lender and the appraiser by disclosing the breakdown for every transaction. The spokesperson also says that the company follows all applicable state and federal regulations, including paying customary and reasonable fees to appraisers.

Tucker calls AMCs' charges "one of the fees that is absolutely price gouging the consumer." It's unclear how much AMCs rake in in total, but securities filings from Real Matters, the publicly traded parent company of Solidifi, offer an approximation. Each year the company estimates the "total addressable market" for AMC services in the US. In the five years from 2019 through 2023, lenders ordered about 28 million appraisals for purchase and refinance mortgage originations. Real Matters multiplies that volume by Solidifi's average revenue per transaction to arrive at a dollar figure estimating how much Solidifi could bring in if it captured every single one of those transactions: $16.4 billion over those five years. Take into account the estimate that AMCs manage about 75% of appraisals and assume that Solidifi's fees are in line with the rest of the industry, and it appears AMCs could have charged consumers about $12.3 billion in that period, or about $2.5 billion a year.

This is a ballpark figure, since AMC fees vary by company and their revenue depends on the number of loans in a given year. But it may also be a conservative estimate; Real Matters says its estimate of appraisal volume is low because it doesn't include certain types of loans for which there isn't good data. Solidifi reports healthy margins on the appraisals it manages: After subtracting the payment to the appraiser and other "transaction costs," Solidifi keeps anywhere from 22% to almost 28% of the fees it charges lenders, depending on the year. And again, that fee is passed along to the borrower as part of closing costs.

Schiffman, of the AMC industry group REVAA, says that cases in which the AMC's fee outweighs the appraiser's are rare and that AMCs have their own costs to bear.

"It's more of an anomaly than anything else," Schiffman tells me. "Usually it's about the same. Sometimes it's higher, sometimes it's way lower." Chris Likens, the CEO of Nations Valuation Services, tells me his company's fees on a transaction never exceed the amount paid to the appraiser.

In some instances, both Schiffman and Likens say, an AMC may actually end up losing money on an appraisal if it turns out to be more complicated than expected. Both also note that finding an appraiser isn't the only thing AMCs do — they provide quality control after the appraisal to protect both lenders and consumers from faulty valuations. However, a 2018 working paper from the Federal Housing Finance Agency found that AMC and non-AMC appraisals "share a similar propensity for mistakes" and concluded there was "no clear evidence of any systematic quality differences between appraisals associated and unassociated with AMCs."

One solution, at least, seems pretty simple: Require lenders to make AMCs' fees clear to consumers. Have a line in the closing paperwork that shows what the AMC is making and another that shows what the appraiser billed. The website of one nationwide AMC advises mortgage lenders to check how their AMC's fees compare to the average, suggesting that "your AMC should retain about $100 to $125 per appraisal" with the remainder going to the appraiser. Yet the Appraisal Regulation Compliance Council has collected hundreds of examples in which the AMC's cut well surpassed that figure. And if lenders benefit from knowing the exact split, it seems reasonable for the consumer — the person actually paying for all this — to also have the chance to decide whether they're getting a fair shake.

Some states already require the fees to be disclosed separately in closing documents, but there's no federal mandate in place. In a letter to the Consumer Financial Protection Bureau over the summer, leaders of various appraisal industry associations argued that the agency has the ability to require this kind of disclosure under the Dodd-Frank Act. During a rulemaking session in 2013, the CFPB actually considered such a provision but ultimately decided against it. The CFPB concluded that requiring breakouts of the charges could "produce information overload" for consumers. The appraiser groups say that the decision was a mistake.

"This unused authority has allowed AMCs to abuse the conflation of where the singularly paid 'appraisal fee' flows after the consumer provides payment," the executives wrote, "reaping significant financial benefits while harming consumers and lenders along the way."

Schiffman tells me REVAA isn't opposed to a disclosure requirement, though he argues it would be an additional administrative burden and could confuse the consumer. Tucker, though, says it shouldn't be prohibitively difficult. And consumers, he tells me, have a right to know where their money is going.

"We have a captured industry," Tucker says, "where these middlemen get to kind of do whatever they want."

James Rodriguez is a senior reporter on Business Insider's Discourse team.