Editor’s Note: New financial reform legislation provides support for customary and reasonable fees for appraisers. Many see the standardized fees set by the Veteran’s Administration (VA) as a logical benchmark.
Customary and Reasonable Fees: Making Your Case
By Cary Ryan, Assistant Editor, WRE
The good news for appraisers is that the Financial Reform legislation recently signed into law puts teeth into its mandate that appraisers be paid fees that are “customary and reasonable.” Now what?
The “bite” that Congress provided is wording which states that “such fees may be established by objective third-party information, such as government agency fee schedules.” To many, this makes the appraiser fee schedule established by the VA a natural benchmark.
The legislation also states: “Fee studies shall exclude assignments ordered by known appraisal management companies,” which clearly debunks the notion that customary and reasonable fees can be considered the lowest fees negotiated- which is what appraisal management company (AMC) interests had been arguing. Congress came down unambiguously on the side of appraisers in the face of some pretty loud opposition.
Up to this point, appraisers have been on their own trying to make their case for customary and reasonable fees. FHA is a good example. FHA Mortgagee Letter 2009-28 requires that appraisers be paid “customary and reasonable” fees (visit WorkingRE.com for Appraisers Talk, FHA Listens). Yet according to the OREP/Working RE HVCC Survey: One Year On, with over 2,800 appraisers responding, only 17 percent say that, since these new FHA guidelines, they have requested and received customary and reasonable fees on FHA assignments always/often. Twenty-six percent (26%) say they sometimes receive them and 37 percent say they receive them hardly ever/never. (Thirteen percent (13%) say they don’t accept FHA work, seven percent (7%) were unsure.)
The recent financial reform legislation gives lenders and their agents (appraisal management companies) 90 days to implement the changes including paying appraisers customary and reasonable fees. Penalties for non compliance are stiff: $10,000 for each day any such violation continues and $20,000 civil penalties for subsequent violations. Many believe VA fees are a legitimate and common sense benchmark for appraisers to use when setting fees.
It is worth noting that, speaking at an industry conference late last year, Gerald Kifer, Supervisory Appraiser at the Department of Veterans Affairs, said that the VA does set fees, still uses mortgage brokers and has had, “zero fraud” reported. “The panel rotation system has served us very well,” Kifer said. He also noted that the VA has a “negative subsidy,” meaning it makes money and uses no tax dollars.
And if you think the fight is over, consider this sent by a reader: “For the last two days, I took part in the Appraisal Institute Summit in Washington, D.C.,” said Gary Crabtree, SRA. “What I witnessed was almost shocking. Representatives from banks and AMCs appeared just as stubborn as ever. They truly are in denial and I fully expect to see armies of lawyers challenging every part of Title XIV. They told me that the banks and their customers will refuse to pay increased fees. That also includes GSEs (Fannie and Freddie) who need forensic appraisals to support their repurchase demands. This battle is not over, it’s just begun.”