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Editor's Note: New state and federal regulations requiring fair fees for appraisers, combined with new data detailing median appraisal fees by county for non-AMC work, may provide the tools necessary for appraisers to take back control of their fees.
 

HVCC: Taking Back Control of Your Fees
by David Brauner, Editor

 

Frustrated with low-ball Appraisal Management Company (AMC) fees, appraisers are digging in, many refusing to work for less, some calling for a national strike to prove their point - but there may be a better way, such as knowing what appraisal services are worth in your market and demanding it. New regulations requiring fair pay for appraisers coupled with verifiable data on median appraisal fees nationwide may make this dream a reality.


Knowing what is fair is more than idealism: it has a practical application given the slew of federal and state regulations requiring that fees be customary and reasonable, including new FHA guidelines and new proposed federal legislation, Financial and Mortgage Industry Reform Bill, (find the bill at WorkingRE.com, Sidebar: HR 4173). Many states also have incorporated similar language into legislation to regulate AMCs and in support of appraiser independence. So far, enforcement of "customary and reasonable" has not been clarified nor challenged but it may be soon.  
 

To date, appraisers have had a weak hand when negotiating fees with AMCs. Indeed, with too many appraisers chasing too few orders, and with their lender/mortgage broker clients removed from the process by the Home Valuation Code of Conduct (HVCC), appraisers say that jobs flow mostly to the lowest/fastest bidder these days and at fees that are far below what was "typical" for their market less than a year ago before HVCC took effect. Now they have data to prove it.

 

Fees Data
According to Dave Biggers, Chairman and founder of software provider a la mode, his firm has appraisal fee data based on hundreds of thousands of independently contracted URAR assignments from all over the country. The fees are from non-AMC, URAR only, address-validated "real" reports which utilized a la mode's Mercury Network in the prior 12 months.

Biggers says that because the reports all used the firm's Mercury Network backbone, they know the ordering entity, the type of order (what sort of form and what sort of assignment), the fee, and the relevant information such as the address. "If we couldn't validate the address against the Postal Service database and receive a valid geocode as well, we didn't consider it. We also removed outliers ('test' orders that individuals sent to themselves for example), and any orders where the URAR wasn't explicitly cited (no 'other' or 'single family' orders)," Biggers said. "Beyond that, we removed any orders with a variety of spurious characteristics as well. These are solid, real URAR-only orders."

 

Because the data are for non-AMC ordered reports, they provide a useful benchmark for what is customary and reasonable in a market. "The only way that an AMC order could be in it would be if the AMC passed itself off as a lender, or if the appraiser indicated it was a lender," Biggers said.  

Low Bridge

According to the Working RE/OREP HVCC Talkback Survey, which now has nearly 5,000 respondents, 98 percent of appraisers say that in their experience working with AMCs, appraiser selection is based solely on obtaining the lowest fee at least some of the time (less than two percent answer that appraiser selection is "never" based solely on obtaining the lowest fee). To the question, "Are the fees offered by the AMCs you work with unrealistic given the nature and scope of the assignment?" 46.5 percent say "always," 37 percent "often," 14 percent "sometimes" and only 2.5 percent say that AMC fees are "never" unrealistically low given the nature and scope of the assignment.

The following comments were posted to our survey last week by a frustrated appraiser (posts are anonymous): "Parts of HVCC are important but the AMCs should not be allowed to take, in some cases, over 60 percent of my fee. I make less money now than I made 28 years ago when I started appraising residential real estate. Is that right? Why doesn't my experience (over 10,000 residential appraisals in a single county in New Jersey) mean anything? He/she who charges the least, gets the work. I am just sick of this."

 

The reasons for low fees vary, including an AMC business model in which their services are paid for from appraiser fees instead of by the lenders who elect to use their services. Whatever the reasons, the following is for anyone who still doubts the veracity of what appraisers are saying about low fees and a lack of concern for quality on the part of many AMCs. It is taken from a "requirements" section of a job posting for the position of Appraisal Coordinator at a national AMC. The job listing was found online in the public domain and has been widely circulated by outraged appraisers.  

In the list of requirements:

  • If an appraiser requests a higher fee or longer tat (turn around time), the PA (Processing Analyst) is expected to get a minimum of 2 other quotes (for a total of 3) in order to determine the best appraiser option for each order.

  • Fees - Products have a standard flat fee regardless of what state the property is located in on all properties up to 1 million dollar or 1.5 million dollars dependent on business line. For this reason it is important for PAs to attempt to place the order to an appraiser with the lowest fee to maintain our profitability. On orders over 1 million dollars the PA is to obtain 3 fee quotes from 3 different offices before assigning the order. In situations where we must use a one time vendor or fee appraiser the PA will need to check as many options as possible to obtain the lowest fee.

  • The use of fee appraisers should be limited unless determined to be the best option.


Median Fees Nationally
The report compiled by a la mode tells you, for instance, that in Muscogee County, Georgia, the median (non AMC) appraisal fee is $350. In Anchorage County, Alaska it is $550 and in Erie County, Pennsylvania $248.  According to Biggers, on a macro basis, the national median fee for an independent URAR (non-AMC reports) is $350 and the average is $351. "The convergence of the two suggests a pretty reasonable distribution," Biggers said. "The standard deviation is $91.60, so a random sample would suggest that roughly two thirds of all appraisal fees are between $259.40 and $442.60 (take the average and add or subtract one standard deviation). When you think about it, that makes sense in terms of what the market feels like across the country and with so many variances introduced by local versus urban micro markets."

 

According to Biggers, the Appraisal Fee Reference report is a free product, part of a la mode's Mercury "Industry Analytics" practice (see link below). "Our intent is to provide the industry- appraisers, lenders, AMCs, Realtors, and regulators- with objective data on what constitutes a 'customary' fee charged by local independent fee appraisers when engaged directly by lender clients across the U.S., so that marketing and management planning can be based on something other than 'water cooler' anecdotal discussions. For years, appraisers have been told it's illegal to discuss fees, which isn't the case, and so there's been a black hole of accurate information on the subject."

 

If appraisers are prohibited from discussing fees, it is not by USPAP, according to John S. Brenan, Director of Research and Technical Issues the Appraisal Foundation. According to Brenan, USPAP does not address the issue. "An appraiser's USPAP obligations pertaining to fees are contained in the Management section of the ETHICS RULE, which is silent on this issue," Brenan said.

 

The FHA could not be reached for comment by press time on how it plans to regulate its "customary and reasonable" requirement regarding appraisal fees, given this new data and the apparent disparity between what were typical fees prior to HVCC and what appraisers are being paid today by AMCs. Stay tuned.

 

Biggers continues, "What struck me as interesting is the Midwest and rust belt area's fees, which are low across the board. Decades ago, due to the emergence of several AMCs centered in Pennsylvania and certain software vendors located in that general area, we heard anecdotal evidence of fees being low there but we never had a way to independently verify it. Now we do, and we see that the conventional wisdom is correct, even on non-AMC orders. Those areas have mentally accepted low fees as a fact of life it appears, whereas other areas of the country have not."

 

View the completed Appraisal Fee Reference report at mercuryvmp.com/analytics.

Customary and Reasonable Fee Blog
If you'd like a virtual meeting hall to share information and discuss strategy with your colleagues, we have created a "Customary and Reasonable Fee" category at appraisertalkback.com, (top left, under "Categories").