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Related Stories
WRE Subscribers and OREP
Members haveaccess to all stories at
WorkingRE.com.
New:
Customary and Reasonable Fee Survey:
The OREP/Working RE survey now has over 11,500 responses. If
you have participated pat yourself on the back - your input matters. If you
have not participated yet, the survey is ongoing. You can
add your fee data here: www.surveymonkey.com/s/YZWHYT3.
Find a link to initial results
in sidebar. (Closed)
Take our other surveys:
HVCC - One Year On(Closed)
HVCC Appraiser Talkback Survey
(Closed)
Editor’s Note: As
the April 1 deadline approaches for implementation of Dodd-Frank and
customary and reasonable fees, there is good, bad and some still
uncertain news to report.
Customary Fees: Good, Bad and Uncertain by
David Brauner, Editor
It’s
probably fair to say that the folks at the Federal Reserve Board are
counting the days until the regulatory baton passes from their hands
to the federal regulators tasked with oversight of Dodd-Frank
beginning in July.
This is one of the points made by a Board spokesperson in a recent
interview with WRE: the Board’s work is complete after the
transition this summer. In July, various Federal Regulators will be
responsible for implementation of Dodd-Frank, depending on the type
of transaction it is (e.g., Federal Reserve Board, Federal Deposit
Insurance Corporation, Office of the Comptroller of the Currency,
etc.). Because the Board was handed a “mission impossible” with
respect to the customary and reasonable fee mandate under
Dodd-Frank, it’s hardly a surprise that its answer, the Interim
Final Rule, falls short of restoring the called for fairness and
balance to a profession turned upside-down by the Home Valuation
Code of Conduct (HVCC).
The
second point made is that after the April 1 implementation date, no
matter the Board’s interpretation of customary and reasonable fees,
appraisers will have the right to challenge fees that they believe
are not fair. This from last issue’s Working RE News Edition (Fed
Board Update: Customary and Reasonable Fees, March 2, 2011):
“According to the Board spokesperson, ‘Someone can rebut the
presumption(s) of compliance with evidence that a fee is not
reasonable or customary for a reason other than a condition
addressed in a presumption of compliance. What evidence supports an
allegation depends on the facts and circumstances of a particular
case. The rule addresses compensation paid in a particular
geographic market.’” (Find the article at WorkingRE.com, Premium
Content: Fed Board Update: Customary and Reasonable Fees.)
The
“stick” provided by this complaint mechanism may be intended to
nudge AMCs toward greater compliance with the spirit of Dodd-Frank.
There may be some evidence this is happening.
(story continues below)
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Good Last
week, Working RE received a request from the Chief Appraiser at a
large AMC for nationwide results from the Working RE/OREP.org
Customary and Reasonable Fee Survey (results by state can be
downloaded free at WorkingRE.com). This Chief Appraiser was not
granted permission from corporate to have the company name published
but his request is quoted here: “As per our phone conversation, I am
sending you via email a request for the full nationwide Working RE
‘Reasonable & Customary Fee Survey’ (results). We are a nationwide
appraisal provider and have decided to further review and use your
data in setting industry fee schedules.”
The OREP.org/Working RE Customary and Reasonable Fee Survey
recently surged past the 10,000 appraiser threshold and is nearing
the 11,500 mark. The survey includes 365 Metropolitan Statistical
Areas nationwide plus rural areas for each state; eight
products/services, including reviews and FHA reports, and turnaround
times. If you have not contributed your fee data, it is not too
late. The survey is ongoing. The results are available and free to
all (visit WorkingRE.com for results and to take the survey, top
center column). It’s good business to know what other appraisers in
your area are reporting.
And there’s more evidence fees are rising. Reader Lore DeAstra notes
that the new Landsafe fee schedule (March 2011, Washington state) is
“a huge improvement” over what they had been paying. “In our area,
we were paid $265-$325 depending on the size, location, etc. The new
schedule range is $345-$495 and is evidence that the customary and
reasonable fees paid by Landsafe have dramatically increased,”
DeAstra said. (Find the fee schedule posted at Working RE.com,
Sidebar: Landsafe Fee Plan - Wa.) One can only hope this is a
trend.
In reaction to last issue, one reader forwarded to WRE
the back and forth between himself and the principal of
another very large AMC regarding customary and
reasonable fees. This story is typical of many hundreds
WRE has received since HVCC. This appraiser does not
want to risk losing business so has asked to keep all
players anonymous. The email correspondence shows this
appraiser writing to the AMC indicating that he had
received plenty of work for over two years from the AMC
but that, “I have noticed that since I have requested
more customary and reasonable fees the work has
basically stopped. I am a seasoned appraiser and you
have never had issues with my reports. I can offer your
clients accurate, thorough, realistic valuations.
However, for the time and effort that I put into each
report, I need to be paid what I typically charge my
other clients.” The appraiser goes on to say that they
have the results of the OREP/Working RE fee survey and
asks, “With the Dodd-Frank Bill in place, do you plan to
increase the appraiser’s fees to what is customary and
reasonable for the area?”
The principal at the AMC, a veteran appraiser, responds,
“All of the appraisals were fine and your work was
certainly among the best.” And goes on to say that, “We
would like to do more business with you but your quoted
fees were consistently higher than your competitors.”
The fee appraiser who sent WRE the correspondence
concludes, “(the AMC) sought me out when they needed
coverage in my area. I guess they were willing to pay me
more until they found others willing to do appraisals
for less. After a while I started requiring fees that
are closer to my customary and reasonable fees…then the
work stopped. This AMC proved to me that fees trump
quality. And also that AMCs are trying to convince us
that C&R fees are based upon what the appraisers they
have on their panel are accepting under pressure.”
In two separate interviews with WRE, one as recent as
last week, Board spokespersons point to the following
from the Interim Final Rule in response to questions
about low-ball AMC fees, which seems to indicate that
the Board stands behind the notion that the fees
currently paid by AMCs are not to be considered
customary and reasonable by virtue of their acceptance
in the marketplace: “[T]he Board understands that some
AMCs have begun requiring fee appraisers to agree that
the fee is ‘customary and reasonable’ as a condition of
obtaining the appraisal assignment. In these situations,
the Board believes that an appraiser’s agreement that a
fee is 'customary and reasonable' is an unreliable
measure of whether the fee in fact meets the statutory
standard."
David
Brauner Insurance Services/ OREP/Working RE Magazine
David
Brauner Calif. Insurance License: 0C89873
(story continues)
Unclear: RESPA Violation, Anti-Trust
Appraisers continue to note that the fees paid by
consumers and identified as “appraisal fees” on closing
documents are typically much higher than what they
(appraisers) are paid for their services, and wonder
whether this is a violation of the transparency
requirements of the
Real Estate Settlement
Procedures Act (RESPA).
Many, like this appraiser responding (anonymously) to
last issue’s WRE, also question whether the control
exerted by a handful of very large AMCs crosses the line
into anti-trust.“The required use of the AMCs
has violated anti-trust laws in my opinion. We can no
longer compete based on qualifications, reputation and
the quality of our reports. We can only compete based on
how low our fee is. It's bad enough that they are
getting away with violating RESPA (HUD $500 appraiser
fee- appraiser only receives $250- splitting fees is a
violation of RESPA). Preventing appraisal companies from
competing is a violation of the anti-trust laws. I
wonder what consumers think about paying top dollar for
an appraisal and receiving the cheapest appraisal report
that the AMC could find?”
The
Board spokesperson would not comment on either issue.
Bill Garber,
Director of Government and External Relations, Appraisal
Institute,told
WRE that Dodd-Frank authorizes the HUD-1 to separate the
appraisal management fee from the appraisal fee and that
moving forward the HUD-CFPB should do exactly that.
Garber said, “HUD’s current interpretation of RESPA
requires the AMC fee to be listed on the HUD-1, hiding
from consumers what is paid to the appraiser. With this,
banks have essentially passed through backroom appraisal
management operations onto the backs of consumers. We
believe HUD’s (current) RESPA policy actually
contributes to cramdowns in appraisal fees. Consumers
deserve to understand what they are paying for and
whether it’s for the actual service or something else,
such as loan processing or administrative charges,”
Garber said.
Almost a year ago the appraisal organizations addressed
this and other issues important to appraisers in a
letter to Shaun Donovan, Secretary U.S. Department of
Housing and Urban Development (find the letter at
WorkingRE.com, Sidebar: Appraiser Organizations’
Letter to HUD). The letter says in part: “We are
concerned the current interpretations found in the ‘New
RESPA Rule FAQs’ contributes to a significant problem
facing real estate appraisal companies and independent
real estate appraisers today – forced fee reductions and
widespread ‘cramdowns’ in fees to appraisers, by as much
as 50 percent. We believe such adverse circumstances
are, at least, partially the result of RESPA policy
interpretations that mistakenly allow AMC fees to be
reported as appraisal fees on Line 804 of the HUD-1
Settlement Statement, instead of their correct grouping
as appraisal processing and administrative fees
(reported on Block 1 of the Good Faith Estimate and Line
801 of the HUD-1).”
The letter, sent by the Appraisal Institute, American
Society of Appraisers, American Society of Farm Managers
and Rural Appraisers and the National Association of
Independent Fee Appraisers, also touches on the
anti-trust issue saying, “Adding to the urgency,
enactment of the Home Valuation Code of Conduct (HVCC),
effectively has caused a sudden and dramatic shift of
approximately two-thirds of the residential appraisal
process to AMCs (according to an AMC operator).
Historically, appraisal management companies have held a
15-to-20% market share. Pressure is mounting daily, and
without HUD clarifying the appraisal and appraisal
management roles, we fear the soundness of the
residential loan origination process may be diminished.”
Commenting on the anti-trust issue last year, a Senior
Attorney at the Federal Reserve Board told WRE that
there is indeed anti-trust language in Dodd-Frank but
that it is very difficult to prove. She indicated that
the battle may be fought by State Attorney’s General who
have enforcement power under Dodd-Frank. (Federal
Reserve Board policy prohibits staff from being quoted
by name.)
“Half Fees” Customary and Reasonable?
Many appraisers wonder how the fees they are receiving
can be considered customary and reasonable if they are
lower, sometimes half, of what consumers are actually
paying for “appraisals.” Robert Mossuto sent this to WRE
in response to last issue, “I recently appraised a
condominium (using a 1004 MC) in the greater Seattle
area,” said Mossuto. "Several days after submitting this
report the condominium owner sent me a copy of the
report sent to her from the lender. The lender was kind
enough to attach the invoice for the appraisal. The
invoice amount was $445. The amount I was paid was
$250. My standard fee for condominium 1004 MC is $450.
So the AMC received $195 just for processing the
appraisal report. It seems to me that if the AMC is
charging $445 for a condominium appraisal with 1004 MC,
which was all clearly stated on the invoice, then the
fair and reasonable fee is $445. That's the data that
should be collected and a fee that should be paid the
appraiser.”
Mossuto notes that many AMCs he works with do pay close
to full fees.
The following comment, also sent in response to last
issue, is similar to thousands of others collected in
the last year or two, “The AMCs dictate what we are
allowed to earn on any given appraisal,” said DF in
central Oregon (wishes to remain anonymous). “I have no
choice but to take the offers that AMCs say they will
pay or go out of business altogether. I just had an
appraisal customer ask me why I charged $700 for his
appraisal. I could not tell him anything other than,
‘That is what the bank charges.’ I was paid $275 for
that appraisal. The AMC made $425 and I am the one who
did the work. What is wrong with this equation?”
About the Author
David Brauner is Editor of
Working RE magazine and Senior Broker at OREP.org, a
leading provider of E&O Insurance for appraisers,
inspectors and other real estate professionals in 49
states (OREP.org). He has covered the appraisal
profession for over 16 years. He can be contacted at
dbrauner@orep.org
or (888) 347-5273. Calif. Insurance Lic. #0C89873.