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Decoding Customary
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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)
 

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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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(story continues)

 

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.

 

(story continues below) 

 

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(story continues)
 

Bad

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."


(story continues below) 

 

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(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. 

 

 

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