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Blacklisted for Refusing Low Fees
By Isaac Peck, Associate Editor
Here is another customary and reasonable (C&R) fee story to make your blood boil. The question is: who is listening? Since the Home Valuation Code of Conduct (HVCC) morphed into Dodd-Frank, many believe the industry is better off and headed in the right direction—greater appraiser independence, higher quality appraisals, better protection for consumers and the banking system. Appraisers like Jane Dawson tell a different story.
Dawson (quoted under an alias because she fears retaliation), tells a story that many appraisers can relate to. She says she was blacklisted for requesting what should be protected under law—her right to customary and reasonable fees. Dawson is different because instead of being secretly blacklisted and left to wonder why she stopped receiving orders after requesting a fee increase on an assignment, she was formally removed from an AMC’s panel after insisting that the AMC’s fee was not customary and reasonable.
Client for 18 Years
Dawson is a Certified Residential Appraiser in Florida with over 30 years of experience as an appraiser. Until recently, she had a strong 18-year relationship with a local credit union that she performed appraisals for regularly. For the last five years the credit union paid her a standard fee of $375 per appraisal order. There were never any complaints or quality issues. Dawson says it was a mutually beneficial relationship: the client received quality appraisal reports and Dawson received what she considered a fair fee for her services.
Recently, however, her client began using an AMC to manage the appraisal process. After an 18-year relationship with a quality client, Dawson found herself dealing with an AMC that wanted to pay her considerably less than her standard fee. Dawson says the AMC wanted to pay her $290 for an appraisal. “For five years my standard fee with my client was $375. They decide to go through an AMC and now I’m expected to accept a fee of $290 for the same work,” says Dawson.
She discussed her concerns multiple times via telephone with the AMC. “I told them that I would not accept a fee of $290 for the same appraisal that my client had previously paid me $375 for. Their fees are unprofessional and not in the spirit of Dodd-Frank. One girl just laughed at me on the phone because I wouldn’t take $290. She told me they didn’t need me because there are plenty of other appraisers who will do it,” says Dawson.
Dawson was removed from the fee panel for “Unprofessional Conduct – Derogatory responses to communication from Nationwide Appraisal Network,” according to a document supplied to Working RE . Dawson says it was her pushback on fees that led to her removal, which followed her sending the AMC an email pointing out that the C&R fee established between her and her client was $375, and that the fee offered by the AMC was neither customary nor reasonable. The return letter from the AMC concludes: “Due to the issues we have experienced with your conduct… you are hereby notified that you are being removed from our approved appraiser list.”
Many would agree with Dawson that the AMC’s conduct is outrageous. “This shows how the AMC is distorting the principle of customary and reasonable fees by taking its profit directly out of the appraiser’s fee,” Dawson argues. “Not only do they expect me to do the same work for almost 25 percent less than my client was paying me for five years, but they are asserting that even bringing up C&R fees is unprofessional!”
When contacted for comment, Joni Pilgrim, Founder of NationWide Appraisal Network, contends that Dawson’s removal had nothing to do with C&R fees. “The appraiser was removed after several emails which contained derogatory comments and ended in a threat to take action by contacting a client in an effort to destroy our business relationship with our client,” says Pilgrim. “We take panel removal very seriously and exceed the legal requirements in every state. We also provide a rebuttal process. The appraiser never made any effort to rebut the process.”
When asked whether Dawson’s original fee of $375 was an overpayment, Pilgrim responded, “I wouldn’t necessarily say it was an overpayment. I would just say that there are costs that AMCs have to incur as well, such as compliance, support, and managing the whole process from the beginning to the end. There’s a lot of value-added services that our AMC provides.” Pilgrim admits that the appraisal fee paid by the borrower is split between the appraiser and the AMC but contends that what the appraiser is paid by her AMC is customary and reasonable.
When calculating its appriasal fees, Pilgrim says that NationWide runs historical reports on the fees it has been paying and examines trends for all the report types. “We look at our own trends in combination with industry surveys. In certain areas where appraisers are asking for additional fees, if it’s a common trend we make adjustments. If one out of 20 appraisers object to the fee we are paying, does that necessarily mean that the fee isn’t C&R?,” says Pilgrim.
Pilgrim provides insight into how AMCs view situations like this, insisting that NationWide surveys the national market when deciding what fees to pay. “We understand her concerns when she is talking about one fee for one appraisal product from a single lender to one particular appraiser. However, that approach is like giving a home’s value using only one comp. As an AMC we are able to take a broader look by analyzing fees from many lenders, appraisers, and products rather than looking at one in isolation. This ability to see the overall market is a major advantage to partnering with an AMC. For that particular lender, we also received no other comments from the appraiser who did accept the order,” says Pilgrim.
When asked what additional data NationWide considers, Pilgrim cites a la mode’s Appraisal Fee Reference (AFR). The AFR states that it is the “authoritative guide to median and average fees observed between clients and independent fee appraisers when specifying the Uniform Residential Appraisal Report, or URAR. It provides statistical data on hundreds of thousands of URAR transactions at the national, regional, and state levels, covering all 3,221 counties and local administrative districts in the
fifty United States.”
When last published in February 2010, the AFR indicated that the median fee for a basic 1004/URAR appraisal was $350 in Florida, and $375 in Seminole county, where Dawson lives and works. Accordingly, $375 is precisely the fee that Dawson was being paid by her client for five years prior to NationWide contracting with the client. It is the fee that Dawson contends is C&R in her area.
Working RE ’s C&R Survey, which received input from over 17,000 appraisers nationwide from late 2010 to 2011, shows that the majority of appraisers in Dawson’s area reported the C&R fee for that area to be between $350 and $400. (Click here for the C&R Fee Survey Results in your area). The effect that low fees have on appraisal quality has been widely noted throughout the appraisal community.
Dawson says that the AMC taking part of the appraisal fee paid by borrowers is a pay cut for appraisers who, in many cases, have established long-standing relationships with their clients. “To take the difference out of the appraiser’s share and expect the same quality product is disingenuous and a violation of Dodd-Frank. You have to ask, do you really think the appraisers who are accepting these lower fees are doing the same quality appraisal? But nobody cares about appraiser quality anymore and the bottom feeders are getting the worm every time,” says Dawson.
What the Regulations Say
Richard Hagar, SRA is a consultant for banks, regulators and others on lending and appraisal guidelines. He points out that the Appraisal Interagency Guidelines specify that the fee paid to an appraiser must be “reasonable and customary in the geographic market where the property is located” and the fee should be “reasonably related to recent rates paid for appraisal services in the relevant geographic market.”
According to Hagar, Dawson’s case is a clear violation of the C&R fee provisions under Dodd-Frank and the Interagency Guidelines. “The customary and reasonable fee is the normal fee that the appraiser would charge a credit union client. The fact that she was being paid $375 for five years is a perfect example of ‘recent rates’ paid for appraisal services in her market. I personally think $375 is a little low but she accepted it and there was an agreement between the appraiser and the credit union about what a C&R fee was for that assignment. Then an AMC comes in and tries to pay her $290. That is clearly not the C&R fee; I don’t care how the AMC tries to spin it,” says Hagar.
This case is an obvious violation of the law, according to Hagar. “The AMC is taking over a banking function that the bank previously had to pay for. If the AMC is helping the lender, then the lender should pay a separate fee to the management company. The AMC should not be paid directly out of the appraiser’s fee. In this case, the lender and the appraiser established over a period of years what the C&R fee is for a given appraisal in a particular geographic region. This is also a similar rate that she was charging other clients for the same work. The AMC is clearly taking a significant portion of the appraiser’s C&R fee and the credit union is no longer in compliance with the C&R fee provisions of Dodd-Frank and the Interagency Guidelines,” argues Hagar.
According to Hagar, just because other appraisers are accepting a fee of $290 does not mean that the AMC and lender are automatically in compliance. He explains that lenders and AMCs are required to select the best appraiser for the specific job through a process that considers the appraiser’s experience, quality of work, professional designations and specific qualifications for the job. In fact, the selection of appraisers solely on the lowest fee or turn time is expressly prohibited by the Interagency Guidelines, which state: “An institution should not allow lower cost or the speed of delivery time to inappropriately influence its appraisal ordering procedures or the appraiser’s determination of the scope of work for an appraisal supporting a federally related transaction.”
Hagar says that some lenders try to argue that the appraisal fee paid to the AMC is the appraisal fee and therefore, the lender is paying a C&R fee for the appraisal, even if the appraiser is only receiving part of the appraisal fee. Hagar disputes this. “It is not correct for a lender to say that they aren’t responsible for what the AMC pays the appraiser because they paid the AMC a C&R fee. Whatever rules or regulations a lender is held to under federal law also apply to the lender’s agent, so if the AMC is operating as the lender’s agent and is paying an appraiser a fee less than C&R, then the lender is responsible,” says Hagar.
Hagar says this is a clear cut case and he advises Dawson, and other appraisers in similar circumstances, to file complaints with every agency they can, including your state’s appraisal board, the Office of Comptroller of the Currency, and the Consumer Financial Protection Bureau.
Dawson says she had planned to file a complaint with the Florida Appraisal Board but was told not to bother by a member of the Board. “There are individuals on our Board who believe that the lowest price equates to a C&R fee, and that C&R is determined by the free market. I also believe in the free market but this is not a level playing field. To believe that C&R is the lowest fee an appraiser will accept doesn’t take into consideration the quality of the appraisal or the product that’s being delivered,” reports Dawson. “I may end up filing the complaint just so they have it on record.”
Dawson says she greatly supports the recent legislation passed in Louisiana that allows the state appraisal board to ensure that C&R fees are being paid in the state (Victory for Customary and Reasonable Fees in Louisiana). But such statebased solutions will not work in every state, according to Dawson. “Virginia is right behind in trying to implement C&R fee enforcement but unfortunately I don’t think that approach is going to work in states like Florida. Two members of the Florida Board are representatives of AMCs and I have been told that any such legislation would be opposed by the Board,” says Dawson.
Going forward, Dawson says she is doing very little AMC work because the fees are so low. “I do mostly litigation work, a lot of bankruptcies and a lot of divorces. I’ve also found a niche in Fannie Mae REOs, Fannie Mae reviews and relocation appraisals. Occasionally, I do reviews for the state of Florida and sometimes they hire me as an expert witness,” says Dawson. “I’m close to retirement and have been outspoken about the practices of the lending, appraisal and AMC industries for over 30 years but to no avail. Because of the profits involved, the players will never change, only their tactics to give the appearance of regulatory compliance. My plan is to get out of the business but I still have about five years left so I’m speaking out under an alias so I don’t get blacklisted out of business,” Dawson says.
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