Appraiser Talkback Blog

Editor’s Note: Recent financial reform legislation gives hope to many appraisers, as it requires that they be paid customary and reasonable fees. But now what? Working RE explores the issue below and announces a new survey designed to shed light on fees for appraisers nationwide. Participation is anonymous. The results will be available for free. See below for details.

Customary and Reasonable Fees: Now What?
New WRE Survey Seeks Answers
By David Brauner, Editor

As the reality of the Financial Reform Bill (HR 4173 FIN-REG) sinks in- including the promise of customary and reasonable fees for appraisers, many in this profession wonder- now what? A new survey, published by E&O insurance provider OREP.org and Working RE magazine seeks answers.

Two ongoing surveys from OREP.org/Working RE, measuring life after the Home Valuation Code of Conduct, together have had over 9,000 participants to date. You’ll find results of these surveys in the upcoming print edition of Working RE, mailing to 80,000 appraisers in October.

Fair Fees?
FIN-REG, signed into law last month, specifically repudiates the argument that “lowest bidder” AMC fees are the “new” customary and reasonable. The Feds, in fact, declare just the opposite, first acknowledging that customary and reasonable fees are not only necessary but definable: “Such (customary and reasonable) fees may be established by objective third-party information, such as government agency fee schedules.” And then, setting to rest whether AMC fees are customary and reasonable, saying: “Fee studies shall exclude assignments ordered by known appraisal management companies.”

Sounds of Silence
Since Congress spoke, however, there has been a deafening silence from regulators about what customary and reasonable fees mean. There’s much at stake. For lenders, the penalties for non compliance are stiff: $10,000 for each day any such violation continues and $20,000 civil penalties for subsequent violations. For many appraisers, a return to customary and reasonable fees means staying in business.

Many believe the fee schedule established by the Veterans Administration is a legitimate benchmark for appraisers to use when setting fees (see Customary and Reasonable Fees: Making Your Case, WorkingRE.com, Premium Content). Others, such as Marion Rhodes, a Certified General in Northeastern Pennsylvania, argue that what borrowers are willing to pay for an appraisal in the marketplace more accurately reflects customary and reasonable. “What a borrower pays for their appraisal, as noted on line 804 of the HUD-1, is the only accurate evidence to determine what is customary and reasonable,” said Rhodes. “It is a price borrowers pay and as such is acceptable in the market place.”

Rhodes, who was one of a handful of appraisers who worked with Congressman Paul E. Kanjorski’s office (PA-11) at crafting the appraiser-related language for the FIN-REG, says that this fee data is available by surveying HUD-1 Forms and that appraisers ought to be pressuring Congress to gather and publish this data as evidence of what is customary and reasonable.

Mike Kennedy, a State Certified Residential appraiser for 17 years in southern Hudson Valley, New York, believes that not much will change under FIN-REG. “The customary and reasonable fee language in the law is inconclusive and flawed,” says Kennedy. “It says fees may be established but does not state must. To avoid charges of price fixing, no regulatory agency definition will be any more specific. Customary and reasonable will continue to be determined by whatever fees appraisers are willing to negotiate and accept,” said Kennedy.

Others, like Darwin Ernst, SRA are taking a different tack. While he believes the issue will have to be addressed by the Feds at some point, he is working to effect change in his state now. “The Bureau of Consumer Financial Protection, formed as a result of the new legislation, will have to weigh in on the issue of customary and reasonable fees at some point,” said Ernst. “Meanwhile, as an appraiser who serves on the Montana Real Estate Appraiser Board, I will be advocating rule changes to define customary and reasonable fees and working with the Montana Department of Labor to pass state AMC legislation so that appraisers in our state are not left wondering what customary and reasonable fees mean.”

More AMC Fun
AMCs may be trying to settle the issue through the backdoor. Appraisers report that certain AMCs now require them to certify that their appraisal fee is “customary and reasonable.” Some surmise this is a defense against the stiff noncompliance penalties in the new law. Others say it serves as a defense against potential predatory lending charges by consumers claiming fee gouging.

OREP/Working RE Customary and Reasonable Fee Survey
Despite the uncertainty in the wake of the new law, most appraisers continue to agree that there are generally accepted fee levels for various appraisal products in their market area. Most, however, are reluctant to discuss the issue under the mistaken belief that it is a violation of the Uniform Standards of Professional Practice (USPAP). 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.

To help address the issue, E&O insurance provider OREP.org and Working RE magazine are publishing a new Customary and Reasonable Fee Survey which is broken out by 365 Metropolitan Statistical Areas (MSA) as defined by the U.S. Census Bureau, with rural areas included by state. It surveys eight different appraisal products including reviews and FHA appraisals and addresses appraisal turnaround time, which many say is the biggest obstacle to quality.

According to a story in the upcoming print edition of Working RE, the OREP.org/Working RE HVCC Survey: One Year On reveals that, with respect to adequate turnaround time to complete a job, 90 percent of appraisers say they “consider having sufficient turnaround time on assignments an important factor in returning competent appraisal work.” And 42 percent say that “appraisal quality suffers on AMC assignments they complete due to inadequate turnaround time.” (Sixteen percent (16%) say their work suffers always/often and 26 percent say sometimes.) This survey should also help define reasonable turnaround times for various appraisal products according to appraisers.

Survey Parameters
The new OREP/Working RE Customary and Reasonable Fee Survey assumes assignments that are not complex (the new law acknowledges complex assignments require higher fees). The survey targets non-AMC work only in accordance with the new law, though some appraisers say they accept discounted fees from AMCs willingly in trade for services received, such as marketing, collection, quality control, etc. (See Dairy of a Happy AMC Appraiser Part 2 in the upcoming print edition of Working RE.)   

Survey Results Available to All
This survey is for appraisers and it is anonymous. The results will be available no later than Nov 1, 2010 and updated regularly as the various market areas become more populated. The value of the survey depends on the level of participation. It is designed for appraisers to reference when setting fees. It can also be used by lenders and AMCs to measure their fee and turnaround time policies. The data will be available to the government and the public at large.  

To weigh in with your customary and reasonable fees for various products, visit WorkingRE.com and click Customary and Reasonable Fees Survey.

Boycott: Winds of Change?
Appraisers are known for their individualistic nature, which often thwarts collective action. But organizers take note: 68 percent of respondants to the Working RE/OREP HVCC Survey: One Year On, agree that “refusing to work for unrealistically low appraisal fees could be an effective strategy for raising fees back up to pre-HVCC levels.” And 62 percent believe that “a national appraisal ‘boycott’ could be an effective strategy for calling attention to and changing current industry conditions” that they consider unfavorable to appraisers. Surprisingly, 65 percent say they “would join and contribute financially to an appraisal ‘trade group’ to advocate for appraiser interests.”

This comment, posted to our survey is representative of many: “Because of the nature of our business, our need to be independent and objective, we need one organization to be able to call us together as a group to boycott the unreasonable fees. Either this or we should go to a panel style, get rid of the AMCs and be able to receive a fair fee for our work. Some of the fees I see quoted from AMCs, with everything they expect, are totally unreasonable and whoever is doing the work could not possibly be making more than minimum wage if you consider all the time involved.”

We have established this place for appraisers to discuss this issue and organize. Leave your ideas and support here.

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. Find a listing of VA fees by state/area along with important VA links posted free at WorkingRE.com.

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, under “Current Issue”). Yet according to the OREP/Working RE HVCC Survey: One Year On, with over 2,800 appraisers responding, 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.

VA Fees National Benchmark
You can find VA’s Customary and Reasonable Fees for single family appraisals by state along with a link to fees for multi-family, condominiums, liquidation, travel fees, turn times and other specifics from the VA by state, at WorkingRE.com, left column: VA Customary and Reasonable Fees.

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.”

Editor’s Note: Find a comprehensive summary from the Appraisal Foundation of the appraisal-related changes contained in the recently passed Financial Reform Bill at WorkingRE.com, Sidebar: Appraisal Foundation’s Summary of The Restoring American Financial Stability Act of 2010.

Financial Reform Passes: Tonic for Cynical Times
by David Brauner, Editor

The groundbreaking financial reform legislation that recently passed Congress leaves little for appraisers to complain about. The language supports appraiser independence, addresses appraiser management companies (AMCs), puts teeth into the concept of customary and reasonable fees for appraisers, provides more money for enforcement of bad appraising and asserts some control over broker price opinions and automated valuation products, acknowledging that they are not the equivalent of a licensed appraiser. It also sunsets the Home Valuation Code of Conduct (HVCC).

Since the bill passed, people have asked me for my opinion. But that’s not my role nor is it the role of Working RE. What we do is listen to what you tell us and report it. But I will offer the following just this once.

When the loudest voices in and around this industry hailed HVCC, supported and defended the tactics of (some) AMCs as free enterprise and dismissed your negative feedback as the complaints of a few “back pocket” appraisers terrified at the prospect of having to compete on a level playing field, you stood up and fought back. You contacted your representatives, participated in petitions and letter writing campaigns, you supported the efforts of the professional organizations, software vendors and others and you took part in the Working RE/OREP Talkback Survey and Blog in great numbers, indicating quite clearly that it was not the rants of a few disgruntled appraisers. The majority of you, with over 6,000 participating, agreed that HVCC was resulting in lower quality appraisals, higher costs to consumers and continued, relentless pressure- if not for value overtly, for unreasonably fast turnaround times and too-low-to-go fees. Thousands of you told us that it is not possible to do thorough reports for the fees AMCs demand and therefore, quality was suffering, no matter what Fannie and Freddie were saying to the contrary.

So many of you shared your stories- too many to count; seasoned and honorable appraisers forced out of business by a private deal concocted between the attorney general of one state and the (now failed) GSEs, who consented to the deal to avoid an investigation into their role in lender pressure. How can that be right?

While appraisers and those of us who serve you did not accomplish alone the protections afforded in the Financial Reform bill, take some credit for making your voice heard. It was instrumental in getting this job done. I hate to say it in these cynical times but the system still works, at least sometimes.

While we don’t know what the reform will mean in real terms, this is a big win for appraisers if only because you spoke loudly enough to be heard over some very high-decibel opposition. Congratulations. Savor the moment. You all deserve a big pat on the back- now let’s get back to work!

More to come on what the bill means to appraisers in Working RE. Thanks for reading.

HVCC Silver Lining: Lenders Souring on AMCs?
by Michael Antoniak

Could there be a silver lining to HVCC (Home Valuation Code of Conduct)?

P. David Rij, veteran appraiser and partner, San Diego Appraisal Company, San Diego, CA, thinks so. Based on what he’s seen and heard during the first half of 2010, he now believes HVCC will prove a boon for independent appraisers and drive full-fee appraisal work back to them at the expense of AMCs.

He harbors that optimism despite the new regulations’ inconsistent impact on his business. On one hand, Rij reports appraisals have been easier to complete under HVCC, with less additional work and pressure. With that, “Underwriters are scrutinizing appraisal reports much closer than ever before and seem to be requiring more conditions,” he adds. “Because we’re seeing more than one change at once, such as HVCC and a tight credit market, it’s hard to pin all the good or bad on HVCC.”

His views continue to evolve. “When HVCC hit last May (2009) it had an immediate impact. My business dropped 50 percent,” he recalls. “Over time, things built back up but orders for appraisals are still off by about 25 percent, compared with where they were two years ago.” The lost business translates into a significant drop in income, he notes.

Lenders Souring of AMCs?
Rij attributes part of that decline to lenders’ increased reliance on AMCs, since HVCC took effect, and the pricing pressures on full-fee appraisal work which followed. He’s heard, however, experience with AMCs now has some large lenders rethinking the practice.

The chief appraiser for one large national bank recently confided, “Many lenders see that using AMCs is resulting in less quality and lesser service for the same appraisal fee,” shares Rij. “They have switched or are in the process of switching to direct ordering systems such as Appraisal Port.”

On the local level, he’s benefiting from a trend in which mortgage brokers, heavily regulated under HVCC, are converting into or merging with mortgage banks. They are now ordering appraisals directly from appraisers who, like him, worked with principals at those companies in the past.

“Since January, I picked up three new clients — mortgage brokerages merged with mortgage bankers — who are maintaining their own in-house appraiser lists,” he reports. “I have been able to get work approved thanks to my old broker clients.”

Rij advises those who want to benefit from this emerging trend to “….get in touch with their brokers to see if they are becoming or merging with mortgage bankers. Some mortgage bankers are creating their own in-house approved-appraiser lists, relying on their brokers’ referrals for appraisers to fill their panels.”

All of this has Rij cautiously optimistic HVCC will ultimately benefit independent appraisers as lenders place more direct orders for their full-fee services. “We’re just at the one year mark, so we’ve got to give it more time,” he cautions.

“If these trends continue,” Rij says, “HVCC could prove to be one of the best things that ever happened to residential appraisers, resulting in more full-fee work for us than there is today with considerably less pressure for value.”

About the Author
Michael Antoniak is a freelance writer and author, with special emphasis on business and technology. Since the early 1990s he has been writing about technology for the publications of the National Association of Realtors. He has written five books, and recently published his first ebook, Essential Technology for Mobile Professionals (www.realtechtools.com).