Appraiser Talkback Blog

Editor’s Note: FHA clarifies “customary and reasonable” as the new regulations requiring fair fees kick in. One appraiser begs to differ.

HUD Responds: Customary and Reasonable Fees
by David Brauner, Editor Working RE

FHA appraiser William R. Pruett, SRA has a problem that we’re sure you can relate to.

Pruett, appraising 12 years, five in West Des Moines Iowa, knows what a “customary and reasonable” fee is for an FHA 1040 in his market and so does everyone else, he says, except the large national bank and its in-house AMC (appraisal management company) that cancelled Pruett’s order when he asked for the full fee.

The report was ordered after the February 15 implementation date of FHA Mortgagee Letter 2009-28, which among other things, requires that appraisers are paid “customary and reasonable” fees. Pruett complained to his local FHA Resource Center and after some wrangling was given an address to file a formal complaint (see below).

“If you ask 10 loan officers and appraisers in our market they will all tell you the same thing regarding what a typical or ‘customary and reasonable’ fee is,” said Pruett. “I reminded them (AMC) of Mortgagee Letter 09-28 and stated the ‘customary and reasonable’ fee for the area is $375. I requested this fee in accordance with current FHA policy. They cancelled without further discussion.”

Last fall, FHA announced new regulations which borrow much from HVCC (Home Valuation Code of Conduct), including support of appraiser independence and a prohibition against mortgage brokers or lenders ordering reports directly from appraisers. HVCC does not cover FHA appraisals. The guidelines also include requirements to correct some of the unintended consequences of HVCC, including widespread reports of appraiser selection based on the lowest bidder instead of the most qualified professional, in many cases. According to the OREP/Working RE HVCC Appraiser Talkback Survey, with over 5,100 appraisers responding, 98 percent 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).

FHA Mortgagee Letter 2009-28 requires that appraisers be paid “customary and reasonable” fees and that AMC fees must be separated from those paid to appraisers (visit WorkingRE.com for Appraisers Talk, FHA Listens, under “Current Issue”). “I was very encouraged with the FHA announcement at first but the rules have to be enforced,” said Pruett. “The whole idea is to uphold quality (for tax payers); that quality appraisers must be paid adequately. For a competent appraiser to do a competent job a reasonable fee must be paid.”

HUD Responds: Customary and Reasonable
Ever since the new regulations were announced, it has been unclear what “customary and reasonable” means. Last week, Lemar C. Wooley, Office of Public Affairs, HUD HQ Washington, DC, told Working RE, “FHA has an internal quality control (QC) process in which targeted endorsed FHA-insured mortgages are reviewed for determining compliance with FHA underwriting and mortgage credit policies and procedures. Among other aspects of the loan, the QC process includes a review of required documentation, including appraisals and fees associated with loan closing. If, in the course of conducting a review, FHA determines that the fee paid to an FHA Roster appraiser for performance of an appraisal is not in keeping with what is reasonable and customary for such a service in the subject property’s market area, the lender may be counseled or otherwise directed to comply with the mandates of Mortgagee Letter 2009-28.”

Wooley sited an FAQ from the 2009-28 FAQs which addresses the question of customary and reasonable: What does FHA consider customary and reasonable fees for preparing an appraisal report?

Customary and reasonable appraisal fees are reflective of those fees established and negotiated by an FHA approved self employed independent fee appraiser or an appraisal firm that may directly employ FHA approved roster appraisers or retain FHA approved roster appraisers as independent contractors, for appraisal services rendered, regardless of whether a lender, AMC or a 3rd party company or vendor is ordering/requesting appraisal services. The fee charged must be commensurate with the level of services provided and should reflect the amount of research, level of difficulty, and due diligence required on the appraiser’s part to produce a credible, reliable and accurate appraisal report that is in compliance with all FHA guidelines and USPAP.

Customary and reasonable Appraisal fees, for purposes of FHA, do not include:
* AMC or other third party fees.
* Management or review fees charged by lenders.

To read more, find a link to the FAQs at WorkingRE.com, Sidebar: ML 09-28 FAQs.

FHA Talks Back
When asked by WRE whether “customary and reasonable” means “whatever fee an appraiser will accept,” Wooley provides the following. “FHA believes that the marketplace best determines what is ‘reasonable and customary’ in terms of fees. Unlike the VA, FHA does NOT set or enforce fee schedules for its Appraiser Roster. To a large degree, the fee is the result of a business decision, which may or may not be negotiated, between the appraiser and the client, whether the client is an individual lender, an AMC or some other party in need of appraisal services.”

Wooley continues, “Appraisers may discount fees based on volume of work or other considerations. The fee may be based on the distance traveled or other factors, such as having recently performed appraisals in the same market, thus having already performed some of the due diligence inherent to any appraisal report. The fee charged to perform an appraisal of the same single family detached dwelling can vary hundreds of dollars, depending upon the client. For instance, an appraiser who regularly performs appraisals for a lender may charge that lender significantly less (for the same property) than to an attorney who is asking for an appraisal for estate tax or divorce purposes.”

The message to appraisers regarding their responsibilities is clearer: “Regardless of the amount of compensation received, the appraiser has an obligation, under USPAP, to perform a credible and accurate report,” Wooley said. “If an appraiser chooses to be a low bidder on an assignment, he or she is not relieved of the obligation to produce a credible and accurate report and can and will be held accountable.”

According to OREP/WRE Talkback survey, 59 percent say: Low fees (from AMCs) effect the quality or completeness of the finished report compared with higher fee appraisals at least some of the time (41 percent say it “never” effects quality).

Wooley concludes, “The appraiser community, along with professional trade associations, is keenly aware of the range of appraisal fees typically paid for the different type of appraisal assignments, as is the residential mortgage lending industry.”

Case for Fair Fees
Pruett, like many appraisers, has his own take on what “customary and reasonable” means. “If the appraisal fee for an area is $350, for example, this is a fact known by all appraisers and lenders doing business in the area,” Pruett said. “There may be temporary discounts from appraisers just starting their businesses or discounts from individual appraisers for multiple orders but ‘customary and reasonable’ fees are established by the business relationships of appraisers and lenders over years of service and are not a secret. In fact, in my company, which has 23 offices in five states, each office can tell you what the customary fees are for appraisal products in their market area. These fees are not established by any other method than by the general agreement of those practicing in the market area. If one was to poll the appraisers in my market area as to the fee for an FHA appraisal on FNMA Form 1004, the answers would be within $25, hardly the 20 to 30 percent variance offered by these large institutions.”

Pruett continues, “To postulate that a large lender could contract a few appraisers in an area to perform assignments at a 30 percent discount and call that ‘customary and reasonable’ would be a new definition of the term to say the least. Also, to suggest a Direct Endorsement underwriter could lower fees in a market area and thus redefine ‘customary and reasonable’ would deny the market forces at work and jeopardize the intent of hiring competent appraisers. It is no secret that appraisal management companies have been saddling appraisers with the burden of their management and reducing fees to the point of driving competent local appraisers out of their field of expertise. It is also no secret in light of the current housing crises how valuable local, competent appraisers are to their community. I applaud the policy-makers at HUD for understanding the vital importance of this industry and for taking steps to insure that qualified appraisers are compensated fairly. It is therefore expedient that HUD enforce Mortgagee Letter 2009-28 by upholding ‘customary and reasonable’ fees, thus insuring FHA lenders are in compliance to their policy,” Pruett said.

Epilog
In our last online issue we reported that software provider a la mode compiles median appraisal fees nationwide utilizing its Mercury Network (WorkingRE.com, Premium Content: HVCC: Taking Back Control of Your Fees). The fees are for non-AMC reports. This sheds light on median fees by county nationwide when AMC pressure is not a factor. According to the report, the median fee for Pruett’s Des Moines County is $350. After looking at median prices in their own areas, several appraisers wrote to say that they do not believe FHA orders are included in the a la mode report because these appraisals typically have a higher fee; $50-$100 more according to some. One appraiser wrote on the Talkback Blog, “Relying on median and average appraisal fees by region that include conventional appraisals will typically result in low fees, below the true median and average FHA appraisal fees.”

Sure enough, says Leonard Acquaye, Analytics Product Manager at a la mode. Acquaye explains the methodology, “The fees calculated (in the report) are for a base URAR with no indicated extra fees or assignment particulars. For example, we have done our best to exclude assignments where we know that the client has requested 1004MCs or other special addenda or where the report is indicated to be for FHA specifically. Nor have we knowingly included extra fees for driving times, unless the appraiser incorporated those into the base fee.”

So Pruett’s fee of $375 seems about right.

There is much at stake for American tax payers if appraisal work is doled out to the lowest bidder. FHA’s balance sheet is under close scrutiny these days to make sure it does not follow Fannie Mae and Freddie Mac into bailout land. (FHA is required under the National Housing Act to maintain a two percent capital reserve ratio. That ratio has dropped below two percent as of year-end 2009.)

There is much hanging in the balance for appraisers too, as many struggle to stay afloat under the weight of AMC fee pressure as a result of HVCC. FHA has been a life preserver for many in the 10 months since HVCC took effect. A Coester AppraisalNewscast in late December 2009 states that as much as 60 percent of home loans made in 2009 were FHA. A recent 2010 HousingWire Update email stated that four out of 10 home loans are FHA. Whether FHA lending makes up 40 or 60 percent of mortgage lending in 2010, it seems certain that FHA work is important to appraisers. And appraisers are important to FHA.

FHA may be a safe harbor for full fee appraisers if the regulations can be clarified and enforced. The question in the spotlight is whether FHA will allow “customary reasonable” to mean “the lowest bidder” or whether they have a higher standard in mind. Many appraisers say they can’t wait to find out: they will not work for reduced market fees and encourage others to do the same.

You can send your formal complaint in writing to:
U. S. Dept. of HUD
1670 Broadway, 21st Floor
Denver, CO 80241
Attn: Technical Support Branch.

About the Author
David Brauner is Editor of Working RE magazine and Senior Broker at OREP, 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.

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”).

Here you can share information and discuss strategy with your colleagues regarding “Customary and Reasonable” Fees.

By Bill Cobb

With the many challenges before the residential appraiser these days, it’s important to remain on the FHA Roster- the ticket that can provide 40 to 50 percent of your income going forward. Here’s one way to help improve the quality of your FHA work.

It’s no secret that 2010 could be a very challenging year for home appraisers due to less demand for appraisal orders. However, where certain sectors are diminishing under the current mortgage market conditions, FHA and USDA Rural Development (RD) appraisal orders are booming. RD appraisal assignments require FHA standards and inclusion on the FHA Roster. FHA work is expected to remain a large portion of mortgage lending into 2010.

A Coester AppraisalNewscast in late December last year stated that as much as 60 percent of home loans made in 2009 were FHA. A recent 2010 HousingWire Update email stated that four out of 10 home loans are FHA. Whether FHA lending makes up 40 or 60 percent of mortgage lending in 2010, it seems certain that it is a necessity for appraisers to remain on the FHA Roster.

FHA Cracking Down
Why is it important to “up your game” when it comes to FHA appraisals? It was reported in 2009 that, due to FHA loans defaults, FHA reserves dwindled below one percent, causing the Wall Street Journal and others to question FHA’s survivability. It’s my understanding that FHA is increasing scrutiny of appraisals in an effort to remain solvent. Recently, Bloomberg reported that: “U.S. Subpoenas 15 FHA Lenders with High Mortgage Defaults” (January 12, 2010). And, you can bet that FHA will look at who the appraisers are that possibly helped those 15 lenders earn their high default status.

FHA Appraiser Inspection Course, Checklist and eManual!
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For instance, one item I repeatedly forget to take note of is how far the private sewer or water well is located from the home and to properly annotate the locations of such on the sketch. The Checklist reminds me to do this. Another reminder is to include photos of the crawl space, which is something I often forget to do. With the elimination of the old “VC Sheet” in 2005, FHA inspections may not be as thorough as needed simply because of a lack of a checklist to follow during inspections. This product solves that problem for appraisers.

A helpful feature of the eManual is the real life photo examples of possible FHA deficiencies with questions and discussion as to which answers are correct and why. FHA lessened some standards in 2005 after it lost so much mortgage market share but this resource answers the extent of “current” FHA standards concisely.

“This new FHA Appraiser Inspection Course, Checklist and eManual is designed to get you up to speed on FHA appraising,” said appraiser-author Lore DeAstra. “The course explains how to complete the two-page checklist line by line. The Checklist serves as a field guide for completing your reports. The eManual saves you time and money by summarizing and organizing the material you need to know. We reviewed more than 450 pages of HUD materials and spoke with several HUD officials to compile the FHA Appraiser Inspection Form, course materials, and eManual. It will save you time and money.” (No continuing education credit is available at this time).

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by David Brauner, Editor

Given the fierce efforts to keep HVCC alive, it makes you wonder if AMC interests know something the rest of us don’t.

As federal legislation that would end the Home Valuation Code of Conduct (HVCC) moves closer to reality, appraisal management company (AMC) interests are blitzing the media with their message that overturning HVCC means a return to lender pressure/appraiser compliance and an environment that allowed the current real estate collapse.

Industry thought leaders have been saying for months that, no matter the fate of HVCC, the shotgun marriage between appraisers and AMCs is sealed: if appraisers want to do business, they will have to do business with AMCs on the terms dictated by these middle men or so goes the conventional wisdom.

Representatives from the Federal Housing Finance Agency (FHFA), Fannie Mae, Freddie Mac and others, tell appraisers that there will be no going back to business as it was prior to HVCC, no matter if the Code is allowed to sunset in November of this year or terminated before then (FHA, Fannie/Freddie Tell it Like it Is, WorkingRE.com, Current Edition). If this is the case, what is the AMC trade group TAVMA (Title/Appraisal Vendor Management Association) so worried about?

In recent weeks, TAVMA has published stories in the appraisal press and in other online real estate-related publications strongly defending HVCC’s role as a “firewall” protecting appraisal independence. TAVMA also recently published a widely circulated “AMC Standards of Good Practice in Appraisal Management,” in an apparent effort to head off the growing trend of AMC regulation by states (see WorkingRE.com, Sidebar for the AMC Standards of Good Practice in Appraisal Management). Such regulation, they argue, would create a confusing and expensive tangle of legislation that would drive smaller AMCs out of business and raise costs for consumers.

Safe Act
What may have rattled AMC cages is passage by the House late last year of the Financial and Mortgage Industry Reform Bill (find the Bill at WorkingRE.com, Sidbar: HR 4173). If signed into law, the Bill would establish a Consumer Financial Protection Agency and require lenders to compensate appraisers their full fees, rather than splitting them with management companies. There are also rules to assure appraisal independence. The bill gives the director of the new agency 60 days from the date of enactment of this legislation to establish such appraisal rules and calls for the HVCC to sunset at the time the new rules go into effect. The bill was referred to the Senate Committee on Banking, Housing and Urban Affairs earlier this week.

The bill includes the following:
(1) shall not prohibit lenders, the Federal National Mortgage Association, or the Federal Home Loan Mortgage Corporation from accepting any appraisal report completed by an appraiser selected, retained, or compensated in any manner by a mortgage loan originator—(A) licensed or registered in accordance with section 1501 et seq. of the SAFE Mortgage Licensing Act of 2008; and
(B) subject to State or Federal laws that make it unlawful for a mortgage loan originator to make any payment, threat, or promise, directly or indirectly, to any appraiser of a property, for the purposes of influencing the independent judgment of the appraiser with respect to the value of the property, except that nothing in this section shall prohibit a person with an interest in a real estate transaction from asking an appraiser to—
(i) consider additional, appropriate property information;
(ii) provide further detail, substantiation, or explanation for the appraiser’s value conclusion; or
(iii) correct errors in the appraisal report; and
(2) shall include a requirement that lenders and their agents compensate appraisers at a rate that is customary and reasonable for appraisal services performed in the market area of the property being appraised.
(c) SUNSET.—Effective on the date the appraisal independence requirements are promulgated pursuant to subsection (a), the Home Valuation Code of Conduct announced by the Federal Housing Finance Agency on December 23, 2008, shall have no force or effect.

The Secure and Fair Enforcement for Mortgage Licensing Act of 2008 (“SAFE Act”), requires state licensing of mortgage brokers, including coursework, testing and fingerprinting.

These developments and a flurry of state laws to regulate AMCs may be what has TAVMA fighting back. Quoted in HousingWire.com, TAVMA executive director Jeff Schurman said, “Turning back-the-clock, and letting parties who are compensated based on closed deals order and interact with appraisers will inevitably lead to pressure and inflated appraisals.” (Find the story at WorkingRE.com, Sidebar: TAVMA Opposes New Consumer Protection Bill.)

Reason to Believe- Speaking Up
Some appraisers have given up believing that their autonomy as businesspeople will ever be restored, since HVCC has cut them off from their mortgage broker clients. Indeed many have called it quits in recent months reporting that they can not earn adequate fees working with AMCs or generate sufficient orders to stay in business.

Passage of this Bill may be the light at the end of the tunnel. TAVMA and others are pushing hard to see that that light is turned off and that HVCC remains in place. If you are opposed to HVCC, this may be a good time to make your voice heard with your Senators.

Pressure Tested
According to the Working RE/OREP HVCC Appraiser Talkback Survey, with over 4,500 appraisers responding as of this writing, 92 percent of appraisers are not in favor of HVCC as written and 82 percent do not consider AMCs to be a legitimate business model. Fifty-three percent (53%) report that they experience pressure for value with the AMCs they work with at least some of the time (47 percent say they “never” experience this pressure). Over 55 percent say that, with the AMCs they work with, they are asked to re-examine reports with the intention of trying to “make the deal work” at least some of the time (44 percent say they are “never” asked). So despite TAVMA’s PR to the contrary, appraisers say pressure still exists.

Quality Not Job One
Survey and Blog results also support anecdotal evidence from appraisers that appraisal quality has diminished since HVCC, not improved. The reason, they say, is that many AMCs look primarily for the lowest bidder when selecting appraisers, not the most qualified professional. According to the survey, 98 percent 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).

Survey results clearly indicate that pressure for low fees and quick turn around also is hurting quality. To the question: “Do ‘low fee’ appraisals result in a product that is less reliable for the end user compared to a report where adequate fees have been paid, 45 percent answer that this is “never” the case (55 percent say it happens at least some of the time). To the question: “Does the time pressure (from AMCs) result in a product that is less reliable for the end user, compared to a report where adequate time has been allowed, 31 percent say this never happens (69 percent say it happens at least some of the time).

Freddie Mac, on the other hand, reports that an internal review indicates that appraisal quality has improved since HVCC and that complaints are down. (See FHA, Fannie/Freddie Tell it Like it Is, WorkingRE.com, Current Edition.)

FHA Fees- Customary and Reasonable?
An appraiser poll hosted by AppraiserSupport.com finds that today the majority of fees for FHA appraisals are under $250 nationwide. At issue is FHA’s new policy, which takes effect this week and mandates that appraiser fees be customary and reasonable. According to AppraiserSupport.com, “In 1986, FHA mandated the appraisal fee of $225 be paid to all FHA appraisers. FHA realized that a fair wage was required to produce quality appraisal reports. If you adjust the 1986 mandatory appraisal fee for inflation, a current appraisal fee would be $436, which was approximately the amount appraisers were charging prior to the HVCC. HUD has addressed the issue of ‘reasonable and customary’ appraisals fees. Their definition is that ‘customary and reasonable’ are reflective of those fees established and negotiated by an FHA-approved, self employed independent fee appraiser.’ However, we have evidence that, on average, AMCs are only paying 60 percent of the reasonable and customary appraisal fee.”

New FHA changes also stipulate that the fee for the actual completion of an FHA appraisal may not include a fee for management of the appraisal process or any activity other than the performance of the appraisal. (See Appraisers Talk, FHA Listens at WorkingRE.com, Current Edition.)

Side Notes: The Good, the Bad and Shangri-La (Montana)
Reaction to coverage of HVCC and AMCs in the current issue of Working RE magazine has been mixed, to say the least. Comments range from gushing praise to tirades that would make Senator John McCain blush. Here are two of many.

“I just read your latest article, it was very enlightening. I have been in the business for 23 years and sound very much like the appraiser at the end of your article. I worked very hard to build a reputation and good list of clients, just to have it all taken from me. I have to start all over again but this time it is not about my education or my designations. The only thing 95 percent of the AMCs ask for if my license, that in itself should indicate they are not interested in quality or education of any kind. The only requirement they have is the bare minimum and the lowest fee they can get. I have one exception, and that has been Landsafe. Landsafe is the only reason I am in business today, they have a staff that is knowledgeable and they actually look for quality work,” said Kevin Talbott, SRA.

And this from another appraiser: “So how much are AMCs paying you to help them? Give me an article that defends appraisers and criticizes our enemies.” (Name withheld.)

Also, several appraisers wrote us puzzled about what the acronym “HVCC” stands for- they had never heard of it! One of these appraisers, who lives in rural Montana, told us he has not been effected one way or the other by the Code.

Getting Out: Why I’m Leaving Residential Appraisal
A sometime contributor to WRE, appraiser Mike Read, sends us this letter:

I used to love appraising. Long before there was any appraiser regulation my clients came to me for valuation opinions because of my years of experience in real estate and their recognition of my accurate and reliable reports. Then came HVCC. Now my clients of 24 years are not allowed to contact me. They have to order appraisals through a third party appraisal management company (AMC) which takes up to 60 percent of my fee for their trouble.

I have signed up with about a half dozen AMCs. One went out of business owing me over $7,000. Three asked for all my exhibits and I’ve never heard from them again. One expected me to complete a URAR for $90. My most recent AMC has not sent me an assignment in months due to their lack of volume.

I recently testified before my state legislature in support of a bill to regulate AMCs. My first suggestion was to support the repeal HVCC at the federal level. Secondly to ensure that a certified appraiser is on staff at the AMC to do review work and third to require the AMC to have a surety bond of $500,000 to $1 million so payment to appraisers is assured if the AMC defaults. Others recommended that AMCs become regulated by the State Appraiser Licensing Board.

I have 24 years of appraising experience, am licensed in two states as a General Certified Real Estate Appraiser, have been HUD approved for the whole 24 years without any complaints and have completed hundreds of hours of special education. What good has that done for me?

What is driving this patchwork quilt of ineffective appraiser regulation? Have you heard of “The Golden Rule?” He who has the gold makes the rules! The greed of lenders is the source of the problem and always has been. They are the ones with the money to lend. They are the ones that establish the lending guidelines that have to be followed by everyone else in the lending chain. They are the ones with the “pipeline” to keep full and flowing. When they run out of borrowers with 20 percent down they reduce the requirements to encourage borrowers with 10 percent down. Keep that pipeline full. When they run out of borrowers with 10 percent down they reduce the requirements again to encourage borrowers with five percent down, then zero down, then “no doc loans.” Keep that pipeline full.
What about the increased risk? Well, they just pack the loans up and sell them off to someone else in a mortgage backed security that is so far removed from the valuation process no one can figure out the value any more…not even the sophisticated investors. (Nobody thought to ask the appraisers!)

Now it’s time for me to say goodbye to my clients and friends in the residential real estate and financial service fields. You’ve heard of the theory of “trickle down” economics? Well here is how my exit from the business will trickle down to you all.

Dear MLS provider, I will be canceling my subscription for data services at the end of my current period ($105/Q).

Dear title company, I will be canceling my subscription for data services at the end of my current period ($85/mo).

Dear software company, I will not be renewing my annual software maintenance agreement at the end of my current period ($399/yr).

Dear Board of Realtors, I will not be renewing my annual dues this year ($375/yr).

Dear Appraisal Institute, I will not be renewing my annual dues this year ($330/yr).

Dear E&O insurance company, I will not be renewing my policy at the renewal ($500/yr).

Dear state of Washington, I will not be renewing my appraiser license at the end of the biennium ($500).

Dear state of Oregon, I will not be renewing my appraiser license at the end of the biennium ($500).

Dear education provider, I will not be needing any more CE credits so will not need any more expensive classes ($500/yr).

Dear AMCs, goodbye.

Dear Consumer, you are the only one I feel sorry for. I will no longer be in a position to provide you with an independent valuation for your largest lifetime investment. Your lender does not want you to know who I am, how to contact me, how much I charge, what value opinion I reach, they just want you to pay for some conforming paperwork. If they receive any bad news they just shoot the messenger.

For more from Mike Read, including his entire farewell letter: http://appraisals4realestate.wordpress.com/.