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”).
9 responses so far ↓
1 Michael Favela // Feb 28, 2010 at 12:23 pm
Morning, I have a new policy,since June. I don’t accept assignments For less than $350, so consequently, I dont do much local work and I try to up-charge them for all extras. If it’s not local $75 for travel. I get work, drive more, and takes more research but I have not and will not do a half price job. These, scum sucking amcs will not steal my fees. II spend almost as much time updating the idiots, than doing the assignment due to their ignorance and micro-management. I’ve asked some to quit sending requests. Lets get a national AMC boycott organized and quit being a bunch of whinny pussies and do something about it. Excuse my French.
2 Sef R. // Mar 1, 2010 at 9:27 pm
All I know is that the HVCC regulation slows the loan process down bigtime! I also concur that the “auction” method of getting an appraiser to do the job for the lowest possible price is totally unfair to the appraisers. The FEDS were suppose to be putting this regulation in effect to control fraudulent home values but the HVCC is flawed to say the least!
http://www.sefrobinson.wordpress.com
3 Appraiser Inactive // Mar 2, 2010 at 1:07 pm
HOW TO RAISE CAMPAIGN FUNDS FAST
Andrew Cuomo recently reported to have 5:1 more in campaign funds available for the upcoming NY governors election. Let’s take a look at his play book for raising funds.
I. Speak with larger banks about massive campaign contributions if you can help them to raise a few billion in additional revenue.
II. Blackmail FNMA & Freddie Mac into signing off on HVCC; thereby forcing banks
III. Revise HVCC to allow for 100% ownership of AMCs by banks after FNMA agrees to it.
IV. Structure deal to expire at the time of the election so no investigation takes place.
Benefits To Banks:
Banks make billions in new revenue off of appraisers (through AMC ownership) . At the same time it puts 85% of their competitors mortgage brokers) out of business.
Benefits To Cuomo:
$18,000,000+ in campaign funds and a guaranteed seat in the governors chair.
Not bad for a putz.
4 Appraiser Inactive // Mar 2, 2010 at 1:09 pm
HOW TO RAISE CAMPAIGN FUNDS FAST
Andrew Cuomo recently reported to have 5:1 more in campaign funds available for the upcoming NY governors election. Let’s take a look at his play book for raising funds.
I. Speak with larger banks about massive campaign contributions if you can help them to raise a few billion in additional revenue.
II. Blackmail FNMA & Freddie Mac into signing off on HVCC; thereby forcing 90% of all appraisal orders to go through AMCs.
III. Revise HVCC to allow for 100% ownership of AMCs by banks after FNMA agrees to it.
IV. Structure deal to expire at the time of the election so no investigation takes place.
Benefits To Banks:
Banks make billions in new revenue off of appraisers (through AMC ownership) . At the same time it puts 85% of their competitors mortgage brokers) out of business.
Benefits To Cuomo:
$18,000,000+ in campaign funds and a guaranteed seat in the governors chair.
Not bad for a putz.
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5 Idaho Appraiser // Mar 3, 2010 at 8:03 am
The appraiser in the article created quite a problem for the AMC, rest assured that AMC will make sure to bypass him on future assignments. The larger AMC’s have all had their attorney’s review the ruling and have concluded that there is nothing in the new code to preveent them from conducting business as usual.
6 North Carolina Appraiser // Mar 4, 2010 at 8:57 am
Hello All,
I want to comment on a la Mode’s report on “average appraisal fees”. As the office statistic Geek, I always ask, “average of what”?
FYI, Dave Biggers, Chairman and founder of software provider a la mode, makes money off of all appraisals that go through his system. He charges a flat fee, billed to the appraiser. He probably charges lenders a fee for ordering through the system too.
He says “his firm has appraisal fee data based on hundreds of thousands of independently contracted URAR assignments from all over the country” and that “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”.
Well, what do you call a service that facilitates appraisal ordering, requires an appraiser to use their system for delivery when the appraisal is ordered through them, and then charges the appraiser for it? Is Appraisal Port an AMC? I and many others, including lenders think so, and Dave charges more per order than Appraisal Port. If it Quacks, it must be a DUCK!
In our office we use a la mode softwear because my current analysis shows that for now, it is less expensive of other softwear providers out there for a multi desk office network. At least with last years “special” it was. This year it might be different.
But, we don’t take orders through his system. Why? because I can’t afford to give him any more money that I already pay to him on a yearly basis.
And my data shows that Bigger’s reported “average fee” for our area is not correct. Its about 60% of what is really charged. I know this because, our office networks with all the appraisers in our area. First of all, most appraisals being done in our area and really, in most areas are FHA, they have the market share now. Most of the appraisals coming through our office are VA. These are not ordered through his system.
Secondly, he doesn’t know what we charge because he didn’t consider our fees posted on his system, and he didn’t ask us what are fees are.
Finally, he didn’t report what his market share is for our area, and probably not for other areas either.
So, what we need to ask Dave to put his “average” fee into perspective is, “What is your market share”? Again “average of what”?
The bottom line with appraisal fees should be, what is your usual and customary fee? What do appraisers need to earn to operate their business COMPETANTLY? Do residential appraisers get training and do they know how to estabilish a fee schedule? Or are they at the mercy of getting paid whatever some client / AMC decides to to pay them?
Real Estate Appraisers are suppposed to have high ethical standards, experience, and specialized training. New appraisers coming into the profession are required to have at minimun a 2 yr college degree and over the next 10-20 years, those that don’t have one will be dropping out. So, appraisers need to ask themselves, do they want to get paid like a form filling clerk, or do they want to get paid for the professional service they are REQUIRED by law to deliver?
Many appraisers have the same education and responsibility as an attorney. Most appraisers have as much training as a electrician or a plumber. (Mine charges $85 an hour!)Appraisers have way more education, experience, and responsibility than mortgage brokers and real estate agents. Since the real estate agents, mortgage brokers, and attorneys all need residential appraisers to close their deals, why are we expected to make the least amount of the other players? We are the most important player, we should be paid accordingly. General Appraisers are unquestionably.
Since the single largest purchase any person will make in their life is probably their home, why wouldn’t they want to pay to get the highest quality report on its value?
Just my two SENSE
7 Leonard Acquaye, Analytics Product Manager // Mar 5, 2010 at 4:25 pm
Steve –
Excellent post. It’s evident by your comments that you’re a savvy business owner that understands the value of the service you provide. And, we are very happy that you’ve examined the pricing structure of a la mode software and determined that our cost, when compared to our competitors, is favorable for you and appraiser like you.
With regards to your aligning Mercury Network with AMCs, I’d like to draw your attention to the subject of fees. As you’re probably aware, AMCs typically dictate to the appraiser the value of the appraisal. Mercury Network does not! In fact, we’ve built in product features that allow the appraiser to accept an order based on their terms, not ours or the lender. The reason for this inclusion is that we believe, and have stated publically in the AFR™ FAQ, that the particular nature of a specific subject property and the associated assignment create conditions which allow ONLY THE APPRAISER to make the determination of reasonableness of the fee.
Additionally, we don’t engage in fee splits like most AMCs. With Mercury, the flat fee of $13.75 per accepted order is only paid by the appraiser if the fee paid for the assignment is @ or above the county median stated in the AFR™. Because I don’t have to speculate on what an AMC charges an appraiser (a common discussion on the Appraiser Forum), I can say with confidence that our flat referral fee is substantially lower than what is typical paid to most AMCs for an appraial assignment.
To your second point, we did compare our medians to the asking fees in every county, and those align as well, with some being higher and some lower, but only by small amounts easily explained by normal market disparity between actual transactions and asking prices on any good or service. In 31% of the 3,221 analyzed counties, our observed medians averaged $47 above the asking median in that county. In just 26% of the counties, our observed transaction fee median came in lower than the asking fee schedule median, and even then, by roughly half of the dollar amount of variance — averaging just $26 below the median asking fee schedule. In the remaining 43% of counties, the ask and the observed were identical.
The data appears to support the assertion that the AFR is accurate both in your case and overall.
We’re very sympathetic to the issues affecting appraisers across the board. But that does not allow us to skew the results of an analysis with conditions which are not reflective of normal market behaviors. We do apply many criteria which support rational analysis of customary independent appraisal fees, such as not considering AMC transactions, but that’s consistent with the stated subset of fee analysis that we are reporting.
In order for the AFR to be authoritative and useful, it must be based on appropriate facts and conditions, and we believe we have done just that. In the end, “the data is what the data is”, even when we don’t like it.
Leonard
8 Rich Greco // Apr 5, 2010 at 7:41 pm
Has the time come for all appraiser to wake up. Perhaps we should adopot our own HVCC. Pay our local area fees or shove the job where the sun don’t shine.
This kind of reminds me of a problem where everyone one in the community was receiving parking summonses for illegal parking. Well hello dummy, if you park illegaly, you will get a summons.
Guess what happened. People started to park legally, and the bandits the issued the summonses were called to other locations becuase the well went dry.
Well guess what? If the “desperate housewives” will stop accepting the minimum wage appraisal assignment, maybe HVCC will go away. New appraisal formula: No Appraisers/No Appraisals = No Business for the lenders. Then maybe, just maybe, someone will smaten up and realize appraisers are deserving of the local area fees.
Has the time come for an appraisal MAFIA.
Member Independent Freelance Individual Appraisers.
Rich Greco
Bronx, New York
9 Commercial Appraiser // Jul 23, 2010 at 5:51 pm
Great conversation and insights, Just say NO!
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