When Customary Fees Become Unreasonable

[DiverMike]

I have a strong negative opinion about manipulating the basic market forces of supply and demand. While currently AMCs have the upper hand the quality of their reports is being scrutinized. I would much rather be paid based on my abilities rather than a "minimum" wage. The AMC ways of doing business will have to change significantly in the next few years because of market demand of their services.

Set fees do nothing but pay people for minimal standards and there is no reward for others to excel and write more thorough and supported reports.

The market should decide the fees.

Im inclined to agree where the market has not been skewed by artificial influences already. Additionally, when economists speak about "market forces" they are typically talking about Exchange markets such as Wall Street, Heng Sang, Exchequer, Bourse, etc.. In such markets there is a presumption of QUICK corrections-months at the outside, to as little as hours or even minutes in some instances. There is an inferred efficiency that simply does not exist at any comparable level in retail real estate markets.

BEST CASE scenario:
1. Honest regulators assuring necessary protections for the People of the United States, so we are not again required to provide taxpayer funded business bailouts; and so individuals retirement assets are better protected.
2.Secondary Mortgage market participants as well as FNMA / Fredddiemac and origination lenders ALWAYS want faster, cheaper products. Where there are insured products they only want adequate or plausible deniability. If it were ONLY private money involved, I'd say let them take their chances on whatever system they choose to operate barring outright fraud. Since the bulk of that market is PUBLIC money or public guaranteed money; or public invested money ultimately backed by the Feds (taxpayers) reasonable oversight controls are required.
3. AMCs and other firewalls were (on the surface) beneficial protections. Due to competing interests and ruinous competition the "rules" governing all market participants have undergone continual "tweaking" by special interest groups of all types. This creates and created artificial market inbalances.
4. It is the banks that effectively dictate what THEY will pay AMCs for services. Until C&R there was NO BOTTOM to that amount. Even with C&R the threshold is less than is 'reasonable' for the amount of work currently required; AND to do the work properly. While we have been 'verbally' pushing back on unreasonable fees, the progress toward getting them is challenged every step of the way. Get an impartial study to say they should be "X", and AMC organizations come back with another study saying, "No it should only be "Y" ." In the meantime they are actively lobbying state government s to water down or ignore enforcement of Dodd Frank C&R completely.
5. Eventually 'the market' WILL correct itself. For those willing to wait five to ten MORE years , no action is necessary. Maybe the 'corrections' will be acceptable. Maybe they will end SFR appraisals for GSE loans completely; in favor of "acceptable, but inferior methods such as AVMs"

Im only appealing to those that are NOT willing to be driftwood at the whim and control of others, with no input. I want to compete with people that do HONEST USPAP compliant work. Not those that charge 50% to 75% of what they SHOULD charge, and routinely violate USPAP. Raise C&R to $500 or $650 or whatever, and I will still try to charge 10% more because I think MY work is worth it 'in the market.'

Independent plumbers charge an amount commensurate with the work. Its EASY for competition to undercut them if they don't bother with licenses or permits. Same with attorneys. Ignore Bar Rules and fiduciary obligations and its EASY to offer lower fees and still make money.

 

[DiverMike]

I have a strong negative opinion about manipulating the basic market forces of supply and demand. While currently AMCs have the upper hand the quality of their reports is being scrutinized. I would much rather be paid based on my abilities rather than a "minimum" wage. The AMC ways of doing business will have to change significantly in the next few years because of market demand of their services.

Set fees do nothing but pay people for minimal standards and there is no reward for others to excel and write more thorough and supported reports.

The market should decide the fees.

Im inclined to agree where the market has not been skewed by artificial influences already. Additionally, when economists speak about "market forces" they are typically talking about Exchange markets such as Wall Street, Heng Sang, Exchequer, Bourse, etc.. In such markets there is a presumption of QUICK corrections-months at the outside, to as little as hours or even minutes in some instances. There is an inferred efficiency that simply does not exist at any comparable level in retail real estate markets.

BEST CASE scenario:
1. Honest regulators assuring necessary protections for the People of the United States, so we are not again required to provide taxpayer funded business bailouts; and so individuals retirement assets are better protected.
2.Secondary Mortgage market participants as well as FNMA / Fredddiemac and origination lenders ALWAYS want faster, cheaper products. Where there are insured products they only want adequate or plausible deniability. If it were ONLY private money involved, I'd say let them take their chances on whatever system they choose to operate barring outright fraud. Since the bulk of that market is PUBLIC money or public guaranteed money; or public invested money ultimately backed by the Feds (taxpayers) reasonable oversight controls are required.
3. AMCs and other firewalls were (on the surface) beneficial protections. Due to competing interests and ruinous competition the "rules" governing all market participants have undergone continual "tweaking" by special interest groups of all types. This creates and created artificial market inbalances.
4. It is the banks that effectively dictate what THEY will pay AMCs for services. Until C&R there was NO BOTTOM to that amount. Even with C&R the threshold is less than is 'reasonable' for the amount of work currently required; AND to do the work properly. While we have been 'verbally' pushing back on unreasonable fees, the progress toward getting them is challenged every step of the way. Get an impartial study to say they should be "X", and AMC organizations come back with another study saying, "No it should only be "Y" ." In the meantime they are actively lobbying state government s to water down or ignore enforcement of Dodd Frank C&R completely.
5. Eventually 'the market' WILL correct itself. For those willing to wait five to ten MORE years , no action is necessary. Maybe the 'corrections' will be acceptable. Maybe they will end SFR appraisals for GSE loans completely; in favor of "acceptable, but inferior methods such as AVMs"

Im only appealing to those that are NOT willing to be driftwood at the whim and control of others, with no input. I want to compete with people that do HONEST USPAP compliant work. Not those that charge 50% to 75% of what they SHOULD charge, and routinely violate USPAP. Raise C&R to $500 or $650 or whatever, and I will still try to charge 10% more because I think MY work is worth it 'in the market.'

There certainly is an element of that, but I'd add this to the equation:
When HVCC became the norm, I effectively lost all of my existing mortgage clients and had to develop new relationships. I completed one AMC assignment during that period and decided not to work for that AMC ever again. My clients included WAMU, which at that time was sending my firm up to 100 appraisals a month. With HVCC and the market downturn, I went from a 15+/- person appraisal firm to a one-man show. It wasn't easy, and it was especially difficult finding non-AMC clients (to be clear, once HVCC came into existence, there was a bit of a lag-time between bank-clients using AMCs; so I had some time to adjust, but my mortgage-broker clients nearly disappeared over night).

There certainly is an element of that, but I'd add this to the equation:
When HVCC became the norm, I effectively lost all of my existing mortgage clients and had to develop new relationships. I completed one AMC assignment during that period and decided not to work for that AMC ever again. My clients included WAMU, which at that time was sending my firm up to 100 appraisals a month. With HVCC and the market downturn, I went from a 15+/- person appraisal firm to a one-man show. It wasn't easy, and it was especially difficult finding non-AMC clients (to be clear, once HVCC came into existence, there was a bit of a lag-time between bank-clients using AMCs; so I had some time to adjust, but my mortgage-broker clients nearly disappeared over night).

My point isn't to trumpet my own ability at building a non-AMC client base. My point is to put forth the notion that those of us (or many of us) who do not have an AMC client base understand the difficulties of developing a non-AMC client base, and can appreciate the dynamic that exists with the AMCs. We are not sermonizing from the top of the mount. Many of us have been there. Many of us (myself included) may be one-day away from being back there.
[REDACTED FOR size only]

So, my empathy (which is very real) of the plight of many appraisers and some specific forumites who I've come to know through this forum is sincere. The situation sucks.
My disagreement is with the proposed solution.

Denis-OUTSTANDING post. Its what we ALL did that now avoid AMC work when we can. Same former clients too. Its not enough for those of us in the primarily non AMC markets to say "do what we did." Why? Because of inevitable ripple effects and spill over into our market too. Happens more and more.

Clients compare quotes they've heard for AMC work and expect to pay only that for non AMC work.

Example: Estate & Gift Tax work: OR establishing a new basis (remember I used to be the guy at IRS that reviewed these kind of appraisals). IRS does not have a "Date of Death" appraisal in its regulations. Yet we see all kinds of people talking about "DoD" work as if they are experts at it. IRS does not even use 'market value' as a definition. They use FAIR market value (FMV). NOT the same thing at all. They do not have one single definition of FMV so it becomes CRITICAL for the appraiser to know what specific tax compliance issue they are doing an appraisal for, if for no other reason that to assure they use the RIGHT definition of FMV. I used to be able to command $1,000 to $1,500 for E&G work under $2 million. Now "Transitional" appraisers are quoting $500 for the same work and don't even know the above re FMV! I could quietly wait and enjoy their discomfort three years from now (the length of time a typical ROV & NOPA takes); or I can try to help them. I do the latter even though they are m they are indirectly, my competitors. For MY model, I simply seek higher end estates where fewer are willing to gamble based on fee. Eventually though, the transitional appraisers will be too numerous in the other fields too.

You ARE right about there 'theoretically being too many of us (for current conditions), but that's not the whole problem. In any event, I respect your views AND your disagreement.

By the way- if any of you are "transition" appraiser's doing conservation easements beware. All are audited. If your client has the term "...Land Trust" in its name you can guarantee a 100% chance of audit ANYWHERE back east; and to some extent in Colorado. You are specifically being targeted for audit. Learn about Preparer Penalties.

 

[Eli]

I don't know how many times I have to say it but the appraisal profession when it comes to long term residential mortgage purpose appraisals is so far from a free market that it is not even funny. There are so many market forces at play that keep it from being a free market. There are legal/political forces galore and there are are way fewer buyers than sellers. Heck, their is no demand from many of the buyers because many of the buyers would rather appraisers disappear. Not all, but many.

Ya'll just make me giggle thinking about free market stuff. That's all I can say besides I really feel sorry for some of you. Many of you have been brainwashed.

 

[Eli]

Let's do kindergarten steps. Number 1, a free market is characterized by an UNLIMITED number of buyers and sellers. There are thousands and thousands of sellers for long term residential mortgage purpose appraisals. How many buyers are there now? That factor alone keeps it from being a free market. With that factor alone, it will never operate efficiently as a free market. Never, forget about it.

 

[SpartanAG]

I don't know how many times I have to say it but the appraisal profession when it comes to long term residential mortgage purpose appraisals is so far from a free market that it is not even funny. There are so many market forces at play that keep it from being a free market. There are legal/political forces galore and there are are way fewer buyers than sellers. Heck, their is no demand from many of the buyers because many of the buyers would rather appraisers disappear. Not all, but many.

Ya'll just make me giggle thinking about free market stuff. That's all I can say besides I really feel sorry for some of you. Many of you have been brainwashed.

Merriam-Webster defines "Free Market" as: An economic market or system in which prices are based on competition among private businesses and not controlled by government.

As of right now, appraisers are free to set their own fee or accept/decline/counter a clients offered fee. If the government was to set the price floor for apprasial services, then it would no longer be a free market.

I do agree that the government has created artifical demand for appraisal services by mandating when regulated entities are required to obtain an appraisal. That is why I advocate for getting government out of the way vs. adding more regulations.

 

[DiverMike]

I don't know how many times I have to say it but the appraisal profession when it comes to long term residential mortgage purpose appraisals is so far from a free market that it is not even funny. There are so many market forces at play that keep it from being a free market. There are legal/political forces galore and there are are way fewer buyers than sellers. Heck, their is no demand from many of the buyers because many of the buyers would rather appraisers disappear. Not all, but many.

Ya'll just make me giggle thinking about free market stuff. That's all I can say besides I really feel sorry for some of you. Many of you have been brainwashed.

Cant argue with you on that point! You are right.
Appraisers that started back in the 1970's or even 1980's like to think we were free market participants, though even back then we were not, in the true sense of the word. We were closer to it than we are now. We COULD directly affect our careers and business by combinations of marketing; customer service and most importantly a demonstrated reputation for integrity. Frankly now, its nothing more than a straw argument against organizing to promote, or oppose specific appraisal related issues.

 

[Meandering]

The only time real estate is a free market is when there are all cash buyers. But even then, they have to pass the homeland security investigation to close the sale to make sure they are not buying with drug money.

.

 

[Eli]

Cant argue with you on that point! You are right.
Appraisers that started back in the 1970's or even 1980's like to think we were free market participants, though even back then we were not, in the true sense of the word. We were closer to it than we are now. We COULD directly affect our careers and business by combinations of marketing; customer service and most importantly a demonstrated reputation for integrity. Frankly now, its nothing more than a straw argument against organizing to promote, or oppose specific appraisal related issues.

Yes.

 

[DiverMike]

Merriam-Webster defines "Free Market" as: An economic market or system in which prices are based on competition among private businesses and not controlled by government.

As of right now, appraisers are free to set their own fee or accept/decline/counter a clients offered fee. If the government was to set the price floor for apprasial services, then it would no longer be a free market.

I do agree that the government has created artifical demand for appraisal services by mandating when regulated entities are required to obtain an appraisal. That is why I advocate for getting government out of the way vs. adding more regulations.

Its a sophist argument. Dodd Frank ALREADY set a requirement for "C&R". HVCC already created a requirement that our services related to GSEs MUST be sold through third parties or others uninvolved in the use or benefit of our services. Adding more regulation OR alternatively rewriting existing regulations to clarify what DF SHOULD have made clear from the beginning does not add or detract from a hypothetical defined "free market" system. Getting Government out of the way? AT what level? Pre FIRREA? Go back to no license requirements at all?

 

[Eli]

Merriam-Webster defines "Free Market" as: An economic market or system in which prices are based on competition among private businesses and not controlled by government.

As of right now, appraisers are free to set their own fee or accept/decline/counter a clients offered fee. If the government was to set the price floor for apprasial services, then it would no longer be a free market.

I do agree that the government has created artifical demand for appraisal services by mandating when regulated entities are required to obtain an appraisal. That is why I advocate for getting government out of the way vs. adding more regulations.

That makes no sense because the government is insuring deposits and long term mortgages. They can't freaking get out of it. I feel sorry for you.