Mike Kennedy
Elite Member
- Joined
- Sep 28, 2003
- Professional Status
- Certified Residential Appraiser
- State
- New York
posted with the Author's permission:
THANK YOU to Mr. Jim Girardot (Member of Appraisersforum.com) for his personal efforts, at his own expense, on behalf of Ethical, Competent Appraisers across the U.S.
C&R Fees: Winds of Change?
by David Brauner, Editor
The winds of change may be shifting with respect to customary and reasonable fees for appraisers. Here’s why.
Consider the following, all occurring in the last few weeks or so: The Federal Reserve Board, under consistent pressure from appraisers, states publically (again) that appraisal management companies (AMCs) may be “misinterpreting” customary and reasonable; real estate writer Ken Harney, in a nationally-syndicated column, blasts the Fed Board for allowing AMCs to ignore the intent of the customary and reasonable fee requirement in Dodd-Frank; appraisers initiate a customary and reasonable fee (CRF) petition (click to sign) with over 8,700 signatures already; appraisers take their case to various members of Congress, including Representative Barney Frank (D-MA). Even the Appraisal Subcommittee weighs in, posting on their website information on how appraisers can file complaints against low fees (click to view).
The winds of change are shifting. Hang on to your hats.
Fed Up
In various stories published in WRE this year, Fed staff insist that, despite what appears to be a giant loophole in the Interim Final Rule (IFR), the low fees that some AMCs are paying appraisers may not meet the compliance threshold laid out in the document. Many AMCs assert that the fees they are paying are customary and reasonable, according to the IFR, by virtue of their acceptance by appraisers (WRE: Fed Board Update: Customary and Reasonable Fees). This falls under the standard which says “recent” or “customary” fees meet the criterion. At a recent meeting of the Association of Appraiser Regulatory Officials (AARO), Fed staff reiterated that “recent” fees may not be sufficient to meet compliance, according to a story in the Appraisal Institute publication Appraiser News Online. The story quotes Fed staff as saying AMCs might be “misinterpreting” customary and reasonable. The story also confirms WRE reporting that, for now at least, the best (and only) recourse for appraisers is to dispute or challenge low fees to the proper regulating authority (read, WRE: More "How to" Challenging Low Fees for more). According to the Appraiser News story, “It is up to an appraiser to proactively rebut Presumption 1,” (read the Interim Final Rule for more on Presumption 1).
Ken Harney, in a story published in the Washington Post (Why its Good to be Apprised of Where Appraisal Fees Go), makes several points that appraisers are familiar with. The first is the lack of transparency of fees- consumers not knowing what they are paying for. Another, writes Harney, is that, “Most experienced independent appraisers refuse to work for $200 to $250 because they can’t pay their overhead at those rates; less-experienced appraisers who sometimes have to travel long distances from their home markets tend to be more willing to work for the lower amounts.” Harney asks the question on most every appraiser’s mind these days: “How is this (low fees) happening when Congress mandated higher ‘customary and reasonable’ fees? Appraisers say much of the blame goes to the Federal Reserve, whose regulations that took effect April 1 created a giant loophole for lenders and management companies that wanted to keep playing low-ball games with fees. The Fed rule allows them to consider their own low payments in their calculation of what is ‘customary and reasonable’ — a concept that was never part of the Dodd-Frank legislation.”
Friends in High Places
Appraisers also report taking their cases to various lawmakers including Representative Barney Frank, according to a press release from the American Guild of Appraisers.
Washington state appraiser James Girardot recently met with Senator Carl Levin (D-MI) and Representative John Conyers, Jr. (D - MI) to discuss these issues. According to Girardot, who lived in Michigan formerly, the legislators were surprised by what they heard. “If the Senators and Congresspersons I spoke to in Washington two weeks ago are a fair sampling, most simply have not been properly apprised about what’s going on regarding how the system impacts innocent consumers and homeowners,” Girardot said. “The ones I spoke to said they are open to suggestions for fixing the problem.”
Girardot asks another question, to which he says lawmakers have no answer: “The Federal Reserve Board (tasked with implementing Dodd-Frank) totally and exclusively serve the interests of banks,” said Girardot, “who is representing the consumer?”
Fighting Back
A persistent question on the Working RE/OREP.org Customary and Reasonable Fee Blog, an information exchange for appraisers disputing low fees, is this one by David McGonagle. “I have been receiving requests now that state, ‘by accepting this assignment you are acknowledging that the indicated appraiser fee is a ‘customary and reasonable’ fee in the market area of the subject property.’ I don't agree with this statement but I cannot turn down the work,” said McGonagle. “Is it acceptable to accept the assignment with the condition that the fee is not considered customary and reasonable but will be completed anyway?”
As reported previously (WRE: Fed Board Update: Customary and Reasonable Fees), there is specific language in Dodd-Frank that addresses this issue, making such statements moot. Fed officials also address the issue at AARO, according to the Appraiser News Online story, which says: “The Interim Final Rule states that just because an AMC requires an appraiser to sign a document indicating that the fee that they are paid for an assignment is customary and reasonable does not necessarily satisfy the AMC’s responsibility to ensure that an appraiser is actually paid a customary and reasonable fee.”
As the winds of opinion shift, it seems increasingly likely that change is coming: whether it is the result of stronger government oversight and sanction, voluntary compliance on the part of more AMCs or a combination of the two. It is also worth noting that, according to some appraisers, many AMCs are paying fair fees or at least fees that they can live with (read WRE: Notes from a Busy Appraiser).
Final Thoughts
Driving to work early this morning I passed a scene familiar to most of us: a small group of laborers pouring cement for a neighbor’s new driveway. As I noted the contractor driving up in his new F-150 truck, I wondered if the powers that be in Washington D.C. or the American citizens they are elected to serve, understand what is happening in this profession and what it means to them.
It would be like, overnight, by edict of the Attorney General of a single state, say New York for example, this contractor in San Diego and every other contractor nationwide would be prohibited from working directly with any homeowner for any remodeling, repair, building or construction job. Contractors would no longer be able to interact directly with any home or business owner. This means no more work from referrals, no more direct advertising for clients, no more “regular” clients or repeat business based on past performance and the quality of the job done.
From now on, contractors would be required to “bid” for jobs through a handful of large, national construction management companies (CMCs). Homeowners would have to engage these CMCs directly. Costs to homeowners would increase, of course, in some cases by 30 percent or more. Contractors would be offered about half of their “customary” fees for jobs, with the rest remaining in the pockets of the CMCs. Homeowners would not be able to shop contractors to compare fees and would be unaware, because of a lack of transparency in the invoicing, that a substantial portion of the “contractor” fee listed in their billing statement would not be going into materials or skilled labor but to the order-shuffling CMC. Eventually, large corporations, that control lumber and other building materials, might begin purchasing these CMCs or starting their own subsidiaries, realizing that they could roll into the bids increases for lumber, nails, flooring and so forth. They could add it to the "contractor fees": the less the contract will take for his/her services, the more room there is to markup everything else.
Contractors would be hired for the remodel and construction work by CMCs, based not on past performance or particular expertise but on the lowest bid and quickest completion time estimate. The CMCs would handle billing and the details of the job, though some would be slow to pay. Some might turn out to be fly-by-night and not pay at all. The staff they hire to administer and oversee the jobs would be inexperienced in the building trades, in some cases, causing confusion. Some CMCs would shift the administration duties to off shore personnel.
Despite making about half as much, contractors would remain responsible for making sure all building, safety and municipal regulations are met and that other construction details are taken care of, as it is still their licenses that are on the line. Some of these large, corporate CMCs, with insurance of their own, would require the small contractors to indemnify them contractually as a condition of doing business, should any problem arise with any contracting job, no matter who is at fault. In the event of a problem, these contracts would likely bankrupt the contractor should they ever be enforced. Still, many contractors, desperate for work, would sign anyway.
If a contractor refused a low bid on a job or complained about it, he or she could expect being dropped by the CMC from the order roster because there are many other contractors eager for the work. Because of consolidation, there would be fewer and fewer CMCs handling more and more of all the remodel and construction jobs for homeowners, so if a contractor is dropped from one CMC, he or she could expect a considerable loss of work. Opportunity might open up for the newer, more inexperienced contractors with lower expenses; being eager for work they might step in to take the lower fee jobs that the more seasoned contractors know they can't complete to their standards.
As I continue my drive to work I think, wait, most politicians are attorneys, so if they can’t visualize the “contractor” analogy, they might understand a world where attorneys suddenly (by edict of the attorney general in one state) have to bid through large, attorney management firms (AMFs) for their work. They would compete for cases based on the lowest bid, regardless of their particular expertise or experience. They would make about half of what they are accustomed to making with the balance going to the AMFs. As citizens they, and we, would pay more for our legal services and have to settle for the lowest bid Counsel we are assigned to defend our legal interests in everything from a divorce to a criminal proceeding. Sounds absurd, doesn't it?
Girardot says, “I have gone from a staff of 30 providing quality value opinions to major banks, down to my daughter and myself. I have resurrected my once disgruntled and defeated attitude simply because I have seen too much damage wreaked on good people by banks that gambled with other peoples' money and personally took home large bonuses. I have resolved that I will continue to do what I can for that reason and because I also realize, having been politically involved myself before, that as long as one is alive, one's rent is never paid in full. My message today, even if I stand alone, is that I believe that if we can get government to see what their complicity with the banks is doing to consumers, change will happen and issues facing appraisers will be taken care of in the fix.”
THANK YOU to Mr. Jim Girardot (Member of Appraisersforum.com) for his personal efforts, at his own expense, on behalf of Ethical, Competent Appraisers across the U.S.
C&R Fees: Winds of Change?
by David Brauner, Editor
The winds of change may be shifting with respect to customary and reasonable fees for appraisers. Here’s why.
Consider the following, all occurring in the last few weeks or so: The Federal Reserve Board, under consistent pressure from appraisers, states publically (again) that appraisal management companies (AMCs) may be “misinterpreting” customary and reasonable; real estate writer Ken Harney, in a nationally-syndicated column, blasts the Fed Board for allowing AMCs to ignore the intent of the customary and reasonable fee requirement in Dodd-Frank; appraisers initiate a customary and reasonable fee (CRF) petition (click to sign) with over 8,700 signatures already; appraisers take their case to various members of Congress, including Representative Barney Frank (D-MA). Even the Appraisal Subcommittee weighs in, posting on their website information on how appraisers can file complaints against low fees (click to view).
The winds of change are shifting. Hang on to your hats.
Fed Up
In various stories published in WRE this year, Fed staff insist that, despite what appears to be a giant loophole in the Interim Final Rule (IFR), the low fees that some AMCs are paying appraisers may not meet the compliance threshold laid out in the document. Many AMCs assert that the fees they are paying are customary and reasonable, according to the IFR, by virtue of their acceptance by appraisers (WRE: Fed Board Update: Customary and Reasonable Fees). This falls under the standard which says “recent” or “customary” fees meet the criterion. At a recent meeting of the Association of Appraiser Regulatory Officials (AARO), Fed staff reiterated that “recent” fees may not be sufficient to meet compliance, according to a story in the Appraisal Institute publication Appraiser News Online. The story quotes Fed staff as saying AMCs might be “misinterpreting” customary and reasonable. The story also confirms WRE reporting that, for now at least, the best (and only) recourse for appraisers is to dispute or challenge low fees to the proper regulating authority (read, WRE: More "How to" Challenging Low Fees for more). According to the Appraiser News story, “It is up to an appraiser to proactively rebut Presumption 1,” (read the Interim Final Rule for more on Presumption 1).
Ken Harney, in a story published in the Washington Post (Why its Good to be Apprised of Where Appraisal Fees Go), makes several points that appraisers are familiar with. The first is the lack of transparency of fees- consumers not knowing what they are paying for. Another, writes Harney, is that, “Most experienced independent appraisers refuse to work for $200 to $250 because they can’t pay their overhead at those rates; less-experienced appraisers who sometimes have to travel long distances from their home markets tend to be more willing to work for the lower amounts.” Harney asks the question on most every appraiser’s mind these days: “How is this (low fees) happening when Congress mandated higher ‘customary and reasonable’ fees? Appraisers say much of the blame goes to the Federal Reserve, whose regulations that took effect April 1 created a giant loophole for lenders and management companies that wanted to keep playing low-ball games with fees. The Fed rule allows them to consider their own low payments in their calculation of what is ‘customary and reasonable’ — a concept that was never part of the Dodd-Frank legislation.”
Friends in High Places
Appraisers also report taking their cases to various lawmakers including Representative Barney Frank, according to a press release from the American Guild of Appraisers.
Washington state appraiser James Girardot recently met with Senator Carl Levin (D-MI) and Representative John Conyers, Jr. (D - MI) to discuss these issues. According to Girardot, who lived in Michigan formerly, the legislators were surprised by what they heard. “If the Senators and Congresspersons I spoke to in Washington two weeks ago are a fair sampling, most simply have not been properly apprised about what’s going on regarding how the system impacts innocent consumers and homeowners,” Girardot said. “The ones I spoke to said they are open to suggestions for fixing the problem.”
Girardot asks another question, to which he says lawmakers have no answer: “The Federal Reserve Board (tasked with implementing Dodd-Frank) totally and exclusively serve the interests of banks,” said Girardot, “who is representing the consumer?”
Fighting Back
A persistent question on the Working RE/OREP.org Customary and Reasonable Fee Blog, an information exchange for appraisers disputing low fees, is this one by David McGonagle. “I have been receiving requests now that state, ‘by accepting this assignment you are acknowledging that the indicated appraiser fee is a ‘customary and reasonable’ fee in the market area of the subject property.’ I don't agree with this statement but I cannot turn down the work,” said McGonagle. “Is it acceptable to accept the assignment with the condition that the fee is not considered customary and reasonable but will be completed anyway?”
As reported previously (WRE: Fed Board Update: Customary and Reasonable Fees), there is specific language in Dodd-Frank that addresses this issue, making such statements moot. Fed officials also address the issue at AARO, according to the Appraiser News Online story, which says: “The Interim Final Rule states that just because an AMC requires an appraiser to sign a document indicating that the fee that they are paid for an assignment is customary and reasonable does not necessarily satisfy the AMC’s responsibility to ensure that an appraiser is actually paid a customary and reasonable fee.”
As the winds of opinion shift, it seems increasingly likely that change is coming: whether it is the result of stronger government oversight and sanction, voluntary compliance on the part of more AMCs or a combination of the two. It is also worth noting that, according to some appraisers, many AMCs are paying fair fees or at least fees that they can live with (read WRE: Notes from a Busy Appraiser).
Final Thoughts
Driving to work early this morning I passed a scene familiar to most of us: a small group of laborers pouring cement for a neighbor’s new driveway. As I noted the contractor driving up in his new F-150 truck, I wondered if the powers that be in Washington D.C. or the American citizens they are elected to serve, understand what is happening in this profession and what it means to them.
It would be like, overnight, by edict of the Attorney General of a single state, say New York for example, this contractor in San Diego and every other contractor nationwide would be prohibited from working directly with any homeowner for any remodeling, repair, building or construction job. Contractors would no longer be able to interact directly with any home or business owner. This means no more work from referrals, no more direct advertising for clients, no more “regular” clients or repeat business based on past performance and the quality of the job done.
From now on, contractors would be required to “bid” for jobs through a handful of large, national construction management companies (CMCs). Homeowners would have to engage these CMCs directly. Costs to homeowners would increase, of course, in some cases by 30 percent or more. Contractors would be offered about half of their “customary” fees for jobs, with the rest remaining in the pockets of the CMCs. Homeowners would not be able to shop contractors to compare fees and would be unaware, because of a lack of transparency in the invoicing, that a substantial portion of the “contractor” fee listed in their billing statement would not be going into materials or skilled labor but to the order-shuffling CMC. Eventually, large corporations, that control lumber and other building materials, might begin purchasing these CMCs or starting their own subsidiaries, realizing that they could roll into the bids increases for lumber, nails, flooring and so forth. They could add it to the "contractor fees": the less the contract will take for his/her services, the more room there is to markup everything else.
Contractors would be hired for the remodel and construction work by CMCs, based not on past performance or particular expertise but on the lowest bid and quickest completion time estimate. The CMCs would handle billing and the details of the job, though some would be slow to pay. Some might turn out to be fly-by-night and not pay at all. The staff they hire to administer and oversee the jobs would be inexperienced in the building trades, in some cases, causing confusion. Some CMCs would shift the administration duties to off shore personnel.
Despite making about half as much, contractors would remain responsible for making sure all building, safety and municipal regulations are met and that other construction details are taken care of, as it is still their licenses that are on the line. Some of these large, corporate CMCs, with insurance of their own, would require the small contractors to indemnify them contractually as a condition of doing business, should any problem arise with any contracting job, no matter who is at fault. In the event of a problem, these contracts would likely bankrupt the contractor should they ever be enforced. Still, many contractors, desperate for work, would sign anyway.
If a contractor refused a low bid on a job or complained about it, he or she could expect being dropped by the CMC from the order roster because there are many other contractors eager for the work. Because of consolidation, there would be fewer and fewer CMCs handling more and more of all the remodel and construction jobs for homeowners, so if a contractor is dropped from one CMC, he or she could expect a considerable loss of work. Opportunity might open up for the newer, more inexperienced contractors with lower expenses; being eager for work they might step in to take the lower fee jobs that the more seasoned contractors know they can't complete to their standards.
As I continue my drive to work I think, wait, most politicians are attorneys, so if they can’t visualize the “contractor” analogy, they might understand a world where attorneys suddenly (by edict of the attorney general in one state) have to bid through large, attorney management firms (AMFs) for their work. They would compete for cases based on the lowest bid, regardless of their particular expertise or experience. They would make about half of what they are accustomed to making with the balance going to the AMFs. As citizens they, and we, would pay more for our legal services and have to settle for the lowest bid Counsel we are assigned to defend our legal interests in everything from a divorce to a criminal proceeding. Sounds absurd, doesn't it?
Girardot says, “I have gone from a staff of 30 providing quality value opinions to major banks, down to my daughter and myself. I have resurrected my once disgruntled and defeated attitude simply because I have seen too much damage wreaked on good people by banks that gambled with other peoples' money and personally took home large bonuses. I have resolved that I will continue to do what I can for that reason and because I also realize, having been politically involved myself before, that as long as one is alive, one's rent is never paid in full. My message today, even if I stand alone, is that I believe that if we can get government to see what their complicity with the banks is doing to consumers, change will happen and issues facing appraisers will be taken care of in the fix.”
