Charging for "trip fee" only ethical?

[Richard Carlsen]

Three recent specific cases come to mind.

#1- Order said that if the house was in "Fair" condition, stop and call. In this case "Fair" might be on the high side and the house was not good security for a loan. I informed the LO what I found on the inspection. Result: Trip fee charged.

#2- Order received. Estimated value by owner $175,000. Loan amount #157,000. Check of the MLS showed property offered and expired 2 times with current listing price at $149,900. Call to the LO with this data resulted in withdrawn order. Result: No charge.

#3- House on 7 acres. No estimate of value given with order. Inspected. Revised order comes in with owners estimate of $135,000. Obviously too high. I run the Cost Approach, which has good validity in the market, and it comes in at $81,000. I printed off the Cost Approach, print off 4 comps that I have, put it all in the file and call LO. I tell her that the house, based on my judgement would likely fall below their minimum underwriting requirements. Result: Order cancelled. Trip fee charged.

Trip fees are a legitimate way of getting paid for our time and effort, even if the time and effort does not result in an appraisal being written.

 

[bradellis]

Folks,

JW has this right. Any time you reach a value conclusion you have done an appraisal. Period.

However, nothing in USPAP says you must charge a client or how much you must charge. That is between you and your client.

Also remember tht if you tell a client that the appraised value will be below the amount hoped for, you are reprting an appraisal and you must follow Standard 2.

Brad

 

[Ron in AR]

Do you mean to tell me that if you go to a house that is obviously worth in the $10k range and you have a request for a $50k loan and the borrower is the above described senior citizen on a fixed income that you are going to complete the report and expect them to pay?

I'm sorry, I can't do that. I see nothing wrong with trip fees. To me, a contingent fee is when I agree to accept a fee only if the value makes and that's not gonna happen. If I haven't appraised the property, I haven't given an estimate of value. Telling the client there's no way the thing is worth $50k, to me, is not an appraisal, I haven't told them what it is worth, I told them what it wasn't worth. Yea, I know it sounds like a gray area but hey, you have to use common sense.

I would only do this in extreme cases where it is obvious that there is no way the property is worth it and especially where I'm dealing with a borrower that cannot afford it.

A contingent fee is when you appraise the property and decline the fee if the value does not make.

A trip fee is payment for time and travel when there is no estimate of value. This isn't a ploy or a business tactic to get the "lion's share" of business, it's an attempt to do what's right for those that cannot afford it.


Having a heart in AR,

Ron

 

[David S. Roberson]

Ron in AR; telling them that the house is worth less than $50,000 IS reporting an appraisal with a range of value conclusion. Oh yes it is. "Not worth $50,000" is your professional opinion. I get paid for mine; you can give yours away if you want to. JW is absolutely correct. And I don't accept orders with "trip fees". I've said it here before, and I'll say it again. I can not afford to take trips. And if I could, it would not be a trip to inspect your property for free.

 

[Steven Bonner]

No doubt, both JW and Brad are correct on this issue that seemingly most appraisers do not understand or want to understand because it is not convenient to comply with the rules.

Certainly it is an appraisal whenever we have developed any opinion related to value. Reporting that opinion in any manner is regulated by Standard 2. Then of course the Record Keeping comes into play.

But before any of these rules would apply one must accept the assignment and since it is unethical to accept an assigment that is contingent on a stipulated result or subsequent event that is related to the appraiser's opinion, one accepting such an assignment would likely not be in compliance with the Competency Rule.

Whether in compliance with the rule of law that is USProfessionalAP or acting as an outlaw appraiser, the fee one charges is a business decision and often sets the tone for ones professionalism, not to be confused with obediance or submission to their clients desire.

 

[Tom Hildebrandt]

Lets take another look at this issue viewing it from USPAP. Remember that the opinion is developed under Std 1 and the opinion is reported under Std 2. These are two distinctly different items under USPAP. In other words, the URAR is not the appraisal, it is jsut one form of communicating the results of an appraisal assignement.

There is nothing wrong with properly developing an opinion that a particular property will not meet a value provided by the client, the fee just can not be contingent on providing that value.

Read AO-19. This opinion provides specific examples of orders which are unacceptable assignment conditions and suggest several alternative ways to treat the problem.

Assuming a lending client on a conventional loan for a residence, the following discussion is provided.

For the client who says "if you can't meet this value, stop work and call us", The specific response proposed is for you to respond acknowledging the request but advising them that you must do an appraisal, ie, do sufficient work under standard 1 to reach an appropriate conclusion to determine whether the requested value is too high. You can tell the client that you may be able to determine whether this is the case without completing all the work necessary to provide a completed URAR but that you do not know how much work it would take. You explain to them that standards do not let your fee be contingent on results but you propose that can bill them less than the full fee if the work it takes to get to the point where you can render a professional decision as to whether the requested value is well above the range of market value.

You and your client can agree to do one of three things. They can not hire you under your terms, they can agree to retain you for a full scope appraisal and URAR report for full fee regardless of the results, or you can agree to do a two tiered assignment.

In the two tiered system, they also agree essentially to pay you for the work you accomplish regardless of the results, they just may not get a full URAR. At the first level, they agree to pay for the minimum level of analysis that you (the appraiser) determine to be necessary to support your opinion that numbers will definitely not work, ie, that the requested value (the benchmark) is way above the market range. This may include a site visit and pulling comps, or whatever scope of work you deem necessary do obtain the answer. When it becomes obvious to you that the numbers do not work, you call and provide them with the oral report (could also be written if that is what they requested but it would probably not be a URAR), disclosing all the analysis you did under STD 1 in getting to that point. You complete the appraisal assignment by making an appropriate summation in your workfile, noting also the date, time of your conversation with the client and place a signed certification in your workfile. You complete the business end of the assignment by sending you client an invoice for whatever you agreed before accepting the assignment. This could be a trip fee, it could be based on an hourly rate, it could be a predetermined $$$, or it could be the full fee or if you are a rather naive business person, you could do it for free. Whatever, that is a business decision.

If your work indicates that the value would be in the range or nearly so, the client would agree to your continuing work to complete the assignment without contacting them. You do the full analysis and report it on the URAR. You get the full fee.

What you must recognize is that under USPAP, if you accept such a two tiered assignment, you have two different assignments. One is for a scope of work that may be much less than required by typical lending guidelines. This is still an appraisal and you are still communicating the results. It may be less than full fee or not, that is irrelevant. The second portion of the assignment is the full appraisal in conformance with guidelines and reporting on a URAR.

If the assignment is accomplished in this manner you have met the clients needs, and met the obligations imposed under USPAP. You have not allowed the conditions of the assignment to drive your value conclusions and your fee is not contingent on results. It is based on the services provided.

Regards

Tom Hildebrandt GAA

 

[Mike Garrett RAA]

Children, children, children! You sound like the blind people feeling up an elephant! Remember that old saw?

You can stop an appraisal assignment at any time...legally. You can also have an engagement letter that describes exactly what you are charging for, ie. initial research, field inspection, complete appraisal. Personally, I prefer not to do it that way BUT IT IS LEGALLY PERMISSABLE UNDER USPAP.

When you receive an assignment with wording to the effect "if you feel the value is not there, stop and call the lender" you should call the lender RIGHT THEN AND THERE! I am willing to bet 75% of all my conventional assignments come in that way. It then becomes education time. Remember the lender doesn't give a big rat's ....tail. It's up to us to keep our act clean and legal.

I received a call yesterday from a California lender who sent us an assignment what said, If value isn't there, stop and call. It was a 2055 driveby with the borrower paying COD. I did the inspection, cashed the check, and did the assignment. Owner's estimate of value was $248,000, it came in at $240,000. They bought it last year for $216,000. When I informed the lender of the value....he demanded I refund the appraisal fee to the borrower. Fat chance. Will I ever get another assignment from them?.....doubt it, do I care?.....doubt it!

My take on charging for a trip is that 50% of the appraisal is done by the time I look at the property. The fee, if cancelled at that point, is 50% of fee quoted. I am seriously considering NOT doing refinance work any more since those are the ones that always have problems. Unless I have a good working relationship with the lender....it's always COD!

 

[Larry Lyke]

As much as I like to follow and cite USPOOP, sometimes its "business unfriendly" attitude contorts the idea of getting a future order from your Client.

When is an appraisal an appraisal and when is an appraisal not an appraisal is a tightly convoluted bunch of blurbs herded together.

You've got to have enough lattitude to deal with your Order Placer on a level of enough sophistication to be able to straight talk to them about the likelihood of an order being a "no-go."

I reserve the right to stop at any point of an appraisal, assigning my fee by discussion with the Client and stuffing the remainder of collected research into the file and going onto the next file....

The rural territories with 100 miles one-way and the same between Comps have no good guidance or leniency the way USPOOP is written.

I'm a farm boy working in the city. We understand a business transaction is arranged for the interest of all parties involved to keep costs in control. No Ivory Tower pontifications out of this solo practice.

I'm out to make money for a wholesome transaction, not to PO Clients or screwed the other Parties. There plenty of business. I make it on even volume, not gouging every trasnaction.

 

[Tom Hildebrandt]

Larry

The answer as to when a request for an "appraisal" becomes an "assignment" is at the time you and the client agree on the "assignment." The appraisal becomes complete when you form your opinion, the appraisal assignment is complete when you report your "assignment result" to the client.

In USPAP, each phrase in italics has a specific and defined meaning. They are not interchangeable but we often substitute less precise terms in our daily discussions. Example, using the word report instead of assignment result.

After accepting an assignment, when you provide your "assignment results" to a client reporting that you can not meet a given value value, you have expressed a value opinion that the value is less than the referenced benchmark. This is an "appraisal" even if it is not the full scope appraisal and report that the client origianlly intended.

Therefore, the appraiser and the client need to have an understanding, before accepting the assignment, as to how to the assignment will be resolved if they want something less than the full analysis and written report if the value is not there. If you do not have the understanding, there will be difficulties. How well you manage those difficulties is what good business decision are all about.

As I noted in my earlier post, USPAP does not preclude you for working for free, but if you communicate value results, it is an appraisal work product and must be treated appropriately under USPAP, regardless of the fee amount. that burden is on you, not the client. If you wish to work for free, fine, you still must comply with USPAP if you provide only partial assignment results.

In other words, how you choose to treat your clients is separate from USPAP, except that if you agree to provide certain services, you are obliged to your client provide those services competently.

Regards

Tom Hildebrandt GAA

 

[Rick Neighbors]

I agree with JW!! I only charge a trip fee if the lender, for whatever reason, stops the appraisal. ( Hope this works, I haven't submitted anything since the "new forum format".)