Customary and reasonable fees - 90 days

[Mike Boyd]

The "reasonable and customary fees" should come from post HVCC. Anything after the HVCC is considered to be bad data for very obvious reasons.

Post HVCC is the same as AFTER HVCC. Please clarify.

 

[chad hampton]

Figuring out what's reasonable isn't rocket science. For what seems like decades, in my market, appraisers were paid $300 for a "typical" appraisal. Any "study" that says anything lower than that is bunk.

Data taken from the last 2 years should be thrown in the garbage.

 

[nstanbru]

A La Mode=Mercury Network=AMC

Their study cannot be used to determine reasonable and customary.

The Mercury network merely provides a listing of appraisers and provides a means whereby clients/lenders can order appraisals. Even an AMC can order an appraisal from anyone on the list. The reports are not delivered to A La Mode, not reviewed by A La Mode, and are not accepted or rejected by A La Mode. All appraiser fees and TATs for the assignments are set by the appraisers, not by A La Mode. IOW, there is no "management" of the appraisers by A La Mode. Therefore, A La Mode/Mercury is not an AMC and its survey should be an acceptable source.

 

[AnonApprsr]

Data taken from the last 2 years should be thrown in the garbage.

Other than RELS, all my fees went up after the HVCC. I was getting between 300 and 350 per "typical URAR 1004" appraisals. My fees went up to 400-450, at the order of my clients as they transitioned into panels. I did not argue!

 

[hastalavista]

In any other situation, I think most of us would agree that "reasonable and customary" is what the market will bear.

For a transaction to occur, there has to be an offer and acceptance. Most sellers (of anything) do not get what they want and most buyers do not pay what they'd like to. I'm not sure why appraisers should be guaranteed a "minimum" rate if there are qualified appraisers willing to work for less than that minimum?

If I were an AMC, and wanted to be sure that I complied with the regulations, I'd do something similar to this on my service request:

“We do not dictate fees however we ask that you charge what is typical and customary for the scope of work within your area.”

I would also send the request out to a number of appraisers in the area and see what the bid-range is. If the range is $250 to $350, I'd take the low bid (the presumption has to be that the licensed or certified appraiser will complete the assignment to the minimum standards; which is USPAP and the specific client-assignment requirements). After I did this process for a period of time, I could argue two things:
A. In market X, the reasonable and customary fee for this type of assignment ranges from $Y to $Z.
B. We pay what is reasonable and customary because we always pay within the range. We do not dictate to appraisers what the fee is; we bid the job and they respond with their pricing. This, by definition, is reasonable and customary.

Here's how one source defines the term (and I'd accept it as an appropriate definition):

Definitions of reasonable and customary charge on the Web:

• a charge in an amount consistently made by other vendors/providers for a given service in the same geographic area and which reflects the complexity of the service, taking into account availability of experienced personnel, and availability of services or parts
  www.mondial-assistance.us/usa/en/help-and-advice/travel-insurance-terms

 

[RSW]

In any other situation, I think most of us would agree that "reasonable and customary" is what the market will bear.

For a transaction to occur, there has to be an offer and acceptance. Most sellers (of anything) do not get what they want and most buyers do not pay what they'd like to. I'm not sure why appraisers should be guaranteed a "minimum" rate if there are qualified appraisers willing to work for less than that minimum?

If I were an AMC, and wanted to be sure that I complied with the regulations, I'd do something similar to this on my service request:


I would also send the request out to a number of appraisers in the area and see what the bid-range is. If the range is $250 to $350, I'd take the low bid (the presumption has to be that the licensed or certified appraiser will complete the assignment to the minimum standards; which is USPAP and the specific client-assignment requirements). After I did this process for a period of time, I could argue two things:
A. In market X, the reasonable and customary fee for this type of assignment ranges from $Y to $Z.
B. We pay what is reasonable and customary because we always pay within the range. We do not dictate to appraisers what the fee is; we bid the job and they respond with their pricing. This, by definition, is reasonable and customary.

Here's how one source defines the term (and I'd accept it as an appropriate definition):
[/LIST]

The problem with your example is that the AMC will most likely only have low fee appraisers on their approved list to begin with and this will not be a true test what is reasonable and customary for the area.

 

[eld2310]

The law specifically excludes fees paid by known Appraisal Management Companies from being considered "reasonable and customary", so that won't work. The intent of the law is clear - stop giving appraisal assignments to the lowest bidders. Take "cheap" out consideration when selecting appraisers. The current system is not working for anyone but AMCs and that's why people are trying to change it.

Of course the AMCs will focus on the words in the law that are "subjective" so they can deliberately misunderstand what's so obviously trying to be accomplished for an ailing appraisal profession that's being sucked dry. They'll hem and haw and stall and influence so they can continue with business as usual for as long as possible. They may even win in the end. But sooner or later this system of mutual adversity between AMCs and appraisers will crumble.

 

[rijman]

In any other situation, I think most of us would agree that "reasonable and customary" is what the market will bear.

For a transaction to occur, there has to be an offer and acceptance. Most sellers (of anything) do not get what they want and most buyers do not pay what they'd like to. I'm not sure why appraisers should be guaranteed a "minimum" rate if there are qualified appraisers willing to work for less than that minimum?

If I were an AMC, and wanted to be sure that I complied with the regulations, I'd do something similar to this on my service request:

I would also send the request out to a number of appraisers in the area and see what the bid-range is. If the range is $250 to $350, I'd take the low bid (the presumption has to be that the licensed or certified appraiser will complete the assignment to the minimum standards; which is USPAP and the specific client-assignment requirements).

I believe AMC's will use a bid process to determine fees for atypical appraisal orders, which also gives them an opportunity to accept the lowest bid.

One issue I was wondering about that I haven't seen mentioned yet is how the lenders will coordinate with their borrowers and AMC's when the appraisal fee is unknown. Right now when the AMC gets an appraisal quote it doesn't hold up the loan process because because the borrower has paid their $400 or so and the AMC subs out the work from their end with no further involvement from the borrower. When the appraisal fee is unknown in 3 months the borrower won't have been quoted an appraisal fee or paid for it. The appraisal fee will have to be disclosed to the borrower if they are paying for it. By going to the appraiser for a quote then back to the borrower it will create a delay in the loan process, which lenders won't want. There are ways around this such as the lender collects the standard appraisal fee on all loans to move the process forward and covers any overages. The vast majority of appraisal orders are likely to be at standard fees, so I am talking about a small percentage of appraisal orders.

 

[hastalavista]

The problem with your example is that the AMC will most likely only have low fee appraisers on their approved list to begin with and this will not be a true test what is reasonable and customary for the area.

RSW-

I appreciate and understand (I think) your point. However, I have a problem agreeing with it because it presumes beforehand that appraisers who accept so-called low fees on their own volition are not accepting "reasonable and customary" fees. This presumption pre-determines that there is a "reasonable and customary fee" other than what is accepted by appraisers who bid on the job.

If the market determines what is reasonable and customary, then what is the rationale that low-bids by appraisers should be excluded? This would require some type of benchmark (anything below $X is unreasonable) and the benchmark would not be set by the market.

Let me present my argument:

Pre-HVCC Scenario
Presume 3-years ago, one was able to bid on and receive $375 for an appraisal, and that this rate was typical. Now, presume that instead of bidding $375, one started to bid $425. Would it not be likely that the client (whomever it was; lender, broker, or private party) would say,
You know, I can probably get this appraisal done for $375, so I'm going to bid it out and see what happens.
Would anyone on this forum argue that the client shouldn't bid the job out to see if it can be completed at $375?

HVCC Scenario
Next, assume the fee-environment has changed to where the buyer of the services- AMCs, large lenders, etc., has had a disproportionate influence on setting fees (which, to a great extent, it has). The dynamic under this scenario has been-
Our top-dollar fee for this assignment is $200. Take it or leave it.
The appraiser accepts or rejects the fee. Maybe the buyer gets it done for that amount, maybe it doesn't and has to pay more. But it is the buyer that is setting the benchmark. The appraiser always has the right to say "no", but many justify a "yes" by (a) its a take-it-or-leave-it proposition, so I'll take it, or (b) I can actually make money at $200/assignment based on volume (I couldn't, but perhaps some smarter businessperson could). IMO, an argument could be made that the buyer of the services is setting the price due to their purchasing-power. This is the Walmart/Costco argument. They don't have total control, but they have a significant amount of leverage.

New Scenario (no HVCC)
However, now (as I understand it), the process has changed, and I use as an example the one quote from the AMC which I understand to be-
Here's an assignment, what's your bid and we expect your bid to be reasonable and customary?
The method of judging what is reasonable and customary is they send the bid out to 25-different vendors (appraisers) and get 25-different bids. Reasonable and customary would be best measured as a range and not a point-fee. The bids they get back are $250 to $400. They take the $250 bid.
Who set the fee at $250?
1. For a transaction to be concluded, there has to be an offer and acceptance.
2. The AMC offered a job and asked for bids. Appraisers bid on the job.
3. The AMC takes the low bid from an appraiser. How is this not the market at work and how is it not "reasonable and customary"?

In the above situation, why is $250 the wrong, unjust, unreasonable, or atypical (not customary) fee for the AMC to pay?



The alternative (as I see it) is to have some authority set the fees. How that would be achieved is beyond me. I'd rather have the participants set the fees.
I don't have a problem losing business to someone who underbids me if I have an opportunity to bid on a job. I do have a problem when I cannot make a bid on a job and have a take-it-or-leave-it proposition (I have a problem in that I don't like it. The take-it-or-leave-it proposition does happen in many circumstances in the real business world; having a "problem" and calling it "unfair" are not necessarily the same thing).

A. Bidding on the job is exactly what happened in pre-HVCC scenario. My bids were constrained by what other appraisers would accept. Sometimes I might get a little more, sometimes I might get a little less.
B. Take-it-or-leave-it is what HVCC became.
C. Current environment is we are back to bidding on the jobs.

Why was "A" acceptable before but "C" (which is the same thing) is not acceptable now? (Other than just "well, the fees are lower, that's why!")
The only difference (as I see it) is that the AMCs provide a more competitive bidding process for the end-users. Economic theory strongly suggests that a competitive bidding process provides a price-point at or close to the market price.

Its up to us (appraisers, collectively) to set our fees. Individually we understand this, and each has his/her own fee range in mind. Collectively, that fee range is
i. Likely wider than any one individual's fee range.
ii. As a group, has a lower minimum than most of us individually.

I don't see how we can blame a client or user of our services for low fees if the process is to bid-out the job and those bidding for the job are other appraisers.

But I'm open to be convinced otherwise! :new_smile-l:

 

[eld2310]

The difference is that the borrower is still being charged $450+, being told that it's the appraisal fee, and the AMC is motivated to send the work to the cheapest appraiser possible so that they can pocket more of the difference. No consideration is given to competency. The heaviest weight in choosing an appraiser is now on price first and foremost and it's resulting in poor quaity and complaints from everyone but the AMCs and the banks that own them. The AMC system of "charge a flat fee to the borrower and keep as much of it as we can" is not viable. The management company must not be motivated by profit when choosing appraisers - it undermines the entire process.

The intent of the law is to take profit out of the picture when choosing appraisers and force the AMCs to look at quality instead. Will it succeed? Probably not. Even if customary and reasonable wins the day, they'll probably just start focusing on ridiculous turntimes.