Customary and reasonable fees - 90 days

[hastalavista]

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.

If appraisers raised their bids, then
A. Cost to the consumer would go up.
B. The lender would start subsidizing the cost of the appraisal (something I've been predicting for a few months on this forum that I think will happen in the next 12-24 months).
C. The lender would find an alternative to obtaining an appraisal (not likely now, but I can see 10-years down the road that to happen under some circumstances).

As to the AMC being motivated to send the assignment to the lowest bidder, naturally that is the case. Just as I would be motivated to do work for the highest-paying client.

No consideration is given to competency.

I hear what you are saying but I disagree. :new_smile-l:
Although I've repeatedly said I do not work for AMCs, I do have some insight to how AMCs work via some contacts. Quality is a concern. USPAP is the minimum requirement. You can spend 15-minutes reading posts in the review folder of this forum and find that quality of reports is not only an AMC problem- it is an appraisal-profession problem.

Having said that, there is a disconnect in many cases where the person who is interfacing with the appraiser is unqualified to do so. If there is a good outcome of the AMC legislation on the state level, it has been to motivate AMCs to improve the quality of personnel and training on its side. It hasn't happened as fast or to the degree I'd like it to, but it is moving in that direction.

The heaviest weight in choosing an appraiser is now on price first and foremost and it's resulting in poor quality and complaints from everyone but the AMCs and the banks that own them.

Yes, price first (and turn-time) is the significant decision-trigger. But there is a minimum standard that is required and the AMCs catch plenty of heat when their end-clients (which can probably be counted on two-hands right now) review their quality-performance scores.

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.

I agree with the first sentence. That's why I'm predicting a subsidy in the future.
I disagree with your second sentence, unless you are suggesting that AMCs should be not-for-profit.
Now, I think you and I agree with the following: The question isn't can the AMCs be profitable, the question is can they be profitable, meet their client's expectations (USPAP minimum compliance + the individual client's assignment-requirements), and find competent appraisers to complete the assignments within the current fee structure.
I'd say in the long-run, no.

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 turn times.

Is that the intent you read (regarding the customary and reasonable fee issue)? I don't.
The intent of the law as I read it is to ensure that the AMCs are not unilaterally setting the price for appraisal services. The intent of the law is to let the market set the price.

By asking appraisers to bid on an assignment, I don't see how the AMCs are setting the market price for the appraisal assignment. It seems to me a bidding-process surveys the market, and agreeing to pay what the market (appraiser bid) is asking is paying customary and reasonable fees.


I'm sorry.
Someone will have to convince me why I should be angry at the buyer of our products over the fees we get when the buyer of our products is asking us (the providers) how much we would charge and accepting what we ask for?

Shouldn't my anger be directed at those who are offering what I might think of as fees that are too low rather than at those who are paying fees lower than what I would accept?

 

[Bearslide]

If appraisers raised their bids, then
A. Cost to the consumer would go up.
B. The lender would start subsidizing the cost of the appraisal (something I've been predicting for a few months on this forum that I think will happen in the next 12-24 months).
C. The lender would find an alternative to obtaining an appraisal (not likely now, but I can see 10-years down the road that to happen under some circumstances).

As to the AMC being motivated to send the assignment to the lowest bidder, naturally that is the case. Just as I would be motivated to do work for the highest-paying client.



I hear what you are saying but I disagree. :new_smile-l:
Although I've repeatedly said I do not work for AMCs, I do have some insight to how AMCs work via some contacts. Quality is a concern. USPAP is the minimum requirement. You can spend 15-minutes reading posts in the review folder of this forum and find that quality of reports is not only an AMC problem- it is an appraisal-profession problem.

Having said that, there is a disconnect in many cases where the person who is interfacing with the appraiser is unqualified to do so. If there is a good outcome of the AMC legislation on the state level, it has been to motivate AMCs to improve the quality of personnel and training on its side. It hasn't happened as fast or to the degree I'd like it to, but it is moving in that direction.


Yes, price first (and turn-time) is the significant decision-trigger. But there is a minimum standard that is required and the AMCs catch plenty of heat when their end-clients (which can probably be counted on two-hands right now) review their quality-performance scores.



I agree with the first sentence. That's why I'm predicting a subsidy in the future.
I disagree with your second sentence, unless you are suggesting that AMCs should be not-for-profit.
Now, I think you and I agree with the following: The question isn't can the AMCs be profitable, the question is can they be profitable, meet their client's expectations (USPAP minimum compliance + the individual client's assignment-requirements), and find competent appraisers to complete the assignments within the current fee structure.
I'd say in the long-run, no.




Is that the intent you read (regarding the customary and reasonable fee issue)? I don't.
The intent of the law as I read it is to ensure that the AMCs are not unilaterally setting the price for appraisal services. The intent of the law is to let the market set the price.

By asking appraisers to bid on an assignment, I don't see how the AMCs are setting the market price for the appraisal assignment. It seems to me a bidding-process surveys the market, and agreeing to pay what the market (appraiser bid) is asking is paying customary and reasonable fees.


I'm sorry.
Someone will have to convince me why I should be angry at the buyer of our products over the fees we get when the buyer of our products is asking us (the providers) how much we would charge and accepting what we ask for?

Shouldn't my anger be directed at those who are offering what I might think of as fees that are too low rather than at those who are paying fees lower than what I would accept?[/quote]

Yes. You make valid points, Denis. However - that said - IMO, there IS an element of price-fixing between some of the major AMCs.

I don't believe the solution lies in government - it lies within US.

http://appraisersforum.com/showpost.php?p=2015146&postcount=78

 

[Michigan CG]

I think the law is socialistic in nature in that the fees will be set at a rate without open competition in the open market which is what capitalism is all about.

That being said the AMC idiots are getting what they deserve. They abused the system and will now pay for it.

I predict the fees will be set at VA fees because they have been around so long and they are obviously established. It will be great for the guys in cookie-cutter land. For those in rural areas it will not be good.

The one thing I do wonder about is the turn times. It is my opinion that turn time is a function of fees and the 24 hour BS should go away in that it is not customary.

The future is most likely VA fees with 5 day turn times which is realistic.

 

[Metamorphic]

You all need to reorient your perspective on this.

You're looking at it from a micro economic perspective. You are looking at what this appraiser willing to accept TODAY, in the middle of a recession and particularly deep deep one in this profession, for that job and then you're trying to leverage that information into something that approximates reasonable and customary.

You need to look at it from a MACRO perspective. What kind of a fee structure is required to make the profession be competitive with other professions for people and talent? If you set reasonable and customary at a level that's lower than that, the field will atrophy.

So instead of looking at it from a sales comparison method you should be using the cost or income approach.

My mechanic charges $60/hour, but he's got more overhead than I do. Lets say he's only netting $30. If a journeyman quality non-complex appraisal takes 8 hours, I should be looking at something like $250 in my pocket after expenses....call it something in the $300 range to the client w/expenses. If the job is complex and requires master level skill then you need to look at a higher hourly rate with a longer timeline. Say $40/hour over 16 hours plus 25%expenses.....$800.

Likewise, reasonable salary for a person with a bachelors degree and several years of experience is something in the $55k range. Figure an appraiser has 25% expenses and so needs to make something like $68k. There's 2050 typical working hours in a year, figure you loose 15% of those to training and business admin, you're looking at 1742 "billable" hours or 217 days. If you can do 1 easy-one competently a day, that's 217 fees. So you need to bill $313/appraisal. That's for a license level doing non complex work.

A third method would be to look at the historic population levels of appraiser relative to the size of the fees at the time. Its pretty clear that $200 per for the easy ones will clear this profession out like a narc at a rave, where as the $450 fees of 2003 will flood the appraiser roles. If someone at the state got access to a bunch of fee data they could real quickly use that data to bracket a reasonable and customary number that would balance supply and demand in the profession by comparing it with their rate of trainee applications. I'd be money there's some pretty strong correlation there

The reasonable and customary fee should be basically the minimum that is required to attract people to the field in reasonable and sustainable numbers. The scale needs to go up from there to account for complexity and higher levels of expertise. Otherwise you might as well become a mechanic or get a degree in zoology and count mud leaches for the state.

 

[eld2310]

I'm not saying that appraisers are not partially to blame for the situation we're in. The race to the bottom - the willingness by many appraisers to undercut their competition in bidding wars - is undermining the entire profession and the reliability of appraisal results as a whole. The requirement to pay reasonable and customary fees is meant to save us from ourselves just as much as it's meant to save us from AMC greed. Standard pricing in theory should force those directing appraisal assignments to focus on quality instead of cheapness when choosing an appraiser.

And yes, I do interpret the spirit of the law as creating equality in fees so that competency is the overriding concern when choosing an appraiser. I didn't say that AMCs should not be profitable, I said that AMCs should not be blinded by dollar signs when choosing an appraiser for a particular assignment. Let their profit come from billing their fee to their client instead of hiding under the guise of "appraisal fee". We set that customary appraisal fee of $450 (in my area) through years of blood, sweat and tears, and shame on them for taking advantage of that. Let the AMCs justify their fees by the service they provide just like everyone else.

Will the AMC fee be passed on to the consumer? Of course it will, and I don't see any problem with that. The last time I refinanced, my closing costs were close to $10k. Would another couple of hundred (or $300 if they can get away with it) have caused the deal to fail, or caused me undue hardship? No. It's a drop in the bucket.

Besides, has anyone ever actually tried that? Just lumping the AMC fee next to the wiring fee, reconveyance fee, document prep fee, courier fee, flood cert fee (which is free from the title company - I know I used to do them), etc. etc. junk fees that everyone pays without looking too closely at? Is it really going to be a disaster of epic proportions to have someone other than the appraiser pay the AMC fee? Really?

 

[hastalavista]

You all need to reorient your perspective on this.

You're looking at it from a micro economic perspective...
You need to look at it from a MACRO perspective.

I think you can look at both and come to a similar conclusion. Fees, at the current level, are not sustainable for the health of the profession (which I think there is unanimous agreement on... at least here on the forum).

The question is, what is the best correction-method to arrive at a sustainable fee structure? An imposed fee or a market fee?

Both could do it.
The market rate certainly would do it (eventually).
The imposed rate would probably lead to an over-supply in the slow periods and an under-supply in the busy periods.

The imposed fee would not do anything as far as enhancing quality. I'd like to read examples of where price-controls has resulted in higher quality (of anything)?

The market rate could lead to improved quality if the demand for quality increases (so far, its the minimum that is required and the market rate for that is $225-$250 for appraisers who bid for AMC work).

So, I agree with your macro-observation but I prefer the micro-solution (appraiser bid process) to the macro-solution (set fees/price-controls) as I believe the micro-solution is the more efficient and effective of the two.

 

[nstanbru]

Just my 2 cents worth, but I've always held the opinion that "reasonable and customary" appraisal fees are what the borrower's typically pay in a given area. Some have used a comparison with certain trades such as plumbers. If I get 3 or 4 bids for a plumbing job and they range from $450 to $500 that's most likely representative of customary fees for that job. It is irrelevant to me, as the customer/client what the plumbing company pays its plumbers. As a borrower, it is also irrelevant to me what an AMC pays its appraisers or what a bank may pay its staff appraisers. The fees paid by borrowers are reflective of "reasonable" and certainly describe the "customary" fees in an area.

 

[hastalavista]

Just my 2 cents worth, but I've always held the opinion that "reasonable and customary" appraisal fees are what the borrower's typically pay in a given area. Some have used a comparison with certain trades such as plumbers. If I get 3 or 4 bids for a plumbing job and they range from $450 to $500 that's most likely representative of customary fees for that job. It is irrelevant to me, as the customer/client what the plumbing company pays its plumbers. As a borrower, it is also irrelevant to me what an AMC pays its appraisers or what a bank may pay its staff appraisers. The fees paid by borrowers are reflective of "reasonable" and certainly describe the "customary" fees in an area.

Your view is the same as mine as a consumer.

However, the language of the law (as posted by Ann) is this:

"Lenders and their agents shall compensate fee appraisers at a rate that is customary and reasonable

So I interpret this to be not what the consumer pays, but what the appraiser is to be paid.

I have a fee shop (not as large as it once was, naturally). I split the fees with the appraisers who work with me. My starting fees are within the range of what's quoted around here (in the upper-half) for a SFR, mortgage-finance. Sometimes I increase the split based on a specific circumstance.
(based on the fee split percentage and average fee, the fee split to the appraiser is more than the $225-$250 range that seems to be typical for the AMC).
I regularly use two appraisers. One with me for about 11-years and the other with me for about 8-years. I just asked another to come back because of the business upturn. She has her own clients (AMCs) and accepts my fee split without any hesitation.
The appraisers have their own software and MLS. I have some additional data sources which we share (legitimately, based on my license-agreement with the provider). They also get the benefit of using me as a sounding board (for whatever that is worth) and the knowledge that we have always paid, on-time, regardless. These are long-term relations that have been through at least one full business cycle.

The fee I charge to the client is not the fee my appraisers receive.

What is the reasonable and customary fee I should pay these appraisers?
A. The full fee I charge to the client?
B. The fee split we have agreed to?


Edit to add: NStanbru, my question isnt specifically directed to you but is general to all.
What the HVCC did was create an opportunity for many lenders to offload their appraisal management responsibilities and due-diligence onto super-sized fee shops (AMCs). I don't like that because I've lost the opportunity to bid on the full retail-feel with many lenders because they'd rather have these larger organizations manage appraisal process than deal with smaller/individual entities and manage it themselves.

 

[eld2310]

This has already been covered. Small fee shops are not subject to the law. Only AMCs and lenders are. An AMC being defined as a company that employs the services of 15 or more appraisers in a state or 25 or more in the country in the space of a year.

What fee appraisers do with the money after they get it, and who they split it with under what terms, is not regulated.

 

[hastalavista]

This has already been covered. Small fee shops are not subject to the law. Only AMCs and lenders are. An AMC being defined as a company that employs the services of 15 or more appraisers in a state or 25 or more in the country in the space of a year.

What fee appraisers do with the money after they get it, and who they split it with under what terms, is not regulated.

Eld-

Yes, I understand the cut-off. My argument was the principle (is the fee collected from the borrower the R&C fee or is the bid amount offered by appraisers the R&C fee?). I was probably inelegant in cogently making my intended point. :blush:

Another unintended consequence of the regulation is this: There is no longer any incentive to grow a fee shop to more than 14-people (on the residential side). 4-years ago I was using 15 appraisers. Now, I couldn't do that (limits my ability to scale during ups and downs. And who knows if the 15th appraiser would have been hired somewhere else?).

BTW, I assume the 14-appraiser limit does not apply to commercial firms, does it (I don't know)? If it does, there are going to be a lot of break-ups for no good reason.