Fee Surveys

[Mile High Trout]

net

Median Lender Survey APPRAISAL Fee in 2000 = $305.00

Adjusted for the same Appreciation Factor as a Median SFR purchase per FHFA Calculator... would yield:

2010 MEDIAN SFR PURCHASE PRICE: $584,000.
RE broker 4% $23400.
L.O. originator 1.25% x 80% LTV = 5800. commission

2010 Median Appraisal Fee $584.

http://www.fhfa.gov/default.aspx?Pa...haseQtr=2000Q1&ValuationQtr=2010Q1&Price=$305

IMO, the 90 day window is open right now..........let's cut out all the meaningless discussions about AMC surveys reflecting AMC paid "fees" which are NOT permitted to be utilized to determine "customary and reasonable" fees per the definition contained in the New LAW.

As usual, providing a more quality education than I can attain almost anywhere else.

This is the most insightful approach yet regarding the pending C & R issue. Mike please provide further insight.

Are the methods you described the source for customary appraisal fees in the past (say -8 years) and before that? Did lenders previously take the time to approach the allowable and expected appraisal fee based on similar comparative earnings calculations? Your ascertation is that AMC's have used similar methodology to create the separation in pricing between the consumer and the appraisers? Basically putting the appraisal fee back into it's appropriate level, while exploiting the appraisers who do not understand the comparative fee relationships? Why did a portion of the industry, like FHA get away from this, while VA apparently stuck with it?

You say the window is open for 90 days. That's generally understood, but exactly how so? Who is looking at this, who is influencing them? There was so much activism regarding pushing on the senators and such, but where are the links and references to the persons currently considering this issue? Are they even aware of your great observations regarding comparative fees? Who can we get on the phone with? Are they being directed to review the appraisers forums in their research?

I quoted two at $450 each to PCV yesterday, and the rep told me she was positive those fees would not be approved. They are still stating their expected payout is $200.

Care to reverse calculate what the other professionals should be making if they were exposed to a similar payscale as appraisers? That would provide a compelling argument.

I'll give it a quick go:
Scenario: Comparative pricing under fixed conditions AMC's argue appraisers should be held to, using the previously posted $584k home price and the AMC's expectation of a $200 appraisal fee.
If $200 is 34% of $584, then the reduced LO & Realtor Broker commissions would be:
(at 66% commission reduction) RE Broker: $7956 / LO Originator: $1972

 

[mopickled]

"We already have proof that the fee laws will be adhered to. Banks have been forbidden from skimming fees for a very long time, and none of them do it."
???

Remind me who owns RELS and Landsafe??

 

[Michigan CG]

In five years many appraisers will not like the enforcement of Reasonable and Customary fees. The fees will not rise.

The government setting fees is socialistic and that is what the new law does........sets fees. Now that the idiot who accepted $175 fees is getting $350 he will be inclined to hire a "trainee" so he can make more. No need to visit the property (his "mentor" didn't). No need to visit the comps (his "mentor" didn't).

Appraisal fees are low partly because of supply and demand (the MARKET), partly because a former trainee can make the same or more working independently than they did in their mentor shop and partly because some appraisers are simply stupid.

The government should not be regulating fees although the bankers and scum AMC people deserve what they are getting.

 

[KenAZ]

Remind me who owns RELS and Landsafe??

Exactly. Notice how the owners cannot skim fees, but their AMC's can (And DO).

If the big banks could skim fees, they would have. But they couldn't, and haven't. They wouldn't have been able to skim any fee if AMC's were included in the past banking laws.

Now AMC's are under the same types of laws that banks and appraisers have been following for decades.

The AMC's will follow the laws, because a $20,000 per "fee skim" would even make even a giant big box bank fall to it's knees.

 

[Mile High Trout]

In five years many appraisers will not like the enforcement of Reasonable and Customary fees. The fees will not rise.

I set my own fees. The market also follows the providers. It's a matter of who carries the most weight around. This is more challenging in denser populated areas.

 

[olapp]

If we increase our fees. Those scum AMCs will not sent us orders. However, beside AMCs where can we get work? Maybe we all should start our own AMC instead of work with other AMCs.

 

[Calvin the Airedale]

I’ve been asked to comment on one of the posts below from my experience and perspective of having been a chief appraiser. I’m not sure how helpful my comments will be but I take a whack at it anyways.

First some background. From 1986 to 1993, I was chief appraiser for the largest thrift in Ohio, TransOhio Savings Bank. I was hired after the quick departure of two prior managers who had decided to go into the fee business.

1986 was a banner year for appraisers, especially fee appraisers. In late 1979 the country went into recession, from 1980 to nearly 1984 inflation, interest rates and unemployment climbed steadily to unseen levels. A pall was caste over residential lending as the prime rate climbed over 18%. It did not stop the residential markets in its tracks, but from 1980 to 1984 I would guess that about a third of the appraisal community were driven out of business.

Banks and thrifts, which up to that point had maintained sometimes very large in-house staffs, cut their appraisal staffs to the bone and kept them that way right up until the economy recovered (and beyond).

In 1986, however, something happened that changed things dramatically. The economy was no longer in recession and interest rates started to decline. mortgage rates followed. In 1986, lenders were inundated with requests to refinance existing debt. Rates fell back to levels not seen for five or six years.

When I hired on to TSB, it was not uncommon to wait, 8 to 12 weeks to receive the results of a fee appraisal. Truthfully, I don’t remember what we were paying then for fees. The TSB appraisal staff of 12 had at the start of the year numbered 20, but the draw of fee income was too great.

Though such turn times in retrospect seem ridiculous, every lender was suffering the same problem, too much loan demand and too few resources to close the loans. During this time, underwriters, processors, title agents, and everyone else who contributes to a closing were all inundated, their numbers having been trimmed during the previous six years. (At this point, does anyone see what might be on the horizon for us beyond perhaps 2012?)

When I hired onto TSB I instituted many changes designed to make the bank’s lending more efficient and competitive.

First, I reviewed everyone’s salary and benefits and made an effort over the space of a year to bring everyone up to or higher than the levels at which competitors were hiring similar staff.

Second, I offered fee appraisers a premium for faster turn time. The premiums ranged from $50 to $100. I think fees were in the range of $175 to $200 so the premiums were incredibly effective at speeding turn time, which gave TSB the ability to close loans faster, and in turn capture a larger share of the lending market than might otherwise have been possible.

Fee appraisers, during my tenure were hired for their ability to write compliant reports to our standards. We sold most of our product to the GSEs. The fees were paid were based first and foremost on the ability of the appraiser and complexity of what was being appraised. Still, there was a lot of non-complex work being done. I think the highest residential fees were paid during this period was for unique luxury class housing. I remember authorizing several fees in the $5k to $8k range. Our lending footprint in volume was the Ohio but we also did loans throughout the country on a jumbo basis.

Third, I started a program to recruit trainees from recognized real estate appraisal programs in an attempt to build the department. (Penn State, Ohio State, etc.)

Lastly, almost immediately, I instituted an incentive plan based on the average fee we were paying for 1004 work. The plan set base production at something like 1.5 appraisals per day. Everything we asked the staff to do, from inspections to reviews to complex work, was weighted at some multiple or fraction of the time and cost it took to produce a 1004. We calculated incentive based on our pay cycles, which I think were twice a month. So over 15 days, if your base was 15 reports and you produced 20, you were paid 60% of what the fees would have been for 5 extra assignments. From the beginning of 1987 when the plan went in effect till 1991 when the wheels came off the bus for TSB, everyone on staff made money, many routinely doubled their based salaries with incentive.

From 1979 to early 1986 I had worked at First Fed of Cleveland. Their CA, Ed Sauterer, RM, had instituted an incentive plan and had started efforts to make their appraisal department into a full service appraisal company, doing work for other institutions. Ed’s plan was innovative but primitive. It paid incentive on a quarterly basis, based on a % of fee charged over and above the costs of production (including salary, benefits, cars, data sources, management, office space, etc). There was nothing else like it in Cleveland though and for some it was very beneficial.

At TSB, my department budget ranged from $1.8mm to $2.5mm over those years, with the biggest margin allocated for fee appraisals.

Ok, thanks for your patience in reading the above drivel. Now for the commentary.

Independent Alternative to Equitable, Non-AMC, "REASONABLE & CUSTOMARY FEES"

Suggest the time to expose the Economic Truth is NOW - in public while the debate rages on .....and NO DECISION / POLICY has been arrived at by "the powers that be".

Instead of fighting over nickels and dimes and scraps from "the table" .........

Appraisers MUST demand a full, equitable, seat at the Table and be able to afford the Meal - exactly the same way all the other "Participants" can and DO.
Then deliver Quality, Credible, Appraisals - Ethically and Professionally or get the hell out of the Business.

Several forces have been at work over the last 25 years. First, perhaps more than any other component of lending, appraisers have made great gains in productivity. Such gains reduced costs and allowed even the well known stagnant fee structure to maintain enough profitability to make this a desirable profession.

The advent of the AMCs, however, which were created as an end run around RESPA laws by the big banks and thrifts, allowed these lenders to create a labor pool tailored to their theories of lending, long held by many in banking, that appraisals were just a mandated necessary evil, a cost of business required by regulators. Appraisal departments were cost centers. RESPA forbid any mark-ups. But fee that work out to a company in which you held a 49% interest, drive the fee down and increase the AMC fee, and viola, you now have spun straw into gold. AMCs were the alchemist of the mortgage banking divisions, again turning cost centers into profit centers.

Seeing so much work that has been written over the past decade, it is my contention (and I’m stealing this line from Andy Leirer) that many (perhaps even a majority of) appraisers are overpaid for the product they produce but underpaid for the product that they should be or are obligated to produce.

Given current appraisal requirements, the difficulty in which so many markets find themselves, and the gains in productivity which have taken place in the past 10 years, I would guess the Mike’s estimate of potential reasonable fees is slightly high. But not by much. 1004 fees should routinely range from $450 to $550 in most of the lower 48 states.

I agree- however;

Difference here is dentists, doctors etc don't have to compete with skippy mills and indifferent regulators. (Your wrong on this. Dentists face competition from discounters too, ever heard of Sears Dental Centers?) We are not playing on an equal playing field when I have to compete with appraisers who willfully omit and manipulate data to "make deals work" and "fool" underwriters and my state board doesn't seem to care........... (FTR, in the history of the world, and aside from sporting events, there has never been such a thing as an equal, or level playing field.)

…….<snip>….
WE can hold ourselves to a higher standard - but as long as skippy has a free reign and everyone else knows it - WE aren't worth any more than our lowest denominator.

My local banks know the difference - and are willing to pay for it and with a fair fee and respect for the appraiser.

You make a better retort for your comment above than I could ever craft!


BoA, WF, RELS etc etc - they still think we are a profit center......
I still don't get why they would risk tens of thousands to make a couple hundred bucks on a real estate deal. If they are making soooo much of the numbers of appraisals they create - think about the $0000000's they are risking by using the cheapest and quickest. It's flabbergasting

They’re not risking a dime, not so long as they can shovel the loans off their books onto those of Wall St or the GSEs.

<snip>

Once again the members of this forum have proven that they are beyond help. Over the past year, the biggest issue appraisers have had is the low fees that the AMCs have been paying, and we begged for someone to help us. AND THEY DID! And now this isn't good enough. Its price fixing, blah,blah,blah.

What the hell are you expecting? We aren't as important as you all think we are. If we were, then we would be treated as such. This new law is simply trying to set a minimum fee so that we won't continue to get ripped off by the AMCs and skippy. You want to set your own fees? Go ahead. As long as it is above the minimum for your area you are more than welcome to charge whatever you want.

I really don't blame the regulators for not caring much about us. We cry about everything and nothing is ever good enough. I would have given up on us a long time ago.

If you want to be independent, then quit asking for help.

There’s a lot of truth in what you write rescom. But also in truth, minimum prices established by any mechanism in law are price fixing. It seems like a great idea now because it fixes our immediate need for more income after a long hard drought. At some point in the not too distant future, it will be as onerous as the split enforced on many appraisers by the AMC industry over the past few years.

netAs usual, providing a more quality education than I can attain almost anywhere else.

This is the most insightful approach yet regarding the pending C & R issue. Mike please provide further insight.
Are the methods you described the source for customary appraisal fees in the past (say -8 years) and before that? Based on my experience as a CA, I would say no. Within the markets in which we competed, we knew the prevailing range of fees from experience. We attempted to hire the best appraisers, and were willing to pay at the top of the range and even a premium for faster turn times.

Did lenders previously take the time to approach the allowable and expected appraisal fee based on similar comparative earnings calculations? I never compared our fee structure and compensation levels to the growth in to fees and wages for other services. Quite frankly, however, I wish I had, it would have made it easier for me to convince my bosses that what I was doing was to our advantage.

Your assertion is that AMC's have used similar methodology to create the separation in pricing between the consumer and the appraisers? Basically putting the appraisal fee back into it's appropriate level, while exploiting the appraisers who do not understand the comparative fee relationships? Why did a portion of the industry, like FHA get away from this, while VA apparently stuck with it?

Is this really what Mike is asserting? I believe the AMCs were just taking advantage of the situation, again to turn cost centers at lenders into profit centers. These schemes were baked up and sold wholesale by companies like FA.

The VA, under Gerry Kifer (who BTW is now working for the FHA) has always viewed itself as somewhat of an AMC. Their fee structure moves in fits and starts depending on how long it takes people to return work. This model bears no similarity to free market pricing but I concede that they are sensitive to changes based on a number of factors, not the least of which is political influence.

The FHA, has long been viewed somewhat differently due to a higher margin of liability required for its inspection regimen. That its fee are higher are mostly attributable to this factor.

You say the window is open for 90 days. That's generally understood, but exactly how so? Who is looking at this, who is influencing them? There was so much activism regarding pushing on the senators and such, but where are the links and references to the persons currently considering this issue? Are they even aware of your great observations regarding comparative fees?Who can we get on the phone with? Are they being directed to review the appraisers forums in their research?

The GSE, Treasury and the Fed are all looking at this issue. Who has their ear? People like Joan Trice, etal, who’ve a long consulting history already established on many other topics, like AVMs.

In five years many appraisers will not like the enforcement of Reasonable and Customary fees. The fees will not rise.

The government setting fees is socialistic and that is what the new law does........sets fees. Now that the idiot who accepted $175 fees is getting $350 he will be inclined to hire a "trainee" so he can make more. No need to visit the property (his "mentor" didn't). No need to visit the comps (his "mentor" didn't).

Appraisal fees are low partly because of supply and demand (the MARKET), partly because a former trainee can make the same or more working independently than they did in their mentor shop and partly because some appraisers are simply stupid.

The government should not be regulating fees although the bankers and scum AMC people deserve what they are getting.

This is an excellent counter point to rescom’s post above. Thank you!

I apologize if I removed something essential from any of the quoted posts above. This is the first post in which I encountered a 25k posting word limit.

 

[Meandering]

To understand Customary and Reasonable Appraisal fees, we need to know the existing and historic Federal usage of the term and how HUD has treated Appraisal Fees.

HUD’s Mortgagee Letter 97-22 stated that a lender could not charge a borrower a fee for an appraisal that was more than what the appraiser was to be paid. In the same letter it stated that Lenders using service providers could only charge the borrower the fees that were paid to the appraiser, and no more.

HUD’s Mortgagee Letter 97-46 then states that “the Department will allow the mortgagor to pay a fee for the appraisal which may encompass fees for services performed by an appraisal management firm as well as fees for the appraisal itself. However, the total of these fees is limited to the customary and reasonable fee for an appraisal in the market area where the appraisal is performed.

HUD’s Mortgagee Letter 09-28 dated September 18, 2009 stated the fee for the actual completion of an FHA Appraisal may not include a fee for the management of the appraisal process or any other activity other than the performance of the appraisal.

So what we are left with is that all fees charged to borrowers for FHA appraisals since September 18, 2009 have been the Customary and Reasonable Fees for Appraisals, and all other lending appraisals established the Customary and Reasonable for these types of appraisals as these those appraisal fees for conventional lending, as stated in HUD’s Mortgagee Letter 97-46 were not superseded by HUD’s Mortgagee Letter 09-28, which only dealt with FHA Appraisals.

The current issue stems from the 1997 Mortgagee Letter 97-46’s use of the term “which may encompass fees for services performed by an appraisal management firm as well as fees for the appraisal itself,” and the lack of enforcement and oversight on the part of the FHA to ensure that borrowers using FHA loans were not being charged appraisal management fees as part of the FHA loan package.

Even the new RESPA (Real Estate Settlement and Procedures Act) allows only the name of the Appraisal Management Company be recorded on line 809 of the HUD 1 and the Good Faith Estimate, further cementing that the fees paid by the borrower are the Customary and Reasonable Appraisal fee, not the fee received by the Appraiser.

The new Financial Reform Law states that, “i) CUSTOMARY AND REASONABLE FEE.—Lenders and their agents shall compensate fee appraisers at a rate that is customary and reasonable for appraisal services performed in the market area of the property being appraised.”

For more than 10 years the fee for appraisal management services and any “other” service fees have been hidden from the public because these fees were incorporated as being Customary and Reasonable Appraisal fees. Today there are many groups running around trying to prove that Customary and Reasonable Appraisal Fees are fees that an Independent Appraiser will accept for the work. and are less than the fees that have been charged to the borrowers over the past year.

But sadly for the Lending and AMC industries they cannot have it both ways. Either the fees that have been paid by borrowers have been the Customary and Reasonable Appraisal Fee without appraisal management or any other fees, in regards to FHA appraisals, or have been the Customary and Reasonable Fee that allowed the appraiser to accept less in order to accommodate fees to other entities in the transactions. Any survey or study presented now that states the Customary and Reasonable Appraisal Fee is less than what buyers have been paying will open a Pandora’s box of potential class
action lawsuits from borrowers that were mandated to pay over and above customary and reasonable appraisal fees in contrast to HUD requirements that the fee was not more than customary and reasonable.

This singular issue could be the prime focus of the new Consumer Finance Protection Bureau, considering the pure volume of residential lending appraisals that are being handled by Appraisal Management Companies.

 

[PropertyEconomics]

Appraisers are to blame for this crap. Appraisers made it all about fees and never about quality .... now we are stuck arguing fees .... the only profession where fees are dicated not by the professionals but by the clients ... and why .. because appraisers let it happen and then made their complaints to the authoritites about FEES ....

 

[NC Appraising]

I hate appraisers almost just as much as I hate AMCs.

But to blame appraisers for this is not right.


I used to do a lot of FHA work for one of the big banks. They had a government section that they would order the appraisals threw. I had a new construction, FHA appraisal that came in low. The VP of that department called me up and demanded that I change it to the contract price. She said that FHA is insuring it, so they do not care.


For the same big bank, they had section for their "high-end" clients. Again, came in low, and another VP gave me a call to change the number. Last year I appraised a house for a ex-employee of that department. She gave me all the inside info on what went on, and how it went on. Very sad indeed. You played or you were out.

Appraisers could not win. The lenders, GOVCO., mortgage brokers, bankers, Wall street, all wanted us to "hit the number", and to make it work.

The barrier to entry was set so low that anyone could get in. So these appraisal trainee factories exploded. Now were left with the boom newbies.