The Appraiser Shortage Myth Part 43

[hastalavista]

So, what's the problem? What's stopping Senior managers from implementing cost plus? Certainly, there are no regs preventing them or you from switching - to cost plus.

I will defer to Danny's answer, but my understanding is it is a TRID concern.
Appraisal fees are considered part of the fees that a consumer cannot "shop" themselves. Therefore, they have to be disclosed in TRID. Regulated institutions are very sensitive to making changes in fees vs. what was disclosed to the consumer... even in legitimate circumstances... as any change is subject to review and challenge.

Here is an excerpt from the AI's advocacy website which outlines the concern back when the changes were going into effect (2015):

New TILA-RESPA Integrated Disclosure rules took effect Oct. 3, but from an appraisal standpoint, the rule has notable flaws regarding fee disclosures and zero-tolerance requirements.

The rule is a classic example of an agency choosing to walk the fence on an important policy issue — in this case how to treat the disclosure of appraisal management company fees. During the proposed rule phase, the Consumer Financial Protection Bureau worried that consumers might be confused by additional fees (including AMC fees) being disclosed on the new consumer disclosure statement, so it ended up allowing — but not requiring — AMC fee disclosure, even though the Dodd-Frank Act clearly authorized the requirement. While banks can disclose AMC fees to consumers, they also are allowed to continue to lump them in with appraisal fees.

The constraints around new zero-tolerance requirements for any service that consumers cannot shop for — including appraisals — and the “changed circumstances” regime can unnecessarily complicate and compromise the preparation of credible appraisals. The Appraisal Institute finds it unrealistic and unreasonable to require appraisers to predict the exact scope of work for the assignment sight unseen, which some lenders may require in order to avoid complications with the rule. Public records are not perfect, and situations will arise that require additional due diligence in the preparation of a credible report.

AI has encouraged the CFPB to provide additional guidance on appraisal implementation issues, particularly on matters involving changed circumstances. AI is not optimistic that the agency will issue any additional guidance in the short-term, but expects guidance eventually will come.

In related TRID news, AI is part of a coalition of real estate finance and development organizations supporting legislation that would impose a six-month grace period on enforcement of the new rules. The bill, HR 3192, the Homebuyers Assistance Act, passed the House on Oct. 7 by a veto-proof majority.​

The AI and other appraisal organizations have been advocating the removal of appraisal fees from the zero-tolerance requirements so that appraisal fees can "float" based on the specifics of the assignment. If appraisal fees were removed, then it would be easier for lenders to institute a cost-plus program.
That isn't to say that lenders would prefer a cost-plus program. Right now (IMO) they are sitting pretty; they can quote a set-fee for appraisal services with the AMCs and leave it to the AMCs to figure out how to find the appraiser and make their profit.

The AMC fee can be part of the zero-tolerance bucket. The AMC can bid their service based on the type of work their client requires; their client can shop their services against other AMCs to get their best price. By removing the appraisal fee from the zero-tolerance requirement, there will be no more necessity for the AMC to try to squeeze their fee out of whatever contract fee is set. They get paid for what they do, we get paid for what we do, and the two fees are independent of one another.

This doesn't mean that there will still not be competition among appraisers based on fee. What it does mean is under a cost-plus system, an AMC's incentive to push fees down in order to make their profit target is eliminated.

 

[J Grant]

Once again we have a thread where appraisers who have never worked at an AMC assert what they believe certain AMC positions to be and then attack those alleged positions, with nothing to indicate those supposed views even accurately reflect actual AMC positions.

Can you cite cases of AMCs voicing opposition to cost plus? I do actually interact with senior managers from various AMCs on a regular basis, and most that I talk with would LOVE cost plus.

Then why are not AMC's 's initialing the switch to cost plus, if you would LOVE to see it in place? We would love to see the position in action ( thank you)

I presume lenders don't want to change to cost plus, or they would make it happen?

For years the system as it is s now has been COSTING appraisers in depleted incomes.

 

[DWiley]

So, what's the problem? What's stopping Senior managers from implementing cost plus? Certainly, there are no regs preventing them or you from switching - to cost plus.

There are certainly no AMC regs that stop it. The problem is the lender regs. Lenders are required to disclose the appraisal fee on the front end, and most lenders cannot figure out how they can do that in a cost plus model.

Some lenders who do use cost plus address the disclosure challenge by setting the fee that will be paid to the appraiser. But most are unwilling to do that in a C&R world.

Any suggestions?

 

[J Grant]

ed.Denis-"This doesn't mean that there will still not be competition among appraisers based on fee. What it does mean is under a cost-plus system, the AMC's incentive to push fees down in order to make their profit target is eliminated"

That is EXACTLY what I and others are conveying. And the stripping away of the incentive of AMC's to push down fees would be a sea change. If appraisers can agree on that, then cost plus can be a goal appraisers can unify around.

We cant' eliminate appraisers competing on fee , but we can eliminate the enormous market pressure forces of AMC's pushing fees downward to make their profit.

 

[DWiley]

Then why are not AMC's 's initialing the switch to cost plus, if you would LOVE to see it in place? We would love to see the position in action ( thank you)

I presume lenders don't want to change to cost plus, or they would make it happen?

For years the system as it is s now has been COSTING appraisers in depleted incomes.

As Denis said, it is a TRID issue. The inclusion of appraisal fees in the category of things that cannot be changed creates a big challenge for a cost plus system.

 

[bnmappraisal]

Any suggestions?

Sounds like Denis may have one:

The AMC fee can be part of the zero-tolerance bucket. The AMC can bid their service based on the type of work their client requires; their client can shop their services against other AMCs to get their best price. By removing the appraisal fee from the zero-tolerance requirement, there will be no more necessity for the AMC to try to squeeze their fee out of whatever contract fee is set. They get paid for what they do, we get paid for what we do, and the two fees are independent of one another.

 

[J Grant]

As Denis said, it is a TRID issue. The inclusion of appraisal fees in the category of things that cannot be changed creates a big challenge for a cost plus system.

TRID did not exist till recently, yet now it is the excuse...

What kind of rocket surgery challenge would it be under TRID? Lenders disclose the appraisal fee to consumer, and disclose the management fee to the AMC to the consumer.

Or, the lender can not charge the consumer, and they can pay the AMC for their service as an operating cost. OF course lenders would be loathe to do that- why would they do it, if they can keep shoving the cost off on the appraiser in the form of depleted fees?

Lenders, pay for a service you use like every other business out there does, or disclose it as a cost to the borrower borrower as a line item under TRID. Or, stop using an AMC and order direct.

I

 

[bnmappraisal]

As Denis said, it is a TRID issue. The inclusion of appraisal fees in the category of things that cannot be changed

Frustrating for sure, but doesn't TRID allow for changes as long as they are addressed prior to closing? (I believe 3 days? correct me if I'm wrong)

 

[hastalavista]

ed.Denis-"This doesn't mean that there will still not be competition among appraisers based on fee. What it does mean is under a cost-plus system, the AMC's incentive to push fees down in order to make their profit target is eliminated"

That is EXACTLY what I and others are conveying. And the stripping away of the incentive of AMC's to push down fees would be a sea change. If appraisers can agree on that, then cost plus can be a goal appraisers can unify around.

We cant' eliminate appraisers competing on fee , but we can eliminate the enormous market pressure forces of AMC's pushing fees downward to make their profit.

I don't know any appraiser or AMC that opposes cost-plus on the simplicity of the model and the logic of its fairness. I've advocated for it since the get-go.

The only opposition I can think of would be from the lenders. Because the current model allows them to contract out at a set price a large volume of appraisals. Knowing the price of a service in advance is always beneficial.
The opposition of releasing appraisal fees from the zero-tolerance bucket won't come from the AMCs. If adopted, that makes their life easier the second it is implemented.

 

[hastalavista]

Why would TRID stand in the way with switching to cost plus?

Please do a little research on the zero-tolerance requirement and how the regulated institutions are taking steps to ensure they never (in deed or in perception) cross that line.