USPAP Answer

[Charles Witt]

I had written the following to the Appraisal Foundation looking for a yes or no answer after many of the folks in my asked me to. Following is the emai to them:



Many of our appraisers have received from a large mortgage company a fee schedule that goes like this:

SFR 1004 $500k or less $340.00
SFR 1004 $500k-$1.0 mil $382.50
SFR 1004 >$1.0mil-$2mil $582.50
SFR 1004 >2.0mil-$4mil $680.00
SFR 1004 >$4mil quote

All of the other categories break down the fees per appraisal on some like numerical range manner. Many of our members have expressed a feeling that this is in violation of USPAP Management Section which states as follows:

It is unethical for an appraiser to accept an assignment, or to have a compensation arrangement for an assignment, that is contingent upon any of the following:
1.....
2....
3......the amount of value opinion.
4...
5...

However, some of our members disagree that it is a violation if USPAP. I have written to you to ask if it is a violation of USPAP to sign the schedule of fees and work accordingly. There seems to be a differing opinion.

Is it a violation to work under such an arrangement?

Is a yes or no answer possible?

Thanks and have a Happy Holiday!


FOLLOWING IS THE ANSWER:


Hello Charles,

The type of fee schedule described in your e-mail is in violation of USPAP.

FYI, Q&A’s #28 and 34 from our Frequently Asked Questions publication also address this issue as follows:

28. APPRAISAL FEES AS PERCENTAGES OF VALUE CONCLUSIONS

Question: Is it acceptable for an appraisal fee to be based on a percentage of the value conclusion?

Response: No, the Management section of the ETHICS RULE states:

It is unethical for an appraiser to accept an assignment, or to have a compensation arrangement for an assignment, that is contingent upon any of the following:
1. the reporting of a predetermined result (e.g., opinion of value);
2. a direction in assignment results that favors the cause of the client;
3. the amount of a value opinion;
4. the attainment of a stipulated result; or
5. the occurrence of a subsequent event directly related to the appraiser’s opinions and specific to the assignment’s purpose. (Bold added for emphasis)

This is reiterated in the signed certification (Standards Rule 2-3, 3-3, 5-3, 6-8, 8-3, and 10-3) that must be included in each appraisal, appraisal review, or appraisal consulting report.

34. Appraisal fee is contingent on the appraised value

Question: A potential client has asked me to complete a form indicating what my appraisal fees would be for different assignments. The form asks me to indicate my appraisal fees according to appraised value, e.g., to list the fee for assignments with appraised values between $100,000 and $299,000, $300,000 to $499,000, etc. Is it a violation of USPAP to quote fees in this manner?

Response: Yes, this is in violation of USPAP. Completing and submitting such a form to a potential client establishes a compensation arrangement for assignments that is contingent on the amount of the value opinion. This is prohibited by the Management section of the ETHICS RULE, which states, in part:

It is unethical for an appraiser to accept an assignment, or to have a compensation arrangement for an assignment, that is contingent on any of the following:
1. the reporting of a predetermined result (e.g., opinion of value);
2. a direction in assignment results that favors the cause of the client;
3. the amount of a value opinion;
4. the attainment of a stipulated result; or
5. the occurrence of a subsequent event directly related to the appraiser’s opinions and specific to the assignment’s purpose. (Bold added for emphasis)

NOW I AM HAPPY THAT I DID NOT SIGN THEIR SCHEDULE OF FEES. HOWEVER, THOSE WHO DID ARE RECEIVING LOTS OF WORK WHILE I HAVE NONE!
AT LEAST MY PROFESSIONALISM IS INTACT!

 

[Marcia Langley]

Charles,

What is the mortgage company's name?

 

[Carnivore]

Funny, how one of the lines of definition for a complex appraisal is a dollar amount!

 

[Lee Lansford]

Hey, guys!

I think that you will find that the fee is set by the client at the time of the assignment.

The fee that the appraiser receives IS NOT contingent upon arriving at any value.

For example:

Client provides estimated value of $zzz,zzz and sets the fee at $zzz.

Your opinion of MV has NOTHING to do with the fee that you will receive for this assignment.
THUS, the fee IS NOT contingent upon the opinion of value.

Hence, no violation of the USPAP. The client sets the fee. You accept. You get paid this fee NO MATTER what your opinion of MV is. How can this scenario be understood as a "contingent fee"? It is not!

 

[Otis Key]

Your opinion of MV has NOTHING to do with your opinion of MV.

HUH??????????? :blink: :blink: :blink: Say what?

Just because CW wants to send out that sort of shet for appraisers to fill out doesn't mean you have to leave it that way. I scratched through the price range and put in square footages. Had a great two weeks of arguements with their rep telling that the lawyers had looked over the sheet and said it wasn't a violation of USPAP. I told them they could do what they wanted but it was a violation of USPAP. I had sent it to them in one format and if they decided to change what I had sent, it was their problem. I still had a copy of what they sent to me and my modification of what I had sent to them.

Back to what you confused me with Lee. I think that quoting a fee for a price range bracket can be perceived as a violation. If you quote 400 coyote pelts for a range of 40,000 to 299,000 and 500 coyote pelts for 300,000 to 1,000,000 and then you go out appraise a house and it's getting real close to 299,999 guess what you're going to call it and guess what the perception of the increased fee is going to be. That's where I think TAF is coming from on that response.

BTW, Charles, someone else sent that same question to TAF about 9 months or so ago and posted the response here is as well. I have a feeling that there will be a cleared explanation in the Q&A's coming.

 

[Rich Heyn]

Otis,

I scratched through the price range and put in square footages.

If you are responsible for determining sq. ft. (say, as opposed to using assessors previously established figures) how is it any different than value? In other words, if you are close to a threshold number, there would be a temptation to stretch the size, no?

The issue here is who is determining the variable. If it's a third party, like Lee says, it's not a problem. If it's the appraiser, it's a problem.

USPAP does not prohibit all contingencies, just those that involve or might inspire unethical behavior.

 

[Robert Anderson]

There was a thread on this topic earlier, and the following is from this thread. It's third-person but reliable IMO.

The following is Landsafe's take on this issue. The quoted material was taken from the ClickForms forum, where an appraiser received this information directly from Landsafe in an email.

=======================================

Sid Miller, LandSafe Legal & Compliance

=====

LandSafe is addressing an issue of complexity of the appraisal that may be related to any number of criteria. Such complexities could include any combination of some or all of the following items: size of the improvement; acreage; site and view; uniqueness of the property; ability to find comps; unusual market area; and similar factors which make the appraising of the property more complex. Since many of those factors are unknown by the lender at the time the appraisal is ordered and are not included in the loan application form or other documents received at loan application, we have had to depend on some other indicators of the complexity of the property appraisal and it is the estimated sales price.

LandSafe's contention is that we utilize the "estimated" sales price, as determined by the seller/agent or, the case of a refinance, by the borrower as a basis for assessing the complexity of the assignment. The appraiser's fee is determined on the basis of that initial measure of 'complexity' and the fee is then fixed regardless of the 'value' that might subsequently be determined by the professional appraiser.

=======================================

=======================================

Greg Dennis, EVP, Collateral Valuations

=====

There is a nuance here that is profound. We establish our fees based on the "estimated sales price" not the appraised value. We set fees based on customer assessment of the value. The appraiser and the ultimate appraised value has not impacted on our fees. The reason we use estimated sales price is that the sales price typically indicates complexity... 0 to $500k are relatively straight forward properties.... Over $1,000,000 are a quote because they could be straight forward CA properties of complex properties in Columbia SC with a guest house.... "

=======================================

The actual thread is at:

http://appraisersforum.com/forum/index.php...&hl=jan+18+2005

Bob Anderson

 

[Otis Key]

If you are responsible for determining sq. ft. (say, as opposed to using assessors previously established figures) how is it any different than value? In other words, if you are close to a threshold number, there would be a temptation to stretch the size, no?

Good point Rich. Hadn't thought about that aspect of it, although I should have after it took so long to get rid of our infamous individual who could make a house grow in leaps and bounds. But I'd be the first one to turn my files over to the state.

And I can tell you it would be easier to prove I didn't stretch the size than to prove I didn't stretch the valuation to get the increased fee.

 

[Lee Lansford]

Guys, if the client sets your fee, and you agree to the fee, and if your opinion of value has NOTHING to do with the fee that you receive...SOMEONE please tell me how this arrangement is a violation of the USPAP?

I'm waiting...

Lee

(Side-note to Otis: I edited my prior post...I guess I should read what I write!)

 

[Robert Anderson]

Originally posted by leelansford@Dec 17 2005, 12:42 PM
Guys, if the client sets your fee, and you agree to the fee, and if your opinion of value has NOTHING to do with the fee that you receive...SOMEONE please tell me how this arrangement is a violation of the USPAP?

I'm waiting...

Lee

Lee,

I don't know if the situation you describe is a violation of USPAP or not, but this is certainly a topic about which people disagree. For example, in the earlier posting that I referenced, you wrote "NOT wise to have a fee schedule based upon either sales price or MV estimate." I suspect that many state appraisal boards would agree.

So, I stay away from fee schedules--either mine or a clients--that are based on sale price or value.

Bob Anderson