When Customary Fees Become Unreasonable

[SpartanAG]

Let's do kindergarten steps. Number 1, a free market is characterized by an UNLIMITED number of buyers and sellers. There are thousands and thousands of sellers for long term residential mortgage purpose appraisals. How many buyers are there now? That factor alone keeps it from being a free market. With that factor alone, it will never operate efficiently as a free market. Never, forget about it.

The number of market participants has nothing to do with whether or not a market is considered a free market. There are plenty of example of companies that produce a small number of specialized products for a small number of potential buyers: Airliners, cargo ships, oil rigs, cruise ships for example. These products are sold via the free market. A willing buyer and seller come to an agreement regarding price and what is expected for that price without government dictating what that price is.

Another example is drug companies: When a drug company produces a new drug, it can charge whatever it wants; the market will either choose to pay the price or not, but the government does not dictate the price. Sure they may have a monoply until a similar drug comes along, but a monoply can still happen in a free market. Now if the government dictates the prices or mandates the use of the drug, then there is no longer a free market.

A free market has to do with choice. In a free market the participants are free to choose who they do business with and they are free to determine the price for their exchange. We still have that in the appraisal profession. Appraisers can still choose their clients and they can still set their own fees. The fact many don't do either of those doesn't change the reality that they are still free to do so.

 

[SpartanAG]

That makes no sense because the government is insuring deposits and long term mortgages. They can't freaking get out of it. I feel sorry for you.

Eli: In all my time on this forum, I've never seen you speak to someone like this. I hope all is well for you and yours.

 

[Eli]

Eli: In all my time on this forum, I've never seen you speak to someone like this. I hope all is well for you and yours.

Sorry, I apologize, but you have to have somebody that wants what you are selling too. I could go on and on. We are not in a free market and never have been just like Mike said. Never has been and never will be. The characterizations of a free market have to be present for it to operate efficiently. The characterizations of a free market don't exist any more in the long term residential mortgage appraisal business than they do the health care business. They won't ever in my opinion which means the market can't operate efficiently period. It is crystal clear to me, but I do have a bunch of education along this line.

 

[Eli]

SpartanAG,

the other thing here that can make me make mistakes sometimes is not knowing who is saying what and what special interests they have. But, trust me I do know marketing related issues because I have a bunch of education relative to them. Sorry, if i got a little crazy. LOL

 

[DiverMike]

The number of market participants has nothing to do with whether or not a market is considered a free market. There are plenty of example of companies that produce a small number of specialized products for a small number of potential buyers: Airliners, cargo ships, oil rigs, cruise ships for example. These products are sold via the free market. A willing buyer and seller come to an agreement regarding price and what is expected for that price without government dictating what that price is.

Another example is drug companies: When a drug company produces a new drug, it can charge whatever it wants; the market will either choose to pay the price or not, but the government does not dictate the price. Sure they may have a monoply until a similar drug comes along, but a monoply can still happen in a free market. Now if the government dictates the prices or mandates the use of the drug, then there is no longer a free market.

A free market has to do with choice. In a free market the participants are free to choose who they do business with and they are free to determine the price for their exchange. We still have that in the appraisal profession. Appraisers can still choose their clients and they can still set their own fees. The fact many don't do either of those doesn't change the reality that they are still free to do so.

A free market has a LOT more to do than with just "choice". There is an inherent requirement that it be truly open and not manipulated behind the scenes; or regulated so as to favor one group or impede another. A "level playing field" is also a fair description. The term as applied in modern time is less clear than it was 200 years ago. Its more of a feel good euphemism than a real thing that exists. ALL trade, aside from the most basic of barter in highly rural areas, is regulated. Technically even barter is taxable. As used today, "Free Trade" is really intended to mean free from unusual constraint and obstacles. Such as the North American Free Trade Agreement (NAFTA). Its used both by those that have no intention of permitting or committing to free trade, as it is those on the other side that somehow equate free trade as being necessarily fully regulated in 0rder to "preserve orderly markets." Both sides have merit to their arguments. Without SOME level of regulation, food shortages would be common. Nature is not always adequately "orderly" with respect to crops. Trade agreements and regulations openly debated and voted on can still encompass the concept of "free trade." Agreements worked out in back rooms or in ways intended to minimize open discussion, or to limit input and due process to the benefit or detriment of specific groups are actually suppression of free trade.

Lets get away from philosophical descriptions and deal with what DOES affect appraisers directly in the real world. The LAW says we are to be compensated at a "customary & reasonable" rate. One self serving side has zeroed in on the customary part and tried to manipulate that to the point that the second part is completely ignored. Now it is necessary to take actions that move the pendulum of balance back toward the middle; or even the other side, if greater services are now required than when C&R was postulated and adopted into law...

 

[DiverMike]

The number of market participants has nothing to do with whether or not a market is considered a free market. There are plenty of example of companies that produce a small number of specialized products for a small number of potential buyers: Airliners, cargo ships, oil rigs, cruise ships for example. These products are sold via the free market. A willing buyer and seller come to an agreement regarding price and what is expected for that price without government dictating what that price is.

Another example is drug companies: When a drug company produces a new drug, it can charge whatever it wants; the market will either choose to pay the price or not, but the government does not dictate the price. Sure they may have a monoply until a similar drug comes along, but a monoply can still happen in a free market. Now if the government dictates the prices or mandates the use of the drug, then there is no longer a free market.

A free market has to do with choice. In a free market the participants are free to choose who they do business with and they are free to determine the price for their exchange. We still have that in the appraisal profession. Appraisers can still choose their clients and they can still set their own fees. The fact many don't do either of those doesn't change the reality that they are still free to do so.

I REALLY don't want to stay in the philosophical arena so much as debate the specifics I proposed, but to avoid it would be cowardly and intellectually dishonest. LET'S take those drug companies you describe. IF they did all their research without taxpayer funding or other subsidies; or other help such as licenses to build on other research that may have originated at NIH, I could agree with you. Similarly IF they concurred that it would ONLY be paid for with private individuals money and not government subsidized insurance, I could agree with you. Also, they get no patent protections, since THAT is government regulation too. The SECOND they require ANY of the things I noted, then they have voluntarily subjected themselves to regulatory control in pricing.

Let's seriously try to move back to appraisal issues at the core of this discussion. In LinkedIn a post was made earlier tonight that one appraiser was asked for his fixed rate fee because of the new TRID. Folks, I didn't just wake up last month and say lets go stir the pot and propose fixed rate fees or minimums. I've have been watching MISMO; UAD, UMDP, HVCC, C&R, CFPB, FNMA CU and AQM, & National R.E. issues as they affect appraisal for as many years as y'all have. The hand writing has been on the wall for a long time. It is well PAST time to start pushing back! OK, Crystal Ball time! October 2015, look to TAF and IVSC proposals to attempt to completely blur the distinction between APPRAISERS & "Valuators" who USED to be business enterprise appraisers by definition. Now the AI and many others have adopted the AICPA and IRS (that's right-since about 2010) push to have AICPA standards adopted over USPAP; failing that to have USPAP "modified" to accommodate them. Changing descriptions of WHAT we are was a step in the direction for a very select few to both rewrite and establish NEW guidelines that permit greater cross over than already exists between BV and RE appraisal disciplines. TAF will struggle to retain our traditional standards. IVSC will seek to blur them. Watch to see who supports which side to see the special interest behind the scenes players. For once it does not appear to be traditional AMCs-though their international equivalents may be players !

 

[Eli]

A free market has a LOT more to do than with just "choice". There is an inherent requirement that it be truly open and not manipulated behind the scenes; or regulated so as to favor one group or impede another. A "level playing field" is also a fair description. The term as applied in modern time is less clear than it was 200 years ago. Its more of a feel good euphemism than a real thing that exists. ALL trade, aside from the most basic of barter in highly rural areas, is regulated. Technically even barter is taxable. As used today, "Free Trade" is really intended to mean free from unusual constraint and obstacles. Such as the North American Free Trade Agreement (NAFTA). Its used both by those that have no intention of permitting or committing to free trade, as it is those on the other side that somehow equate free trade as being necessarily fully regulated in 0rder to "preserve orderly markets." Both sides have merit to their arguments. Without SOME level of regulation, food shortages would be common. Nature is not always adequately "orderly" with respect to crops. Trade agreements and regulations openly debated and voted on can still encompass the concept of "free trade." Agreements worked out in back rooms or in ways intended to minimize open discussion, or to limit input and due process to the benefit or detriment of specific groups are actually suppression of free trade.

Lets get away from philosophical descriptions and deal with what DOES affect appraisers directly in the real world. The LAW says we are to be compensated at a "customary & reasonable" rate. One self serving side has zeroed in on the customary part and tried to manipulate that to the point that the second part is completely ignored. Now it is necessary to take actions that move the pendulum of balance back toward the middle; or even the other side, if greater services are now required than when C&R was postulated and adopted into law...

Yes, in reality, no free market exists.

But, when I look at the wolf on my avatar, it may exist in some arenas. If I get in his arena, he might say otherwise. What a beautiful animal but very deadly when hungry.

 

[SpartanAG]

Lets get away from philosophical descriptions and deal with what DOES affect appraisers directly in the real world. The LAW says we are to be compensated at a "customary & reasonable" rate. One self serving side has zeroed in on the customary part and tried to manipulate that to the point that the second part is completely ignored. Now it is necessary to take actions that move the pendulum of balance back toward the middle; or even the other side, if greater services are now required than when C&R was postulated and adopted into law...

The LAW says we are to be compensated at a "customary & reasonable" rate.

Yes it does, but the law doesn't specify what C & R is. Why is that? The writers of DF don't give two poops about appraisers. They wanted to create a massive new bureaucratic agency that had no oversight to regulate the banks and that's exactly what happened. They left thousands of pages of regulation to be written at a later date, including what C & R is. Why did they do that? Because, even the writers of DF knew they couldn't possibly determine what a C & R fee is for all the different real estate markets, all the different types of appraisals, all the different types of businesses that provide appraisal services...etc.

One self serving side has zeroed in on the customary part and tried to manipulate that to the point that the second part is completely ignored.

When you go to a car dealership, do you pay full sticker price or do you price shop and try to get the best deal possible? AMC's are basically doing the same thing. The difference between most car dealers and appraisers's is that the car dealer knows how much they need to charge for their product to be profitable; most appraisers have no idea what they are worth. While I am not a fan of AMC's, I understand they are trying to run a business and would like to make as much profit as possible. If there are appraisers out there willing to accept "low fees", then that is the C & R fee to that appraiser, otherwise they would reject/counter the AMC's offer.

Here's the thing about C & R; it's different for everyone. If someone can thrive in a "low fee" environment, then good for them. They are free to accept those "low fees" just as other appraisers are free to reject those same "low fees". As long as enough appraisers are accepting "low fees" to meet demand, then those are C & R fees for that market. Appraisers set C & R, based on the fees they are willing to accept. Any business would be foolish to pay more for a product or service than market rates.

Now it is necessary to take actions that move the pendulum of balance back toward the middle; or even the other side, if greater services are now required than when C&R was postulated and adopted into law...

As appraisers leave the profession, supply of appraisal services is beginning to tighten a bit in some markets. The more business savvy appraisers are beginning to challenge the AMC's and ask for higher fees and longer turn times. The pendulum is beginning to swing. However, a price floor (minimum fee) is not the answer. The price floor will become the price ceiling. $600 for that cookie cutter in a subdivision will be equivalent to $600 for a super complex high-end home in the mountains. The AMC's and regulators won't see a difference, because appraisals are all the same to them. They don't understand what goes into developing an appraisal. They will say, "The law says I have to pay you $600, so take it or leave it." Those same appraisers accepting "low fees" today, will be the one accepting that assignment. The appraisers that felt that $600 was below C & R, will be upset...just like we have today.

If the door to a price floor is opened just for GSE appraisal services, how long before it creeps into other area's of appraisal services? I certainly don't want a government bureaucrat determining how much my time is worth. That has not worked out well for doctors in regards to Medicare and Medicaid with many doctors no long accepting those patients because the government regulated reimbursement rates are often below the doctors cost.

When price goes up, so does supply, but demand goes down. By setting a price floor for appraisals, we would be causing the supply of appraisal services to increase and demand of appraisal services to decrease (this hurts appraisers). We would also be causing prices to consumers to increase (that hurts consumers). A price floor will do more harm than good.

If you truly want to help appraisers, then focus your time and energy on getting government out of the way. I understand that we must have some regulation to maintain order in an economy, but we currently have too much regulation. We certainly don't need a federal minimum fee mandate. Let the states handle appraisal regulation; they are better equipped to regulate on a more local level. And instead of having the government force people to pay us more, focus that time and energy on educating appraisers. Many have no idea that they can ask for a fee and TAT increase and will get it in many instances.

 

[SpartanAG]

Mike: I applaud your efforts to help the appraisal profession, but price fixing is wrong whether done privately or via government force. I will stand by you and help where I can to improve the profession and educate appraisers and users of appraisal services, but I stand firmly against any sort of government mandated fee.

 

[Eli]

Many people don't like military or police and don't want them, but I do. In fact, I love them. Many people buying appraisals hate appraisals, but they are not insuring banks or GSE's. Many buying what you are selling don't want or think they need what you are selling. Free market? Dream on. They would rather you fall in a hole somewhere and disappear.