When Customary Fees Become Unreasonable

[DiverMike]

DiverMike -

"Should" compensate - but it's not going to happen. The product is viewed as a compliance document that only has to meet certain standards, whether it's produced by someone with several advanced degrees and accumulated designations or by someone licensed before all the highfaluting current requirements were put in place. I don't need an MD with a Harvard degree to trim my eyebrows.

Agreed re excessive qualification burdens. SFR appraisal is NOT rocket science.

 

[DiverMike]

Then if what your saying is True, (the Appraisal Fee to the Appraiser) should Not Be Tampered with ( an AMC is not an Appraiser completing a report and therefore, should negotiate it's own compensation). Therefore, if the Lender is charging the Borrower a specific Appraisal Fee, is the Lender misleading the Borrower ?

Yes, the lender / HUD-1 or CD under TRID IS misleading the borrower. TRID and Lenders are essentially already saying we will pay AMCs a fixed amount on a national basis. Typically that is $495. You appraisers are still able to "negotiate" with the AMC ...as long as it fits within that amount. "Negotiate" to your hearts content. "Whatever the market will bear...as long as it is not over the amount we already set for the AMC". Lenders also expect compliance with FNMA CU through screening by "human intervention" of alternate potential comparables to determine IF they would make a material difference if used, BEFORE communicating those comparables to the appraiser. However that ALSO must be done within the already established lender to AMC fee. Those contacted have already said they will not pay any more money for desk reviews in order to achieve this FNMA CU license requirement. Any guesses as to how much FNMA CU compliance there will be by AMCs? Wonder WHY they are sending you 20 comps and asking why they weren't used?

AMCs are not inherently bad. Their business model that was allowed to develop haphazardly and through catering to special interests, is. IF all banks paid AMCs on a cost plus basis, then there COULD be true negotiation of fees. THAT isn't going to happen. BTW-lets not lose site of the fact that many AMCs today are also appraiser owned; and some of the 'independence objections' may not be as "pure" in motivation as presented.

 

[Eli]

Some people just can't follow simple recognized techniques and methods of appraisal practice. I don't get it. Why use them?

 

[Eli]

Just wait. Before it's over they won't be used (those that use the swag method) with a how much do you need approach.

 

[DiverMike]

I don't think anyone has said appraisers cannot lobby for outcomes that they believe are in their best interests. Indeed, I said be my guest.
But I equally said to not expect all appraisers to share the same vision that a national fee-structure is the solution to the problem. And,don't expect all appraisers to be neutral or passive to such ideas if they disagree with it or believe (as I do) it is detrimental in the long run.

No Mike, many appraisers are just too willing to compete on a low-fee/quick turn-time basis. That's the problem as I see it. Your solution does nothing to solve that problem. It artificially pegs the fee to some formula which isn't market based. It doesn't address the significant oversupply of appraisers. And it does nothing to address quality. It simply resets the pay scale based on a time-in-service formula (an as an appraiser who would benefit most from that time-in-formula, I'm 100% against it because I see superior work coming from newer appraisers vs. extremely poor-quality work coming from appraisers with more time-in than I have).

As a fellow Marine (not a former one; once a Marine, always a Marine) I admire your willingness to work for something you believe in and I wished you (and anyone else who wants to join your fight) good luck. Just don't try to imply that those who don't buy-in to what you are advocating are afraid or fearful. And be prepared to listen to criticism that a system like you propose, which rewards a higher fee based on tenure, does nothing by itself to improve the profession and is premised on the flawed concept that the longer one has been appraising, a higher fee should be awarded based on that alone.

Hi Denis, Agree re turn times and other unreasonable assignment conditions. I cannot 'fix' all problems with one solution (not unless we rewrite FIRREA in it's entirety-but that's a project for a future date-seriously). You & I both know that if there is a pushy loan agent either in a hurry for their commission; OR one that waited until the last minute to order an appraisal (typically AFTER buyer approval)-that they are going to tell the AMC to 'shop' until they get the turn time they want. USPAP sets minimum standards for quality. Enforcement against violations of USPAP is only as good as the willingness of the people involved, to report it. Generally, though not exclusively, low quality is most prevalent where low and unreasonable fees are involved. THAT is the one single issue that based on my experience with diverse appraisers, has any chance of happening. Other issues such as the propriety of outside typing services; designated appraisers having secretaries "sign" reports they've never seen and did not write via stamp, auto importing & 'analytical' software in lieu of actual appraisal analysis and a host of other issues will never find definitive consensus among us.

Denis, I actually welcome criticism and constructive critique. It provides a wealth of information not otherwise available. If all already agreed with me, then there'd be no need to propose anything. MUCH is helpful criticism to better identify & resolve the problem(s). As for those that "don't buy into what I advocate"; the reasons are really pretty simple. (1) Either I have simply failed to present a sufficiently convincing argument as to the need for a change; or the change I propose. (2) Alternatively, the reader may simply be simply philosophically opposed to the vehicle for change I represent (for ex. appraisers guild). (3) OR, they are in fact afraid to be perceived as associating themselves with ANY controversies. (4) Their own "rice bowl" may be at risk of being upset. Its no less a valid concern. (5) Lastly-they may be simply lazy. Blogging only takes time. DOING something takes effort. With the many thousands of appraisers in the Greater Los Angeles Regional area, when TAF/ASB came out here last June for public hearings, I doubt 40 people attended that were not former board members; lobbyists, or committee members. Pitiful.

Nothing in my proposal says one with more time does 'better' work than one with less. The OPM personnel classification specialists have simply identified certain combined experience & education / training levels where an expectation of greater skill is assumed to exist. FIRREA and all the other federal licensing laws recognize those distinctions by license levels and limitations.

I doubt many of us would argue that a six month trainee has the same appraisal skill sets as a 20 year 'veteran'. When AMCs REQUIRE all panelists be certified, then they too should be willing to pay a premium for that requirement.

As for the last item my Green-Brother, we were always taught "Once a Marine, always a Marine...however those no longer active or retired are 'former' rather than Ex." Semper Fi from the 9th MAB. As they also said in boot camp; "A day will come when you are old when you will look back and wish you could be back in the Corps." I went back a year ago to MCRD/SD. They don't march as well as we used to. Probably those damned gum soled boots they issue now.

 

[DiverMike]

It's less about "artisan quality" than it is about what the nature of the product being purchased is. The users of GSE appraisers don't care one whit about how much time and care goes into producing the appraisal product they demand: they want a compliance document. The business will flow to the appraisers who can deliver that product for the least money in the shortest amount of time. If lenders purchasing those appraisals find it cost effective to use AMCs, they will use AMCs. They are indifferent to virtually everything except buying appraisals that provide them compliance/regulatory cover. They don't care about my AI membership, whether I went to NEA&M or Cambridge, whether I am a fine upstanding young man - it's lost on them. I could be Sean Connery with a tape measure, but if Sleazeball Ledbetter can deliver the product they want quicker and cheaper than I, he'll get the work. I may not like it ('cause I think - overall - I'm a pretty swell guy) but I'm still not getting the work,

It is immaterial what I think my hourly rate ought to be: if nobody is going to pay it, I'm not going to earn anything. I need to either (1) find someone buying what I'm selling; (2) sell what everybody's buying at the price they're paying, or (3) find something else to sell.

Peter, if nobody is buying it then you are right. If ONLY those that are not following their own regulatory agency rules are paying cut rate fees, and responsible clients still pay for quality, then perhaps there is another problem. Airlines ARE allowed to buy other than OEM replacement parts, IF those parts are up to industry or FAA standards. IF some start-up machine shop somewhere; or foreign manufacturer decides they can make 'similar functioning' products using inferior materials and workmanship and pays a finders fee per unit to the purchasing contractor to get repair orders, THEN I think we also have a problem. Especially when skimping on quality or material strength becomes known. Its the same with AMCs today. Quality has become an item of lip service only ...until either FNMA CU kicks up a PPA fuss, or FDIC does after a loan default.

Typical AMC sales fees range from $10 to $35 per order these days. All undisclosed to the borrower, of course.

 

[DiverMike]

Some people just can't follow simple recognized techniques and methods of appraisal practice. I don't get it. Why use them?

Probably related to greed in some fashion.

 

[hastalavista]

Denis, I actually welcome criticism and constructive critique. It provides a wealth of information not otherwise available. If all already agreed with me, then there'd be no need to propose anything. MUCH is helpful criticism to better identify & resolve the problem(s). As for those that "don't buy into what I advocate"; the reasons are really pretty simple. (1) Either I have simply failed to present a sufficiently convincing argument as to the need for a change; or the change I propose. (2) Alternatively, the reader may simply be simply philosophically opposed to the vehicle for change I represent (for ex. appraisers guild). (3) OR, they are in fact afraid to be perceived as associating themselves with ANY controversies. (4) Their own "rice bowl" may be at risk of being upset. Its no less a valid concern. (5) Lastly-they may be simply lazy. Blogging only takes time. DOING something takes effort. With the many thousands of appraisers in the Greater Los Angeles Regional area, when TAF/ASB came out here last June for public hearings, I doubt 40 people attended that were not former board members; lobbyists, or committee members. Pitiful.

I'll give you 2-4. But I'll add this to #1:
Yes, your argument may not be as convincing as it need be to win over some doubters.
But, you should consider that there is real and legitimate disagreement with the proposal that is not a matter of being more convincing or persuasive. It goes to the fundamental issue of why fees are low, and that fundamental reason is that there are plenty of suppliers of our services (appraisers and appraisal services) who willingly complete appraisals at a low fee and a quick turn-time; they compete on volume. There are not just a "few" of them. There are a "lot" of them. So many that for AMC work, the competition is fierce in many urban areas. In rural areas? The AMCs and lenders pay the going rate which is much higher (and more in line with your charts) than they have to pay in the urban/suburban areas. Why? Because there isn't the fierce competition among appraisers in most rural areas. The business volume doesn't support a lot of appraisers; it never has and it likely never will. There isn't much of an imbalance of suppliers in the rural areas.
There is an imbalance in the urban and suburban areas. The proposal to raise fees does nothing to address the imbalance which is the primary reason why fees are as low as they are in those markets. What the proposal does do is increase, across the board, the cost to the borrowers (because you can bet neither the lender nor the AMC is going to shoulder that burden). The proposal, in my opinion, is requiring borrowers (consumers) to pay a higher fee because there are too many appraisers chasing too few jobs for all of them, on average, to be successful. That doesn't do anything for the sustainability or improvement of the profession, it creates an unnecessary* cost to the process, and has absolutely nothing to do with quality.

* I say "unnecessary" and I'm sure that will ruffle some feathers. This isn't about what we individually value our work at. I've yet to meet any appraiser (or anyone else) who doesn't think that they are worth what they earn and usually think they are worth more than what they get. This is about increasing the cost of a service when there is no reason other than the fact that there are too many competitors providing that service for each provider to survive. That is a cold, hard, fact. I don't wish bad times on anyone, and I'm not so special that tomorrow I could be out of clients. This is about artificially raising the cost of a service because there are too many providers in some markets for that service. That is not a wise decision and only benefits a select few.

I've seen a lot of appraisals in my time as a reviewer and as a legal consultant. I can tell you in my opinion, fee doesn't significantly impact the quality of the work. High fee, low fee, or middle fee. Your chances of finding a very good appraisal and a very poor appraisal are about even in any bucket.

You want to have a mandate that will improve the profession? Although I'm against mandates, I'd possibly back this one: Get a mandate that requires an average turn-time of 10-days. Since it is an "average", rush jobs can still occur and those who will take them can likely charge a premium (something that probably doesn't happen that much in the high-competition/low-fee markets). It won't affect rural appraisers, as they likely take longer anyway when it is necessary. Many times, I'm longer than 10-days, so it doesn't benefit me personally. What would a turn-time floor accomplish?
A. Appraisers would be given enough time to do quality work.
B. Lenders can demand a higher quality (less review costs) because now those who do quality work if they have enough time can excel.
C. Appraisal firms that use runners or non-licensed staff to do required appraiser tasks won't find it profitable to engage in such practice; there will be enough time for the appraiser him/herself to do it.
D. Fee is always a competitive factor, but quality would be elevated. Slow down the process and there is no excuse for poor-quality.

What the above doesn't do is guarantee a higher fee for anyone. We still have an oversupply and national fee mandate or a turn-time minimum doesn't change that.
What it does do is provide the opportunity to start competing on quality. And there is no incentive to rush through a job. It would likely reduce if not eliminate a lot of the sweatshops that employ runners and non-licensed personnel. This would happen because the 1- and 2-person team, who cannot be as efficient as a multi-person (with non-licensed personnel) team, can now plan out their workflow and take on more jobs. Right; take on more jobs because there is more time to efficiently schedule and complete the jobs. The advantage that the low-fee sweatshop has will disappear. Fees may not change since I contend that is a function of supply. But quality will (I predict) improve and those with superior quality will begin to be identified and sought-out.

As for the last item my Green-Brother, we were always taught "Once a Marine, always a Marine...however those no longer active or retired are 'former' rather than Ex." Semper Fi from the 9th MAB. As they also said in boot camp; "A day will come when you are old when you will look back and wish you could be back in the Corps." I went back a year ago to MCRD/SD. They don't march as well as we used to. Probably those damned gum soled boots they issue now.

Yeah, they don't march as well as we used to. But they sure look a lot smarter than we were.

 

[Michigan CG]

First of all thank you (and Denis) for your service to our country.

Peter, respectfully it is no longer simple economics. You postulate that an appraisal user can obtain a "satisfactory product...that passes whatever quality of compliance screenings it is subjected to...for $zzz..." The ONLY problem I have with the current model is that many, IF NOT A MAJORITY (based on volume) or work today in the residential loan production appraisal side FAIL TO MEET the MINIMUM appraisal requirement (USPAP). Of course they can offer lower fees! Appraisers that routinely send unlicensed relatives, friends, or hire "picture takers" can easily work for less money, because they are not doing the work that is required. Eventually they will be caught, but when? Three years? Five years? In the meantime, YOU, who do outstanding work at a well established 'competitive rate' now start hearing from your clients that the guy down the street is charging $100 les per report. When FDIC reviewed 240,000 Countrywide & WAMU appraisals they found that fully 97% were deficient, and that 90% were egregiously deficient! LandSafe was not even the worst paying among AMCs back when all that took place.................

As to the minimum standards of what is "acceptable" I will completely agree with you. I would wager that one could make a significant number of appraisers look very bad in a courtroom setting. I would wage that a significant amount of residential appraisals submitted do not have a satisfactory Highest and Best Use analysis and that most of them just check the YES box. I would bet that 75 of residential appraisals do not have a satisfactory Reconciliation of Value and I would bet that most Cost Approaches completed have not minor, but serious errors.

I would also bet that many appraisals have outright lies in them such as their "extraction" or "abstraction" of land values. I would bet that much of the canned comments in some people's reports are outright lies.

As long as the clients accept that garbage there is nothing we can do about it. But your proposal also raises the fees of those people. When I took the SRA demo class there was a 30 year appraiser in the class and the above was most likely true about all his reports. Longevity does not mean quality. I know a newly minted MAI who can talk circles around 20 year MAIs.

When you raise the fees for EVERYONE then the people sending out runners or the people using MLS photos are just going to hire more runners and picture takers and more trainees.

................I had an email today from an national appraisal franchise marketer. Wanted me to listen to a webinar on how their Houston Franchisee's top appraiser did 74 appraisals in one month without working ANY overtime (3.7 a day). The franchisee was going to 'show me' how to "do" an appraisal in one hour instead of the normal "four hours". The fact that there is a licensed appraiser ANYWHERE today that allows his name and firm to be associated with statements like that bothers me. THAT firm can charge 25% of "C&R" and still make a profit (until they lose their licenses); but in the meantime they create the perception in the market that appraisals can be done for 25% and in only one to two hours!

Peter I have always charged more than the going rate. My mentor taught me that. About 10% above, for routine work. There is far less competition n the deep end of the pool than in the shallow end. ..............An AMC 'CAP' of $495 (lender to AMC fee) leaves no room to 'negotiate' a highly complex job if C&R in your area for that specific assignment is $750. They ARE going to appraisal shop based on fee rather than qualifications and skill............

It is my opinion that quality sells. My average residential report is about 40 pages. I was taught by an MAI that we explain everything. Do some AMCs care that my report is longer than the other guy? Most don't, a couple do. A local lender does not use me very often for residential work because I simply charge too much. They do call me when their normal people struggle or don't want an assignment. The joke at their office is that I will charge way too much and will most likely be late on the assignment. Eh, they are right on both cases.

Right now the market for the cookie cutter home does not demand a USPAP compliant report. Right now adjustments are not being looked at with scrutiny because most of the reviewers are either idiots or overworked with quota's or both. Will this change? I think it will. Every industry changes and ours has changed significantly in the last 10 years and will change significantly in the next ten years. I also believe that in the end manipulation of the market does no good. It may suck now but in the end I think it will work out.

The AMCs are going to HAVE to change their ways, it is simply not sustainable. They are already crying about a shortage of appraisers. There is no shortage of appraisers, there is a shortage of appraisers willing to work for fees that start with a 2 or a 3.

 

[DiverMike]

I'll give you 2-4. But I'll add this to #1:
Yes, your argument may not be as convincing as it need be to win over some doubters.
But, you should consider that there is real and legitimate disagreement with the proposal that is not a matter of being more convincing or persuasive. It goes to the fundamental issue of why fees are low, and that fundamental reason is that there are plenty of suppliers of our services (appraisers and appraisal services) who willingly complete appraisals at a low fee and a quick turn-time; they compete on volume. There are not just a "few" of them. There are a "lot" of them. So many that for AMC work, the competition is fierce in many urban areas. In rural areas? The AMCs and lenders pay the going rate which is much higher (and more in line with your charts) than they have to pay in the urban/suburban areas. Why? Because there isn't the fierce competition among appraisers in most rural areas. The business volume doesn't support a lot of appraisers; it never has and it likely never will. There isn't much of an imbalance of suppliers in the rural areas.
There is an imbalance in the urban and suburban areas. The proposal to raise fees does nothing to address the imbalance which is the primary reason why fees are as low as they are in those markets. What the proposal does do is increase, across the board, the cost to the borrowers (because you can bet neither the lender nor the AMC is going to shoulder that burden). The proposal, in my opinion, is requiring borrowers (consumers) to pay a higher fee because there are too many appraisers chasing too few jobs for all of them, on average, to be successful. That doesn't do anything for the sustainability or improvement of the profession, it creates an unnecessary* cost to the process, and has absolutely nothing to do with quality.

* I say "unnecessary" and I'm sure that will ruffle some feathers. This isn't about what we individually value our work at. I've yet to meet any appraiser (or anyone else) who doesn't think that they are worth what they earn and usually think they are worth more than what they get. This is about increasing the cost of a service when there is no reason other than the fact that there are too many competitors providing that service for each provider to survive. That is a cold, hard, fact. I don't wish bad times on anyone, and I'm not so special that tomorrow I could be out of clients. This is about artificially raising the cost of a service because there are too many providers in some markets for that service. That is not a wise decision and only benefits a select few.

I've seen a lot of appraisals in my time as a reviewer and as a legal consultant. I can tell you in my opinion, fee doesn't significantly impact the quality of the work. High fee, low fee, or middle fee. Your chances of finding a very good appraisal and a very poor appraisal are about even in any bucket.

You want to have a mandate that will improve the profession? Although I'm against mandates, I'd possibly back this one: Get a mandate that requires an average turn-time of 10-days. Since it is an "average", rush jobs can still occur and those who will take them can likely charge a premium (something that probably doesn't happen that much in the high-competition/low-fee markets). It won't affect rural appraisers, as they likely take longer anyway when it is necessary. Many times, I'm longer than 10-days, so it doesn't benefit me personally. What would a turn-time floor accomplish?
A. Appraisers would be given enough time to do quality work.
B. Lenders can demand a higher quality (less review costs) because now those who do quality work if they have enough time can excel.
C. Appraisal firms that use runners or non-licensed staff to do required appraiser tasks won't find it profitable to engage in such practice; there will be enough time for the appraiser him/herself to do it.
D. Fee is always a competitive factor, but quality would be elevated. Slow down the process and there is no excuse for poor-quality.

What the above doesn't do is guarantee a higher fee for anyone. We still have an oversupply and national fee mandate or a turn-time minimum doesn't change that.
What it does do is provide the opportunity to start competing on quality. And there is no incentive to rush through a job. It would likely reduce if not eliminate a lot of the sweatshops that employ runners and non-licensed personnel. This would happen because the 1- and 2-person team, who cannot be as efficient as a multi-person (with non-licensed personnel) team, can now plan out their workflow and take on more jobs. Right; take on more jobs because there is more time to efficiently schedule and complete the jobs. The advantage that the low-fee sweatshop has will disappear. Fees may not change since I contend that is a function of supply. But quality will (I predict) improve and those with superior quality will begin to be identified and sought-out.



Yeah, they don't march as well as we used to. But they sure look a lot smarter than we were.