When Customary Fees Become Unreasonable

[Peter LeQuire]

The appraiser is qualified if he/she has a State License : ) And don't forget that !

And lives within 2 miles of the property being appraised.

 

[Peter LeQuire]

It's economics: appraisal fees reflect the value of our product to the users of it, pure and simple. If an appraisal user can obtain a satisfactory product, one that passes whatever quality or compliance screenings it's subjected to, for $zzz, the artisanal appraiser demanding $zzz+Y will not get much work. The users of most residential appraisals have found that they can get acceptable, compliant product from licensed appraisers who have learned to produce it: with the demand being for a standardized product, price and delivery become the standard by which performance is compensated.). The nationalization of lending has made superadequacies of residential designations and craft guild affiliation, and the appraisers who have learned to promptly deliver compliant product at competitive prices have taken that market.

I pay my preferred plumber $100 to show up and $80 per hour for the time he's plumbing. I pay my (independent) repair shop $87.50 per hour, plus parts: the mechanic (not the owner) gets 60% of the hourly rate. (The shop owner is in Florida, at his second home outside Ft. Myers, for a week's vacation. The mechanic has the week off and is paid as if he were working.) Our cheese has been moved. We need to learn that if we consider our product artisanal, we need to find someone who wants that "quality": the GSEs don't.

 

[J Grant]

Thanks for the guild link Mike, I bookmarked it and will explore it and membership this weekend.

 

[J Grant]

Peter,
IT is not an issue about artisan quality vs standard, we are talking about being paid fairly for standard quality/min standards if you will. Even a standard report of avg quality is a tremendous amount of effort, hours and then add on liability, is ian appraisers time not worth at least the $80 an hour you reference for the tradespeople in your post? If so and a standard quality avg property report might take 6 hours, at $80 an hour, that's $480. The AMC;s want to pay $275-$325, with the better ones paying $350. Pretty hard to charge much above that for many areas of the nation.

Your analysis skipped the main reason for the downward pressure on fees;because either a middle party (independent AMC) or a lender owned ordering division profits from the overage when fees are kept low.

 

[DiverMike]

It's economics: appraisal fees reflect the value of our product to the users of it, pure and simple. If an appraisal user can obtain a satisfactory product, one that passes whatever quality or compliance screenings it's subjected to, for $zzz, the artisanal appraiser demanding $zzz+Y will not get much work. The users of most residential appraisals have found that they can get acceptable, compliant product from licensed appraisers who have learned to produce it: with the demand being for a standardized product, price and delivery become the standard by which performance is compensated.). The nationalization of lending has made superadequacies of residential designations and craft guild affiliation, and the appraisers who have learned to promptly deliver compliant product at competitive prices have taken that market.

I pay my preferred plumber $100 to show up and $80 per hour for the time he's plumbing. I pay my (independent) repair shop $87.50 per hour, plus parts: the mechanic (not the owner) gets 60% of the hourly rate. (The shop owner is in Florida, at his second home outside Ft. Myers, for a week's vacation. The mechanic has the week off and is paid as if he were working.) Our cheese has been moved. We need to learn that if we consider our product artisanal, we need to find someone who wants that "quality": the GSEs don't.

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.

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. I don't mind losing a job if I bid $3,000 and someone else is willing to do it for $1,500. THAT is economics. However when someone only charges $350 or even $500 for those highly complex jobs, then THAT is someone breaking the rules and "saving" by not doing the work properly. Again, respectfully longevity does not lead to poorer quality work. Laziness and lack of integrity does. ALL my proposal does is to recognize that requirements for experience beyond basic levels (even for basic work) should compensate the professional for that added experience and expertise.

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.

Anyway, thank you for your valuable input. I like contrary opinions because it makes me think; AND to have to defend my views (seriously).

 

[DiverMike]

And lives within 2 miles of the property being appraised.

LOL! Love it!

 

[Peter LeQuire]

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.

 

[DiverMike]

Hi Glen, I absolutely DO take all criticisms & comments here as constructive. This is not my first rodeo & I have pretty thick skin. If we all always agreed, then there'd be no need for a conversation, would there? Many opposing views are views with merit that have to be considered and the concerns addressed and resolved. Others are views that will never change, no matter what facts are presented. The first group MAY change or become more open minded. The latter group never will.

Right now, a "fact" exists. That fact is that AMCs (nationally) are routinely paying and contending that C&R fees across the nation are from $200 to about $350 with very few exceptions. Even in areas where ten years ago the fees were $400 to $450. IF this took place when there were 250,000 appraisers, I'd probably concur that is the primary reason. But, it is taking place while there are only 80,000+- of us. In California, when licensing was first implemented, there were only 7,500 appraisers. In a decade that shot up to over 25,000 until the crash. Now we are back down to around 8,000 to somewhere under 10,000 appraisers but contrary to all economic principles and true open market forces, fees are still low. Why? Because they have been artificially capped by the de facto price fixing that started with Cuomo and HVCC back in '09; and which continues to this day by the "Too Big to Fail's".

Right now in Alaska, market forces are raising rates to around $700-$750. In Texas where I am told turn times are now 4 to 6 weeks appraisers are STILL only charging $400 to $450-where they themselves have stated they think the fee SHOULD be $500+-! The extreme shortage of appraisers in Alaska overcame external influences in the market. The relative shortage in Texas, has not.
Competition, or contentment?

PS-Proposal does NOT apply to appraisers in-house appraisal office splits.

 

[Peter LeQuire]

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.

 

[DiverMike]

I am totally against ANY governmental interference in my business. It is bad enough with what there is now. Setting fees, minimum or maximum, is too much.
Socialism is a FAILED experiment.

I understand and respect that view. Let me ask though. Isn't the federal government setting up complex regulatory requirements that ultimately require you to conduct ALL your business with GSEs through intermediaries that take their compensation from YOUR fee and then allow them to hide the amount they take in the HUD-1 or New TRID as an "appraisal" fee corporate socialism, or corporate welfare?