My preference is to allow the free market work. Right now we have no minimum or maximum that can be charged for our time and expertise. We can charge what we feel is appropriate for our own individual business…as it should be. No one is more aware of what I need to charge to keep my business running more than me. I determine my own worth; therefore, I set my own fees.
I am not concerned with the thousands or tens of thousands of appraisers that don’t understand their own worth. Or perhaps they do, which is why they accept fee’s that are detrimental to their business. How they price their service and run their business is not my concern and frankly, it is none of my business. They choose to accept the fees; no one is forcing them to accept the fee.
As has been noted numerous times on these forums, there is an overall oversupply of appraisers. Sure, there are markets that are undersupplied, but there are also plenty of markets that are oversupply as well. The oversupplied markets tend to have lower fees, while the undersupplied markets tend to have higher fees. The buyers (AMC’s) have an advantage over the sellers (appraisers) in oversupplied markets.
Setting a floor (minimum) will create less demand for appraisal services while also creating more supply. Demand will decrease due to the increased costs. If the floor is set at $600 for the appraiser portion of the fee, the AMC still needs to get their piece, so the final fee to the borrower will be $850 to $1,000.
The supply of appraisal services will increase because of the lessening demand due to the higher cost of appraisal services. Supply will also increase due to the increased price of appraisal services. Appraisers who have been inactive will begin appraising again, and new appraisers will begin to enter the profession because the floor makes the profession appear economically feasible. This combination of forces will create an additional surplus of appraisal services.
In the end, a price floor hurts appraisers (and society) more than it helps. It may help the appraisers that choose to accept “low” fees, but it only helps those appraisers by hurting everyone else, including other appraisers. Price floors cause deadweight loss.
“A deadweight welfare loss occurs whenever there is a difference between the price the marginal demander is willing to pay and the equilibrium price. The deadweight welfare loss is the loss of consumer and producer surplus. In other words, any time a regulation is put into place that moves the market away from equilibrium, beneficial transactions that would have occurred can no longer take place.” (
http://economics.fundamentalfinance.com/micro_price-floor.php).
In the case of AMC’s, since the new floor is generally above the old ceiling; the new floor will also become the new ceiling. This is not mutually beneficial.
Instead of heaping more rules and regulations on appraisers, I encourage you to focus your time and energy on getting government out of the way. Help remove barriers such as AMC’s and burdensome regulations. Allow appraisers to succeed or fail on their own by letting them make their own choices when it comes to how much they charge for their services and how they run their business.
