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Working RE on The Great Debate on Appraisal Fees

George Hatch said:
As for cost-plus what that would do is *increase* the amount of shopping and negotiating the AMCs engage in (and the costs they charge the lender for doing it) . But that isn't what you had in mind, is it?
I just posted a poll. Let's see who can be honest with their responses. And who will lie in order to make a point.
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Cost plus elimiantes teh AMC shopping by fee. In cost plus, the lender dictates to the AMC the feel they split with the appraiser. Thus , if the lender passes through the AMC, a borrower paid an appraisal amount of $600, and the AMC says you must pay the appraiser $150 and not more nor less than $150 out of each order, it eliminates fee shopping on the part of the AMC. They are ordered by the lender to pay $450 out of the lender's collected and passed on $600. This is how internal order AMC owned by a lender typically works.

As far as the poll, it was a good idea, and as we see, about 40% are willing ( or admit they are willing) to drop fees. We already knew a sizeable number of appraisers drop their fees in order to get AMC work. My point is they should not have to do it, rather than demonizing them for doing it, though of course, if they all or most of them could resist dropping their fees, they would be better paid from the AMC.
 
Th problem for those who think, ,I'd drop my fee $25 to keep the lights on, is it will not stop at $25. You dropped your fee $25, the next appraiser undercuts you by $25, and then the next appraiser undertus that person by $50 - now all of you are faced with an undercut of $100 to get teh order. In a month, you might have ot undercut by $200 to get an order..

Because of the extremely narrow channel of ordering through the eAMC funnel, the AMC, the AMC has tremendous leverage not seen in normal S/D business to downpressure the fees they pay out.

And of course, the AMC is not merely cost consiours teh way an end user ( customer/client ) is when selecting a professional. That end user lender, person or business only wants a reasonable cost . The end user, such as a lender or other party, uses the appraisal for a loan or personal/other use.

The AMC is not an end user. They are a thrid party management business, thus they are not shopping for a reasonable cost, the want to procure the lowest fee possible, because their % of profit is directly tied to it on each and every order.
 

Average Charges​

Over the past decade, HUD has created a regulatory nightmare concerning marked-up and estimated charges that is not, in the opinion of most courts, within the spirit or the letter of RESPA as adopted by Congress. HUD issued two policy statements, in 1999 and 2001, that interpreted RESPA as prohibiting a lender or other settlement service provider from marking up a third party's charge. For example, it is HUD's position that a closer may not charge $14 for overnight delivery that actually costs $9, or estimate recording fees based on average cost. HUD's position has been that a markup is an "unearned" fee which is a "fee split" prohibited under Section 8 of RESPA.

HUD's position fostered a wave of class action lawsuits by people who claimed that recording fees, delivery charges, appraisal fees, credit report charges and other settlement services had been marked up. Many lawsuits have also been filed alleging a Section 8 violation when a closer or lender estimated charges, such as recording fees, and did not reimburse for overcharges later.

Most courts have rejected HUD's interpretation of RESPA, holding that a "fee split" requires two parties, one giving the unearned fee and one taking it, and that the fee split must be for the illegal purpose of steering the consumer to a settlement service provider. A markup is not a fee split between two parties and thus does not violate the law.

The real estate industry asked HUD to renounce its position on mark-ups when it adopted a new regulation. HUD responded in typical bureaucratic manner. Rather than drop its position that RESPA bans markups, HUD allows a settlement service provider (in most cases, the lender or title company settlement agent) to charge an average price for certain third party fees. If an average charge is used for any customer, it must be used for all customers. Also, the lender or title company may not use average charges for "any settlement service if the charge for the service is based on the loan amount or property value." § 3500.8(b)(2)(C)(iv). A lender may not use average charges for its own fees and charges, as opposed to a third party's charges.
 
Instead of reading chicken bones on the topic, have you ever asked the AMCs if they will stop shopping fees if it goes to a cost-plus model? Or if they will prohibit appraisers competing with each other by fee? Because that topic has come up under discussions I've had, even if not phrased exactly in that manner.

And before you get to thinking I'm making it all up, I'd like to point out that one of the other signatories to the "IVPI proposal" I worked on years ago was the chief appraiser for an AMC. One which at the time was held in very low regard by appraisers because of their fees. That's just one AMC exec I've chatted up about their business models. There have been several others, both before and since; the total of which surpassed the 0 number of AMCs you've ever talked with about their businesses. And guess what? None of them contradicted each other.

IIRC the term "cost plus" itself was coined by an AMC type who put out a white paper on the topic years ago advocating that it would be in the AMCs best interests to go to cost-plus. He had a list of the advantages. That's how Joan Trice came about to advocate for Cost-Plus, which she has advocated about for years. That guy was part of her target market -the suits running the corporate end of the business.
 
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If an AMC is on a cost-plus model with a lender, which means the lender dictates how much the AMC pays an appraiser for noncomplex orders, then why is the AMC shopping for fees among appraisers? Maybe your idea of cost plus is different, or teh AMC uses cost plus for one client and fee bids work out for other clients?


Whether an appraiser fought back and rebuilt their business at personal cost to themselves to divest from AMC work or the appraiser caved and took low fees from the AMC's, or the appraiser quit or scaled back to part-time, one way or another, almost everyone with a res license was affected - far more than cert Gens though if a Cert Gen was dong heavy GSE mortgage work volume thy might have been affected. I estimated that many res appraisers lost about 300k total in income due to AMC;s.

The consumers are not harmed by AMC financially the way appraisers are. However, the borrowers and investors can be hurt by the inexperienced or less competent hired by AMC's since they are so influenced by fees in choosing an appraiser . The AMC pressure affects experienced appraisers to churn and burn to make up for low fees.

I don't think people who run AMC's are horrible people- but they also gest chewed up by the system.. I remember AMC's who were decent at the beginning that got ground down or bought out by sharks, and overnight, their companies become low-fee cesspools - idk why pairing that with choosing the appraiser to value a borrower's most valued asset at tax payer risk makes any sense whatsoever.
 
ditor's Pick: Low Fee Solution - Cost-Plus AMC Model?
by Isaac Peck, Associate Editor

Some appraisers are being paid full fees for their appraisal work, even though the orders are coming from appraisal management companies (AMCs). Here’s how it works.

It’s called the cost-plus AMC fee model. The cost-plus or “full fee” AMC model, where the appraiser receives the full fee for the appraisal and the lender/mortgage broker pays the AMC an additional fee for its services, has been posed as a workable solution ever since the Home Valuation Code of Conduct (HVCC) made AMCs a fact of life for most appraisers. Now it appears that some lenders and mortgage brokers are beginning to see the quality advantages of the cost-plus model.

Appraiser Perspective
Bill Streep, an appraiser from San Antonio, Texas, says that he has been working for AMCs on the cost-plus model for over two years. “At first I just had one client who was paying me full-fees; now I have four or five clients who are paying me on a cost-plus model through an AMC—some are correspondent lenders, some are traditional lenders or mortgage brokers,” says Streep.

In Streep’s case, the lender or the mortgage company picks the panel of appraisers and then pays the AMC on a per order basis to manage the appraisal process. “A loan officer from a mortgage company will call and ask if I would agree to be on their appraisal panel. If I agree, they’ll send over their fee schedule and we’ll go from there,” says Streep. “It reintroduces the client-vendor relationship that we appraisers used to have before HVCC- the mortgage companies get to pick the appraisers. If you do a lousy job, they can go back to the AMC and say, remove this person from our panel, or if they like your work, add this person to our panel.”

Streep says that he receives significantly higher fees from his clients using the cost-plus model. He describes a winnowing process over the last few years- picking and choosing who to work for until the majority are full fee clients. “I turn down orders all the time and refuse to work for low fees. Maybe it’s the quality of my work, maybe it’s the local environment, mayb
 
I'm curious if you happened to catch the date on that article prior to posting it in a 2024 discussion thread?
 
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