Customary and Reasonable Fees?
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…appraisal firm owners roll up your sleeves & hold the line on fees…
I have been the owner of HF Appraisal Ltd since 1993 and I have sat on the sidelines in regards to Customary and Reasonable appraisal fees. I can no longer stand by and read nor hear about this issue.
It is amazing to me that over the past five to ten years our fees have remained the same and in some cases are lower than they were 10 years ago. The more that I read about this and talk to appraisers across the country in classes and at conferences, the more I am amazed that it appears that none of my peers understand why.
The best way that I can describe the fees staying the same over the past ten years is simple: “it’s not you it’s me”. That’s right folks, we can talk about AMC’s until the proverbial cows come home, but it’s time for all of us to understand that WE the appraisers are the only reason that the fees have remained flat.
Nobody wants to tell you the truth about our fees staying the same for such a long time, well here are the reasons why.
- Most appraisal firms use independent 1099 appraisers and pay them a percentage of the appraisal fee. So, in our market in Chicago, let’s say that the customary and reasonable fees are $400.00 for a 1004 report. The appraiser completing the assignment gets between 50-60% of the fee or $200 to $240 per appraisal. The appraiser completing the assignment has to pay for their own E & O insurance, MLS subscription and appraisal software subscriptions. Let’s not forget that these appraisers are not employees, so they also have to budget for their own health insurance, fuel, and other miscellaneous fees.
- Now let’s look at the landscape when the market is slow. Where do all of these appraisers go to get work? The appraisers go to the AMC’s and are told that they will be paid between $250 to $300 per assignment. It’s pretty easy to see that all of these independent appraisers will make more money working for an AMC than they would for an appraisal firm that pays a percentage rather than making them employees. So as you can see, we are the ones keeping the fees low not the AMC’s. There will always be a group of appraisers that will be willing to take a lower fee to get work, but if we change our business models to employee based companies, we the owners would be able to hold the line on fees and they would naturally go up.
As I said in the beginning of this article, I have owned my company since 1993, and all of my appraisers are W2 employees with benefits, a private office, support staff, paid vacations and I pay for MLS, E & O insurance and other items. I know what you’re all thinking right now “well good for you, but my margins are much bigger and I can make more money using contract appraisers”. Yes, you can, but the next question I would ask you, are you the owner of an appraisal company or are you an AMC yourself taking 50% of the fee from your contractors? If you’re honest you already know the answer to the question.
There has been so much talk over the years about fees in our industry and we are the only ones that can fix it. This is a critical time in our industry, with the discussion of bifurcated appraisals, proprietary client desktop reviews used for lending, and waivers. Appraisal firm owners need to look at all of this and understand if we collectively run our firms like our lending clients do, we would have far more say in the fees, turn times, and have a workforce of W2 appraisers not going to the AMC’s when it’s slow, resulting in significantly lower fees.
To further expand, the AQB did our industry a huge game changing opportunity by lowering the requirements to become a licensed/trainee appraiser, and there are five options to upgrade to a Certified Real Estate Appraiser. I currently have five appraisal trainees and have made the decision to rebuild my company with a new generation of appraisers. For those of you still on the fence about my employee model, look at the upside of growing your firm and our industry. This will take some work on your part but I know that you will quickly see that you will be able to pay a trainee a fair salary between $35,000 to $50,000 per year, and if you really drill down on the numbers, you will be paying them considerable less than a 50% split for the work that they can complete and expand your company’s footprint and be able to go after more clients.
In closing, it is my belief that we as owners need to roll up our sleeves and get back out into the field with trainees and build our industry back up one person at a time grass roots style. If the majority of appraisal firm owners are not willing to give this a try please, don’t complain this winter when you are looking for work and the fees have gone down between 25-45% per appraisal and are being completed by your independent contractors that you are unable to provide work for because they won’t accept the split fee that you are willing to pay them.
By Patrick Felvey, ASA, IFA, Certified Residential Appraiser at HF Appraisal. Patrick Felvey is owner HF Appraisal since 1993 in Chicago. He recently partnered with Accurity Valuation, an appraisal firm with offices located nationwide. He is a current board member of ICAP (Illinois Coalition of Appraisal Professionals), A member of the ASA real property committee and an advocate for the advancement of the appraisal industry.