Louisiana Makes History – C&R Fee
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First Enforcement of C&R Fee Provision: Louisiana Makes History
Nearly five years after Dodd-Frank set forth rules regarding Customary & Reasonable fees (C&R) for appraisers, an agreement last week between a state board and an Appraisal Management Company (AMC) is the first evidence of enforcement. The bottom line for appraisers is that they may be finally on their way back to customary and reasonable fees.
On June 4, 2015, the Louisiana Real Estate Appraisers Board (LREAB) issued a Stipulations and Order Memorandum (SOM) wherein Coester Appraisal Management Group, also known as Coester VMS, offers no admission of guilt but agrees to follow the current Louisiana fee schedule for a period of 12 months and pay $5,000 in administrative costs. Coester also will submit Quarterly reports to the Board for a period of 12 months, which list “all appraisal orders in Louisiana, the fee paid and the date payment was made to the appraiser.”
In the Final Order obtained by WRE under the Freedom of Information Act, Coester agrees not to contest the case while simultaneously alleging that, “it (Coester) complied with the federal law, and as such, it was in compliance with Louisiana Law.” In contrast, the Louisiana Board alleges that “Coester Appraisal Management Group did not use established fees set by an objective third party or use the factors set forth” in Louisiana law, in determining fees paid to appraisers.
LREAC and the Appraisal Institute
In a press release published by the Louisiana Real Estate Appraisers Coalition (LREAC), Joseph Mier, SRA, AI-RRS, RAA and President of LREAC stated: “This is an important recognition that the Louisiana Appraisal Board is addressing complaints made by appraisers in reference to C&R Fee rules being followed. This is a step in the right direction for transparency for consumers and for the health of the appraisal industry going forward. Working together with Louisiana appraisers, the Louisiana Chapter of the Appraisal Institute and the national Appraisal Institute, we hope that this will help to advance transparency for the appraisal industry in the future. Appraisers are reminded to report any violations of the current AMC laws and rules to the LREAB so that the law is adhered to fairly across the board for everyone.”
In an interview with Working RE, Mier stressed that it’s important for appraisers to not adopt an “us versus them” mentality with regards to AMCs. “The goal for appraisers should not be to harm AMCs. The real message is that we need work together,” Mier said. “AMCs have a purpose, but the business model of some AMCs have hurt the entire industry. A business model that takes a significant portion of appraisers’ fees and pays non-C&R fees, as per the Dodd/Frank Rules, results in high quality appraisers leaving the industry or refusing to work for AMCs altogether. It also discourages young professionals from joining the industry, which is an important consideration given that the latest Appraiser Quality Monitoring requirements have made it even more difficult to be an appraiser. Both appraisers and AMCs have an interest in compensating appraisers fairly with a minimum C&R fee,” says Mier.
Finally, Mier says that LREAC is appreciative of the Louisiana Real Estate Appraisers Board (LREAB) for their efforts to follow up on real complaints by appraisers and for the changes that Coester VMS is making. “We appreciate Coester VMS recognizing the need to follow one of the two presumptions of compliance by utilizing the current fee schedule that’s been established by the third party fee survey in Louisiana. They have agreed to make several important changes and we appreciate that. These industry issues can be repaired but the current business model must change going forward. It will take all industry partners to be involved to make that happen.” says Mier.
This is not the first time that Coester VMS has been a target for state boards. Besides being investigated by LREAB, Coester was also sanctioned by the North Carolina Appraisers Board for failure to pay appraisers on time. In a Consent Order signed October 13, 2014, Coester admitted that it failed to pay appraiser invoices on time. As a result of the Board’s investigation, it was discovered that 1,066 payments to appraisers were made beyond the 30 day requirement mandated by North Carolina law. Consequently, Coester was ordered to pay a civil penalty of $10,000 and had its AMC license suspended for a period of six months. However, the suspension was stayed until February 2015.
What are C&R Fees?
In Louisiana, AMCs may comply with the C&R Fee Legislation by using “objective third-party information such as government agency fee schedules, academic studies, and independent private sector surveys” to develop a fee schedule. However, the Louisiana law, modeled after Dodd-Frank, also specifies that “fee studies shall exclude assignments ordered by appraisal management companies.” If an AMC decides not to use a set fee schedule based on independent fee surveys, the AMC “shall maintain written documentation that describes or substantiates all methods, factors, variations, and differences used to determine the customary and reasonable fee for appraisal services,” which, at a minimum, includes six elements an AMC must document and analyze for every assignment order.
In its complaint against Coester VMS, LREAB alleges that Coester was using neither established fees set by an objective third party nor the factors set forth in Louisiana law. To read the Louisiana law in its entirety, click here: http://www.reab.state.la.us/AMC_Rules.html.
When Louisiana’s law first passed in 2013, LREAB commissioned a statewide survey to be conducted by the Southeastern Louisiana University Business Research Center (SLUBRC). Because Dodd-Frank specifically excludes AMC-ordered appraisals in determining C&R fees, the survey focused on fees paid by banks, not AMCs. The survey also includes appraiser input for comparison, based on their work with banks and other non-AMC clients.
The table below represents the median appraisal fee reported in the survey paid by banks directly to appraisers. (Read the complete fee survey report here).
| Median Appraisal Fees by type of appraisal|
|Form 1004||Form 1004 FHA||Form 1025||Form 1073||Form 2055|
This first enforcement of C&R fee provisions is a victory appraisers have long waited for, according to Richard Hagar, SRA. Hagar says it’s likely that Louisiana’s example will embolden other state boards to take action on C&R fees. “Louisiana is one of the first states to take action like this, and there will be more coming from other boards. More and more states will begin looking at the issue of C&R fees, talking about the process involved in enforcing them, and starting to do something about it,” says Hagar.
The Dodd-Frank Act and other federal regulations have granted the authority to license and regulate AMCs to all states, and according to Hagar, that includes enforcing C&R fee provisions. Hagar also makes a nuanced point regarding C&R requirements: “To date, currently 35 states have enacted AMC licensing laws. More will follow. As they enact those licensing laws, the states will have the authority to enforce C&R fees. States don’t necessarily need to write C&R enforcement powers into their AMC regulations the way Louisiana did. It’s in federal law. Once it’s in federal law, AMCs must operate under federal guidelines and their state boards have the authority to sanction them for violating those laws,” argues Hagar.
Increased regulation and enforcement of AMCs will help the industry, argues Hagar. “In order to stick around, AMCs are going to need to be more business-like and operate more ethically. As enforcement of C&R fee provisions finally catches on, we should see a decrease in lowball appraisal (email) order systems, because shopping for the fastest and the cheapest appraiser is prohibited. Appraisers, in turn, should be freed to raise their fees and provide a superior product,” says Hagar.
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