Free Enterprise an Appraisal Myth?
Is THAT free enterprise?
I’m surprised anyone in the business today sees any minimum pricing proposal as being anti-free enterprise. Contrary to popular belief we have not had free enterprise in the GSE appraisal process since HVCC first reared its ugly head. AMCs ‘telling’ us to pick a number from $250 to $350, or that ‘THEY pay’ $325 per 1004 is NOT free enterprise.
I’m an old timer (1986) that was brought up on what used to be AIREA (now the AI) & SREA (now gone) positions that free enterprise and the Sherman Anti-Trust Act prohibited us from ‘even discussing’ fees. It’s taken almost thirty years, and HVCC for me to realize how foolish THAT was on its very face. It was no secret in the industry that in SoCal in 1986 the typical fee was $250. We always charged 10% more and made no secret about it. Same when fees were $275 by 1990-91. We were all under the illusion that this was free enterprise at work, because we COULD vary our fees based on competency and experience. We COULD negotiate directly with the COMPETENT person placing the order from the banks or S&Ls as well as home owners. We COULD challenge & refute negative reviews. We COULD explain to a homeowner why his or her property was more complex, an appraisal challenge warranting a higher fee. MOST understood and accepted this. For many, it was a sign or reassurance that they were getting appraisers that actually understood the unique nuances between certain property types.
Then, in or around 1991, major title companies got into Limited Liability Policies related to HELOCs, and also wanted to include 704 Drive Bys in their marketing ‘packages’ to major banks. Cost of a 704 drive by back then WAS around $200. They only wanted to charge $210 TOTAL for the title policy and appraisal. Title policy base was set at $110. Guess how much the “free market” price for the 704 became? From that time to the present, they have been involved in appraisal processing in one form or another. Some do it as a genuine convenience for their clients, only seeking to break even. Others do it as a separate profit center and do whatever it takes to maximize THEIR investor returns. That includes behind the scenes lobbying. When HVCC was first proposed as a settlement by Andrew Cuomo with Countrywide and WAMU, some posted that the result was an effort by Cuomo &/or his former law firms to create and direct a new industry to his Title Insurance Company clients. I assume that was never able to be proven adequately, or no one ever challenged it legally. It WAS a common rumor of the period. Let’s assume it was a false one. The end result was the same either way.
It was a shock when each GSE started adopting THAT single states (New York) legal settlement as THE model to be followed on ALL GSE appraisals. The nation’s collective real estate appraisers had ZERO input in that decision. IF any associations views were sought, that information never made its way to individual appraisers outside of those organizations. That would be the bulk of appraisers in the country.
At THAT point, ANY pretense of the free market – free enterprise system being at work went out the window completely. Your only choice at THAT stage was to accept fees offered by AMCs or not work. Even THAT was unnecessarily painful since the illusion was still being superficially maintained by some. You had to keep lowering your bids from your customary fees until you were successful. With Ocwen it meant starting at around $300 originally, but by the time they were forced to change their name due to bad PR, it had gotten as low as $225.
FINALLY Dodd-Frank (DF) and C&R happened. One can argue about DFs other provisions, but C&R SHOULD have been a blessing to appraisers. It required by law that all GSE appraisals had to be based on CUSTOMARY and REASONABLE fees for the area, and the nature and character of the assignment. Enter the Lenders & AMCs and their advocacy groups. THEY wanted C&R to be the inadequate fees they were already paying. DF said no, go get independent studies. It got slightly better, but ONLY due to regulatory threats – not the appraisal profession’s illusory vision of a free enterprise system.
THEN AMCs and the GSEs themselves started piling on new work requirements (Scope creep). No longer was a license adequate for many of them. They wanted certified appraisers. Ostensibly for “enhanced” quality assurance. In practice it was so they could exert pressure and make the appraiser convert the FNMA appraisal to an FHA appraisal after the inspection was already done and report turned in – can’t do THAT anymore, thank goodness! Add in 1004MC, one of the most useless forms ever created. Then let’s toss in UAD, a system to “clarify” appraisals that now requires a two page glossary of mandatory terms. What used to be reasonably clear to all in the grid now required much greater written text explanations. Much more work required for USPAP compliance. No extra money to be paid for this by the way. Take it or leave it. In 2015 it is STILL common to hear of fees of LESS THAN $200, to (most) around $300~$350 from AMCs.
Never mind that costs of doing business have steadily increased far beyond these amounts. “Reasonable” has given way to a subjective and manipulated interpretation of “customary”.
I’ve followed all these events fairly closely since HVCC. Collateral Underwriter (CU) has significant additional burdens for appraisers (even those that always play by the rules). Despite licensing restriction prohibiting it (without specific review requirements), many appraisers continue to report having up to 20 “potential alternate comps” submitted after the fact that they must “provide detailed responses to why these were not used”. Never mind that they are census tract based, could be several years old and bear no relationship to the subject, nor even be open market transactions. PS – You are then GRADED on your report using a data base that FNMA itself has admitted is built on unreliable data.
Now we have TRID (pronounced turd for good reason). Under TRID all lenders are required to advise borrowers of the FIXED costs that they have NO ABILITY TO NEGOTIATE in the initial disclosure documents that replace the Good Faith Estimate of old (GFE). This new Cost Estimate document of CE must be exact, OR a borrowers signatures on new a disclosure document must be obtained not less than three days before closing. There can be NO variance in the appraisal fee quoted by the bank to the consumer absent “Changed conditions” which have been left as intentionally ambiguous as C&R were!
The bank or loan officer decides what YOUR fee will be by the amount they quote to the borrower during the application process! Of COURSE you can ask for more because it is a complicated assignment, or transaction amount exceeds license levels. SURE you can! All the online banks, or those where applications are submitted electronically and customer loyalty is still at risk, will I’m sure fall all over themselves explaining WHY a higher fee is required to the borrower, and will rewrite CE documents for you.
…Or they could just keep shopping until they find an appraiser willing to work for much less than what is REASONABLE for the assignment.
Oddly enough I’m told in just the past week several banks and AMCs are asking appraisers to provide a FIXED rate AVERAGE Fee for ALL TRID related work. Any bets THAT uninformed “survey” will produce a proposed fee that is the same or nominally higher than what is charged now?
Lenders prefer to pay National AMCs a fixed rate not significantly above $495 now INCLUDING the AMC fee. Are we supposed to be happy with $525 minus the $150 to $250 AMC fee? Is THAT free enterprise?
Let’s DUMP the pretense that the current system in any way reflects free Enterprise. My proposal substitutes that feel good euphemism with a much more pragmatic and PROVEN reasonable fee structure based on Federal Appraisal Salaries paid to federal appraisers for essentially similar work.
“Customary” never worked. It’s time to try REASONABLE. AMCs ARE here to stay. Let THEM charge banks on a cost plus basis, and if Congress needs to except appraisal fees from the CEs time frames, OR alternatively have lenders AMCs provide borrowers a list of appraisers that they can negotiate (and pay) directly, then do so.
I’d like you to join with me in promoting this. Please take another look at what REASONABLE fees would look either nationally or regionally if the federal model were followed. I think you will agree once you review it objectively.
We’d also like to invite you to join us at the American Guild of Appraisers (AGA) to promote this, and to address other concerns of appraisers today ranging from inadequate turnaround time being allowed, continued undue pressure with respect to both values or negative comments, and blacklisting-delisting-declination to list as approved. ALL our Guild officers (President) and State Chapter leaders are UNPAID volunteers. Our parent unions have waived their traditional up line shares of union dues to help us grow. AGA is NOT your stereotypical 1940’s or 1950’s union. OPEIU is a professional’s union. We seek win-win solutions. Even in this issue.
If interested, please call me direct at (714) 366 9404; or contact JanBellas@appraisersguild.org (301) 220-4100.
The full proposal as originally drafted may be viewed here. Its only a draft proposal. Of COURSE there is room to include additional suggestions.
Again, thank you for taking the time to read and respond.
National Appraisers Peer
Review Committee Chairman,
American Guild of Appraisers (AGA)