Appraisers and Their Lack of Fees
I feel it’s only prudent to put my ten cents, or more, in on the subject of actual cost, versus paid fees for appraisals
After an overwhelming outpouring of response from appraisers all over the country, I am compelled to write a follow up article to “Appraisals and The Real Cost of Doing Business.”
I must stress that my original intent was to highlight the ever increasing cost in all aspects of our industry, passed on to our clients, due for the most part to increased compliance requirements, additional staffing required to monitor said compliance, Dodd Frank rules, HVCC, TRID etc. I had ranted previously about other compliance issues taking their toll, unintended consequences of increased fees, and this was an addition, or follow up to that. In light of all the emails, messages, calls, and comments received, and the fact that so many took time out of their busy schedule to reach out, I feel it’s only prudent to put my ten cents, or more, in on the subject of actual cost, versus paid fees for appraisals.
As I had pointed out, only recently up to a couple of years ago, appraisals in our area of Northern California were costing in the region of $350 to $400 depending on complexity, region or loan type. This was the case for as far back as I can remember, but for sure around 2002 onwards. And, until HVCC and the Dodd Frank ruling reared their ugly heads, it continued to be the norm.
So, let’s think about that for second. For at least ten years, the cost of an appraisal did not change. At that time, the fee went directly to the appraiser, no middle man, no AMC, no additional fee disappearing into an abyss that we aren’t aware of. But, surely, the cost of living has increased at least 3% to 5% a year over that time? Anyone in a regular salaried position, such as Underwriters, Escrow Officers, Processors, and so forth has likely been given a regular cost of living increase for most years over that same time period. We, as originators, are no longer legally allowed to give any of our commission to our clients for closing costs, or unexpected items that showed up to be paid, which most of us did to some extent on every transaction. So we, inevitably, are now making more money per file.
Then, let’s dissect this a little further. When the Home Valuation Code of Conduct (HVCC) was originally introduced, and most opted to employ a neutral third party Appraisal Management Company (AMC) to dish out and assign appraisals, the fees suddenly jumped. Appraisers were forced to sign up and be approved with the AMCs in order to continue to be delegated business. Yet, in order to be chosen to undertake an appraisal they also had to be subject to a bidding process. This saw their actual fees drop as low as $200 to complete the same appraisal they had recently commanded $350 for.
This debacle went on for a good few years, until only more recently, I’m being told by a number of appraisers, they are back to their original fees level of $350 to $400. But, within that time they have now been given an additional number of tasks to complete within the scope of the appraisal report, required by the majority of lenders, adding more hours to the work load, and yet still they are being paid the same fee (if they’re lucky) as they were in 2002! These include quality of home codes, market analysis, additional comps, more photographs of the home, not to mention the more stringent requirements FHA/HUD have placed on their certified appraisers to complete their report.
This indicates that our appraisal management companies are pocketing as much as $250 per file on some transactions for delegating the task to an appraiser, taking a cursory look over the appraisal, and then sending the report onto us, all in order to ensure the appraiser is anonymous through the ordering process. How is this really in the best interest of the borrower? And, how is this really in the best interest of the appraiser?
To add insult to injury, they are, just like originators, a dying breed. It’s almost impossible to attract young blood into the industry as it’s ever increasingly difficult to qualify and become an appraiser. One is now required to have a college degree, two years of mentoring/experience, and then pass numerous exams, all of which increases exponentially if you want to continue on and become FHA approved too.
It has come to my attention, although I’m not sure it’s available here in Northern California yet, that other areas have Appraisal Portals. They’re all entirely electronic, don’t require a management company, and the cost is about $10 to $24 per report. This allows an appraiser to sign up to be a part of the “round robin” type system of appraisal assignments, they can command their proper fee, and the borrower/clients will be paying at most about $25 more for the report! How fabulous is that? For my own piece of mind, I want to investigate this further, discover the success rates, quality of appraisal reports, and so forth, then determine why we can’t use this locally here.
The culmination of all this is the Tier System I had commented on in my previous article. In order for us to attempt to accurately disclose a fee for an appraisal on a property, a home that we likely know nothing about at the time of the order, unless our Realtors have the wherewithal to give us some information, but nonetheless are bound by TRID to disclose right at the beginning, it seemed a good option to categorize regions, and appraisal types and we can pick and choose accordingly.
But with this system the fees have increased once again, however not it seems for the appraiser. The Middle Man is sopping up the surplus. And, while we are forced to disclose as accurately as we can for fear of having to start the entire loan file over should we mistakenly misquote something (due to TRID rules and still not in the best interest of our clients), the AMCs are somehow not required to specify exactly how much of the total fee is being funneled to them. Does that seem a tad unfair?
If we must quote our fees to the penny, our processing fee, the underwriting fee, the owners’ title policy, the full lenders’ title policy along with the discount that is never seen, alongside a myriad of items such as home insurance, escrow/impound accounts, prepaid interest and more, shouldn’t there be absolute clarity on the appraisal fee, how much the appraiser is being paid, and just how much is being added on for the AMC?
In this age of complete transparency, required by our government, one would think something as important as the appraisal, a report that is required on pretty much every transaction, should be properly disclosed. And, in the meantime, that our appraisers would be allowed a cost of living pay increase or two, instead of a pay decrease each time something changes above and beyond their control. Again, I’m thinking perhaps I need to chat with Mr Trump!
This article was originally published in The National Real Estate Post.
Suzanna Ravin has been working in the lending industry for the last twelve years, currently managing a retail branch Peak Mortgage, a division of Finance of America Mortgage, LLC. She maintains her top originator status by remaining very hands-on with her clients’ transactions. Often referred to as the Loan Guru, she loves to be completely informed on lending guidelines, and regulations. You can reach Suzanna at s…@deltalending.com – 916-462-8811- www.peakmtg.com/suzannaravin or visit her Facebook Business Page
Get rid of the AMC there not needed and take our money. Truthfully the bank should pay them a seperate fee nad let the borrower pay it.
It has now come to the point were we as appraisers have to work 12+ hour days, just to get by, and make it to the next month. The management company’s squeeze us for every extra penny they can grab! There system for rotations of appraisers is flawed, with the orders going to the lowest fee, how is that helpful to the client? I was licensed in 2001, now getting paid close to what my fee split was as a new appraiser, after amc’s pull there cut. Also, why do we now have to disclose our fee up front, and there is no break down done, or shown to the borrower/client, as to how much the appraiser is actually paid. It is once a week on average, that I get a client saying you must be doing good in life, with a $400 to $450 fee you charged me, and completing 4 to 7 reports a week. I let them know that it is very much the opposite of that, with everyone with there hand out for a portion of my fee, most of the time lucky to get slightly more than half the fee.
Thanks for the great article.
Great article. Too bad the wrong people will be reading this article. Ten years of no fee increases is just wrong. You have people wanting $15 to flip hamburgers. Yet the appraiser has no vehicle to voice their concerns. We are just not big enough to matter. I have see that VA has increased their fees in certain states, but not in California. Why not? Because the lenders control the market! I have seen lenders back to their old bag of tricks. When something goes wrong they pass the blame to someone else. We have a problem. The appraiser field is just too small to matter. Unless those appraisers taking the low paying jobs stop accepting those jobs we will NEVER succeed.
Unfortunately Suzanna, lenders, AMC’s, underwriters, processers, agents, borrowers, government regulators, etc., don’t understand basic business principles as it relates to being an appraiser. Nearly 50% of all licensed appraisers are sole proprietors and are in essence, companies of one. If the appraiser collects $650 for a single report that takes 10 hours to complete, just how rich or poor is that appraiser over a 12 month time frame? After deducting for business expenses (25 to 35%), reducing work days by vacation, sick, continuing education, workshops, and with the fact that no business works at full capacity every hour of every day, just how much is left. Before calculating the net income keep in mind that the appraiser has no company health or dental coverage, no profit sharing, no company stock options, no pension, no company advancement opportunities, etc. That appraiser that people assume are completing two appraisals a day and making $250,000 a year, most likely nets $35,000 to $45,000 a year. When you ask for tens of thousands of dollars upfront (4 year degree) and have a 6 to 8 year time commitment before the opportunity to net $35 to 45,000 per year, you’ll find issues. I routinely complete appraisals for over a million dollars and wonder where the outrage is when the agents and brokers split their 5% commission ($50,000), or more than what many appraisers will net over an entire year. You say you were shocked when appraisal fees were stable for 10 years but recently increased significantly. Again, with many areas showing year over year increases of 10% for several years, where is the concern as it relates to higher buyer/seller costs due to agent compensation?
Providing borrowers with transparency on appraisal fees would require putting “truth” back into the existing truth in lending laws Suzanne. I personally find it laughable that Regulation (truth in lending law) still exists yet the government has no problem with LYING on the HUD-1 REGARDING THE G.D. APPRAISAL FEE.
ANOTHER great example of what needs to be CHANGED.
COPYING AND PASTING FROM MY PREVIOUS POSTS:
veteran appraisers ARE willing to train other people, because as that population continues to retire, they WONT CARE about future competition. if they wont be in business in the next few years, they dont care about competition 10, 20, 30 years down the road! the problem with training someone is, financially it isnt worth it, and insane liability doesnt make it worth it either. if greedy banks and greedy AMC’s are only willing to pay $300 for an appraisal, (AND states/regulators continue to do nothing and allow it to happen), and the trainee/trainer have to do a fee split on that figure, it will NEVER make sense to anyone to train someone for $150! $150 will NEVER be worth the time or the risk. if fees ever get to where they should be for a 1004 – $550+/- $50, only THEN will we start seeing veterans willing to do some training, but it will NEVER happen before.
the ridiculous education requirement is another piece of the puzzle. if the goal is to make appraisers in “the image of CPA’s and lawyers”, then someone had better darn well allow appraisers to get paid similarly to a CPA and lawyer, and not slightly above minimum wage like it is now. add in the fact that appraisers have way more liability nowadays than any CPA or lawyer will ever have, and suddenly we have an even bigger wage problem for appraisers.
APPRAISERS need to be in control of their fees just like in any other business – NOBODY ELSE.
ALOT of things need CHANGED, and until ALL things are addressed and CHANGED . . . . .
its business as usual, and the bleeding WILL continue . . . . .
I agree Bubba Jay. I spend all year organizing my documents for tax purposes only to bring them into my accountant so he can update the same numbers from a year earlier. He does a good job, and answers questions throughout the year, but an hour later I hand him a check for $300. Why go to college to become an appraiser $300 / 10 hours) when you can become a CAP ($300 / 1hour)?
Actually Bill you don’t need to be a CAP (CPA?) or an attorney to make $300 bucks doing someone’s taxes. If you are a high school graduate you can take a few courses from the IRS or elsewhere and become an EA (enrolled agent). If you’re looking for job security you can’t beat it. Remember the old saying about “Death & Taxes”? Taxation specialists now have the funeral directors beat since nearly 50% of the public now chooses cremation.
well written, gets to the real point of money. everybody else here has said my feelings. hey kid, you think you wanna be a big time appraiser? i got a blog for you to read.
These issues have been ongoing. An analysis of compensation vs expense and requirement, from then to now, points to a $350 fee which is quite literally a 20+ year old fee scale, being elevated to $750+ today. Colorado is the hot state right now, and I’m able to demand and get 450-550 as constant standard fees, but how long will it last? Many distributors run on contract based assignment terms, and take a loss, when I am compensated fairly. That method inevitably means more downward pressure on an appraiser in another state. It’s a system doomed to fail. It’s getting confusing, when a non amc and an amc essentially are mirrored companies, similar sow statements, multiple lending clients, etc. There is some sort of technical work around happening were even non amc distributors act just like amc’s, with incentive to turn quickly and other various commission based rewards, including the ability to acquire more and more ‘clients’, while still circumventing actual amc licensing requirements. I’ll remain mystified why lenders do not control contractual distributors engagement terms themselves, and rather just let the distributors run it however they want to. Automated assignment systems did more harm than good, to this industry. I keep telling them they can keep the grading, and I really don’t care what my grade or tat stats are. But how else can an unqualified person judge a licensed individual, when distribution is based on commission, instead of merit? I’ve luckily found a few decent connections, but had to get dragged through the mud with blind trial and error to get there. Amc’s and distributors are not appraisers. Subsequently they provide completely different services than an appraiser does. The fees should never have been allowed to be co mingled like this. Distinctly different services, deserve distinctly different fees. At no point what so ever, should an appraisers fee be co mingled with any other fee. Lenders could change this, even if just within their own small realm of influence, but they don’t. Anyways…. What’s new?
i agree with your comment about the grading systems. last year i turned in an appraisal that required no corrections that i was told of. i was given “two stars” because it was late. quality doesnt matter, its all about fast turn around time. i told them to stick their “stars” and their business up their asps.
speed will NEVER keep an appraiser out of trouble, but quality will. (most of the time).
the bleeding continues . . . . .
HA! Nice one Jay. But in all seriousness, the employee turn over rate at amc’s continues to grow, or alternatively, the persons in charge of this or that continue to roll over and change hands. Don’t burn bridges any more, but rather appraisers should embrace the same mentality that distributors have embraced. Enjoy the principal of substitution yourself, and put the shoe on the other foot. If I need orders, I pick up the phone and get them. If a client misbehaves, I pick up the phone, respond to emails, dig out folders, and get a new one. It’s been that way for many years now, even before the rush. And they all eventually get back in line, regardless of where you left them. We’re in a finite system, with an infinite supply of distributors, potential distributors and distribution employees, with a vastly lower proportion of available appraiser vendors, so don’t forget that. It’s interesting the way these companies supposedly rely on the principals of substitution to grow their own businesses, but they immediately short circuit when that principal is applied against them in the exact same fashion and ethic which they apply it themselves. “If the shoe fits, the distributors can wear it first.” There are thousands of appraiser related business leads out there, and I’ll remain mystified why appraisers whom supposedly are analysts of ‘the deal’, have such a hard time maintaining a fair position when it comes to their own order assignment deal negotiations. Appraisers whom can’t sell themselves fairly, have no business judging the merits of deals which other licensed individuals have put together. Lenders and distributors get exactly the opposite of what they need, when they assign based on fee and tat. Trump is a ray of sunshine in an otherwise bleak, ineffective and backwards focused regulatory environment, but nothing short of sourcing capital lending funds in house, and not conveying them to gse’s, will solve regulatory shortcomings. If this system at hand was going to work, it would have worked a long time ago. The appraisal distribution system has been purposefully mismanaged, because ‘checks and balances’, is definitely not something major international lenders seem interested in. The whole nobody went to jail thing is evidence of that. Every ‘evolution’ of the appraiser checks and balances system, seems to have accomplished quite the opposite of increased checks and balances protection. It’s beyond coincidence and the only conclusion left, is that the system is working exactly as intended. The term regulatory take over comes to mind. Meanwhile, investors rake more and more of the USA housing stock, to hold permanently as rentals, and FNMA is dealing with hedge funds now. Lending industry has failed to maintain the original mantras, and gse’s should have their charters revoked. I did my part, refi’d to a 15 in house. Honk if I’m paying your mortgage.