A Possible Solution to Customary & Reasonable Fees
Over the past five years, a major subject of talk in the appraiser world has been that of Customary and Reasonable Fees. Unfortunately, much of the dialogue has been mostly one-sided. We tend to do a lot of griping about the fact that many of us are not being paid what is “customary” or “reasonable”, but there are very few solutions offered up.
When I was young and would sometimes (not often, of course) complain about this or that, my father would always say, “Don’t come to me with a complaint unless you have a possible solution.” It was sound advice then (though I did not appreciate it at the time), and it is still good advice today. Though it may not be completely up to us what happens in the world of appraisal regulation and enforcement, it is clear there is a problem. It is also clear there are very few voices offering up potential solutions. One of the thought-leaders of our day in the appraisal world is that of Mike Ford. Mike is a forward-thinking appraiser who aligns with me on many principles of finance. We both agree that the best, most perfect solution to our current problems is the old “Invisible Hand” of the free market. However, we are not blind to the fact that we are far enough down the rabbit-hole with over-regulation at this point that it is simply not pragmatic to believe that we can just wave a magical economy wand and expect all of our problems to be solved through the thinking of Adam Smith. We have to work within the system we currently have (while simultaneously nudging the system itself in the right direction).
Mike recently wrote two blog-posts about the gravity of our C&R situation and (Hallelujah and Praise Be) actually offers up some possible solutions. These articles can be found (and should be read) here:
Free Entreprise an Appraisal Myth? and C&R Fees Proposal
Though Mike will freely admit that the solutions offered are not perfect, they are at least a starting point (and that is a heck-of-a-lot more than most of us are doing). I sat down with Mr. Ford recently to discuss these two articles, why we find ourselves in this current C&R crisis, and where he sees the profession going from here. You can listen to my interview with Mike on both iTunes (Apple) and Stitcher Radio (Andriod) or even at your desktop. Just click the appropriate link below, find Episode 061, and join the conversation. While you are at it, subscribe the the podcast and listen twice a week while we discuss the ins and outs of the appraisal world.
The Appraiser Coach Podcast on iTunes
The Appraiser Coach Podcast on Stitcher Radio (Android)
The Appraiser Coach Podcast on the Web
- Be Nice or Be Quiet - July 2, 2021
- Being Liberal with Values Hurts Homeowners - June 28, 2021
- Why Are Appraisers Banned? - April 15, 2021
Since appraisers, as a group, don’t have the collective intelligence to boycott AMCs in their entirety; you are now left with one solution: Walk away from the business. The solution comes directly from the film: “ALIEN”. Kill each of the the hosts so that the parasite can no longer propagate. It’s not an attactive solution but it’s the only one that will now take down AMCs at this point.
Just Walk Away
Mike is the best, but i agree with the alien theme. appraisers are all dead already, the amc’s don’t know it until they starve, and devour their own remains. then some appraisal hybrid will emerge from the appraiser’s chest to become the “new appraisal system” it will be part avm/human interface. sorta an appraising borg. there is no reason even with a pay increase to call this a profession, or the beloved business i wanted to be in. we will learn to finally serve the banks, resistance is futile.
Tom there’s some accuracy in your prognostication I think. It all stems from the fact that appraisers as a group DO NOT PAY ATTENTION to what is going on within the profession OR seemingly unrelated areas that affect the profession.
1. FNMA & Freddie ALREADY HAVE authority to fund loans without appraisals. This is in anticipation of an appraiser shortage.
2. AI has appointed itself the ‘voice of all appraisers’ in America. They actually made the statement at the California TAF meeting in June that they speak for all appraisers interests AND that they put those interests of the entire profession above their own. (source-live meeting; TAF/ASB Redondo Beach 6/26/15). In itself this is not a good thing. They exclude the views of competing organizations, AND ALL of the independents across the country.
3. AI is seeking (and has had partial successes) in getting dual standards approved in individual states that allow certain appraisers to ignore USPAP and follow THEIR alternate standards which now include provisions PERMITTING CONTINGENCY FEES! Whether this is a good thing or a dangerous and bad thing is not the issue. The issue is that they are using their clout to pass legislation that affects ALL of us AND pretending to speak for us in the process! THIS is what AB 624 was all about in California. I’m told they succeeded in passing it’s similar bill in Texas and seek to do the same in TN and Illinois.
4. The TAF and International Valuations Standards Council is pushing TAF to adopt THEIR standards. Sounds benign right? THEIR standards are more oriented toward Wall Street CPAs and the actual and theoretical impact on money that certain business mega-transactions have. Transactions so large that the actual underlying value of the host currency can be affected. By the way when you hear the AI or anyone else talking about “What is the value added” to appraisals for these foreign market participants think Goldman Sachs; AIG, Societe’ Generale and all the other too big to fails from 2008 and 2009. No doubt some form of uniform standards SHOULD apply to these international transactions, but that is NOT THE DOMAIN of single family residential appraising in America! Frankly even most commercial REAL ESTATE transactions are not or should not be part of the concern in this area. The transactions involved are securities and stocks or bond purchases/sales. THAT is the realm of business valuation-not real estate valuation. How many appraisers know OR even CARE about the merging of RE appraisal ‘standards’ and those of BV?
5. When you hear that the era of “big data” is here and anyone that doesn’t buy into all the hyperbole surrounding it is a Luddite, then think of FNMAs own admittedly FLAWED data base where decades of adjustments were compiled and analyzed so that they can us when OUR adjustments are not in synch with our peers. Of course that is the SAME database that was created back when FNMA WAS requiring adjustments to be within certain guidelines (or explained-which few did). Back when if you made an adjustment over 10% or 15% line item; or net and gross adjustments exceeded 15% and 25% it guaranteed a fight with underwriters and at a minimum a desk review. Shortly after adopting the use of that database for Collateral Underwriter (CU) FNMA admitted that even their own data showed appraisers had been appraising to the guidelines rather than to the market. While they dumped the guidelines THEY KEPT THE DATABASE that they use for CU!
6. CoreLogic recently touted a national values study based upon millions of transactions where they reviewed the appraisals. “Big Data” at its best, right? Of course they have still not disclosed whose permissions were obtained in order to violate borrowers confidentiality; or which appraisers authorized THEIR professional work product to be used for this study for which none of the contributing appraisers were paid for the unauthorized use of their expertise.
7. Of the 19 to 21 State Coalitions that are reported to exist; I only know of a relative few that are either active OR effective. VaCap is very active and appears to be effective; NC, SC, LA, TN & possibly CA are active and effective. TN & Illinois are unknown to me. So in any event there are perhaps seven that ‘do’ anything in their states. None to my knowledge are doing anything on a national or federal level which is where the GSE policies and TAF regulations/policies originate. Illinois just lost 943 appraisers over last year. Why are they not up in arms over it? Self centered interests?
8. “Commoditization” is the new AI buzzword for appraisals. They foresee and want your and my unique professional products to become the commodities that the AMCs and banks already treat them as. Regulations are being tweaked toward this end as we ‘speak.’ I did not become a professional appraiser to be a purveyor of commodities. I’m not selling corn, wheat, or grain futures. I am not trading in carbon credits. I am not selling road-apples to my fellow appraisers. Each and every single appraisal I perform is unique. It is NOT a commodity any more than a lawyers professional advice is; or a doctors diagnosis and treatment is. I have no need to twist the English language into a pretzel to make what I do a “commodity”.
9. It may seem I’m on a tear against the AI. That’s not true. I am on a tear against a few of their policies that BY THEIR OWN ADMISSION “only affect a very small number of appraisers.” (AI Lobbyist, Redondo Beach TAF meeting, June, 2015). I still hold the SRAs and most MAIs of the AI in high regard individually. They still have some of the best courses out there, though I’m also very impressed with the ASA and other peer groups offerings.
10. How many knew that the prohibition in the original FIRREA of 1989 against anyone requiring a specific designation in order to do federal related transactions was removed sometime around 2009 or 2010?
Would a ‘boycott’ solve any or all of these things? No.
Are we stuck with whatever someone else dictates to or for us? Maybe.
It really depends on how many of us choose to do something meaningful about our own futures. I hear a lot of talk about free enterprise; or appraiser independence. I’ve begun to realize that those still espousing this without realizing how long ago it was that we lost BOTH, are really justifying or rationalizing their own inaction. It continues to give them an excuse to do NOTHING-aside from venting frustration on blogs.
You’ve all seen this before, but it is really getting critical that we coordinate our actions on a national basis. Even the best state coalitions can only do so much.
There are thirty days left to take advantage of the reduced membership dues at AGA covering the next years dues. $225 if you join prior to 12/31/15. After that Im told its back up to $375. Call Jan Bellas at 1(301) 220-4100.
Merry Christmas to all & sincerest heartfelt Season’s Greetings to those of faiths different from my own that do not celebrate Christmas. Best wishes for a Happy New Year!
Tom, RA is wrong in this one. Our end game is not to punish AMCs and never should have been. OK, none of us like them but lets deal with fact. They save banks a ton of money AND provide the appearance of cover or deniability to them for the next round of failures. Even though their perceived cover is an illusion, because FDIC and others will still hold them accountable, they are NOT going to go away. Their CEOs KNOW that our regulatory system is so convoluted and full of ambiguous regulations, they can pretty well argue or deny anything short of robbing their own banks at gunpoint.
IF AMCs were the ones setting fees you and RA might be right, but they are no more setting independent fees than you and I are. Now, whether the fees that are being set are physically or verbally passed around or discussed at MBA meetings or direct banker to banker, who knows? The fact is that most “Bank to AMC” fees were $495 to $499 pre-TURD. Post TURD they are now $500-550 with a very few charging another $50 for FHA, but by no means all or even most. The appraiser still gets only $300 to $350; MAYBE $400 if they hold out and are in an area of higher volume than appraisers.
Ask yourself this. If TRID is so new, HOW could I possibly know these fees? (Easy, because the banks make NO EFFORT to be subtle in their price fixing!).
Also, there are only two factors that affect which AMCs get bank appraisal work. One is the kickback common in the industry, that others have written about ($50 to $75+- PER APPRAISAL!); and the other is low price that they will accept from the bank / lender.
We will not fix these things on State levels. The only place we can do anything about this is through the CFPB. We’ve written to the FFIEC and its members, along with a copy to CFPB seeking help. Its ONLY preliminary at this point. Little will happen, but the groundwork is being laid for subsequent efforts.
What we REALLY NEED NOW are more Guild members willing to HELP, rather than naysayers. Our parent unions have been good about helping so far, but they won’t (and can’t) take a lead without us doing the legwork and frankly I’m severely limited by having only 24 hours in a day. We are getting great responses from many groups and individuals. Some ARE truly helpful, but in the end we need to do most research, analysis and developing of solutions ourselves. Call Jan Bellas at (301) 220-4100 Mon-Wed-Fri; or email her at janbellas@appraisersguild.org and join now. Thank you.
Note the response of the AMC Face Hugger when you touch it; it coils more tightly around the neck of the appraisal industry. The AMC Face Hugger was spawned by the most powerful lobby in the land…the American Banking Lobby. I think Tom is probably more correct than either us when he says a hybrid will evolve and emerge within a few short years; part AVM (super computer), part homo sapien.
https://www.youtube.com/watch?v=R2S3Y_dIkjo
Mike, I have read your past posts and think you are on to something in regards to your thoughts on setting appraisal fees, however here is my question. With some states moving forward with obtaining independent appraisal fee studies and using that data to set pricing policies, I have issues with the questions and the fees that appraisers quote. Do you in anyway support this technique to establish appraisal fees? In 2.5 years will the state of CA be required to implement customary and reasonable fees based on these independent studies. I have many thoughts on the issue, but am curios to find out yours.
Thanks for taking the time to research this Bill; and for the kind comments. As the old saying goes, “the devil is in the details.” Of the few studies I’ve had an opportunity to review I believe ALL are flawed to some degree. Example: Asked AMC their fee; and then asked banks how much THEY pay appraisers when they do NOT use AMCs? No one asked the appraisers what THEY charge. Also, it does NOT specifically address what is “reasonable”. It merely assumes customary is also ‘reasonable’.
I have to look at both a personal preference and pragmatic possibility in answering your question. While I think my proposal results in more fair fees across the nation, the reality is that states that HAVE provisions and recent university studies are not going to change their methods. Also, changing the rules in the middle of the game is unfair to affected parties that HAVE been complying with them (rules).
I think the best we can currently hope for is adoption of the proposed fees as a default C&R presumption IF: (1) Existing state studies are determined to be significantly flawed or; (2) Are three to five years out of date; (3) are in dispute in a civil court; or (4) the state has no specific plan AND enforcement policy for C&R fees. I would want the CFPB to adopt the fees as their own for all states that have no C&R fee definitions and enforcement mechanism (such as California).
Right this minute, under TRID appraisers are NOT the ones setting their own fees. The lenders / banks have already determined how much THEY will pay to the AMCs (typically now $550+-). How much the appraisers receive after the $35 to $75 per assignment kick backs are paid; or the AMC takes its $100 to $250 cut is anyone’s guess. Assuming this overall $50 per assignment increase in fees paid BY banks to AMCs is passed on to the appraisers it should produce fees in the $350 to $400 range…though I am sure it will not. The only thing appraisers are ‘setting’ is their initial asking fee until they find out it puts them out of the range and they have to adjust downward to get any work.
I think that $400 to $450 to an appraiser is far too low to perform ALL the required work properly. I think $550 is the MINIMUM any should be receiving (rounded from my proposal) to not less than $650 for FHA work.
Also, I would / could support some type of appraiser fee reimbursement to borrowers after their loans are closed (out of escrow). They would have to pay it out up front, but IF they close the loans, then they’d get reimbursed. Amount added to loan just like first year MIP is.
Of course the appraisal fee would have to be fully separated in the TRID from bank review fees; and amc fees, and most certainly any kick backs paid by AMC to lender executives.
The answer is quite simple, the banks hire an appraiser, the appraiser finishes the assignment, the bank pays the appraiser their invoiced fee. If the bank decides to use a 3rd party, then that’s between them and not the appraiser. The bank hires a 3rd party, they do their job, invoice the bank and get paid by and from the bank. Appraisers did not “hire” the AMC and should not have to pay them a dime! Why everybody is making this so hard is beyond me.
when i see the words “customary & reasonable fees” being said, or printed, i want to knock that person out. These words are now the new poison being fed to appraisers. oh, we didn’t give you enough food on the plantation. ‘WE” have decided to give you a “reasonable and we’ve decided to be customary, a nice slice of our bread”. after HVCC those words are doing the most damage to appraisers. King Mike, i wish you were, you’re right. but’s let’s change the name of our profession to “the cruise of the damned.” and Steve, i’ll keep it simple. you’ll never see that reality, however right you are.
Tom D., when you are right…you are right! I try not to use the term C&R at all where people already know what I am talking about. A weak argument can be made in some cases about how “customary” fees have been paid, but I don’t think ANYONE can argue that “reasonable” fees have ever been pad by AMCs since HVCC started the AMC curse.
Join me in the fight. We wrote to CFPB yesterday (along with FFIEC) on the issue. Last week I received a call an from appraiser working with an east Coast Senator’s Office on the issue; and Northern California appraisers also concerned. Bottom line? We need YOU to join us. Please contact JanBellas@appraisersguild.org . In addition to the never ending need for new members, we could use more people interested in actively assisting in communicating with other appraisers, or reinforcing the message.