How Much Do You Charge for a 1004?
Question: “Care to reveal the minimum fee for a ‘typical’ 1004 + MC in your area?”
Had an interesting email come in yesterday. It came from a friend of mine in the appraisal industry and began with this question, “Care to reveal the minimum fee for a ‘typical’ 1004 + MC in your area?” The message went on to express some concern over some of the shenanigans that was going on in his own area concerning AMCs, low fees, and appraiser’s willingness to sell themselves short. Unfortunately, the same is likely going on in every community (yours included).
Though the question was likely rooted in a simple curiosity, the premise assumes I had a simple answer. I don’t. What is my “floor” with regard to appraisal fees? How low is too low? If I had to answer that question, I guess the response would have to be “free!” Let me explain.
The fact is, I do not have a “I will do an appraisal for this much, but no lower” number. Oh, I have some guidelines for accepting or rejecting orders, but they are based in what is being required of me rather than an arbitrary, ‘lowest-bid’ pinpoint. Every appraisal request I accept has been vetted.
Specifically, I am looking at the following criteria:
- Scope of Work
- Type of client
- How big of a pain in the a** are they to work with?
- What is their payment histories?
- How much business are they giving me?
- What is their delivery and review process?
- How have they treated me in the past?
- Is someone answering the phones who speaks English?
- Engagement Letter and history of asking for extras that are not necessary
- Area (how far from my office or difficult to find comps)
- Complexity of the property
- If I have done anything recently that is similar
- and other criterion
In other words, in answer to the question at hand, “It depends.” Now, I have my pride. I am not going to go out and do a full appraisal for $250 like some guys in my area do (on the other hand, if I did one IDENTICAL to it for the same lender last week… maybe I will).
Yesterday (the same day I got the email from my friend), I agreed to do an appraisal for free. Yes, I said “FREE!” Why? Well, it seems I had completed a land appraisal for him last year and had taken a picture of the wrong lot (Hey, it happens). He was quite upset and felt he had been wronged (though I do not think the value had been affected any). I admitted my mistake and agreed to redo the appraisal (with an updated effective date) without charge to him. Now, maybe correcting mistakes are a bit off the subject, but it goes to the heart of the issue. Each appraisal fee is based on the circumstance and not on an arbitrary number.
Some of my clients are on the ‘Wal-mart Model’ for pricing. If you are a clothing distributor and want to sell your line through Sammy Walton’s megastore, you must do so at a discounted price. However, nearly everyone wants to do business with Wal-mart due to their incredible volume and reach. To a certain extent, the same can be true with your clients. For example, I work for a large AMC (and have been with them for over 15 years) who gives me a ton of business. Frankly, they are great to work with (minimal scope of work and ‘extras’), and so I cut them a huge discount.
In regard to lowering fees, I will say this; my fees have actually INCREASED over the past year. In fact, I have seen about a 12% increase on average in just nine months! Why? Some of my clients are simply paying more as a standard and others are accepting my counter-offers more often than they had in the past. Higher fees mean I can make the same amount each year and free up time to focus on other things. That is a good feeling.
How are your appraisal fees determined? What criteria do you use in determining the acceptance of an order?
Now, go create some value!
- Be Nice or Be Quiet - July 2, 2021
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- Why Are Appraisers Banned? - April 15, 2021
If you accept appraisal assignments from ANY AMCs you are part of the problem. If you’re declining ALL AMC orders or sitting out the biggest cluster f*@$ in the history of appraising you can be proud of yourselves.
This article is well vetted. However it does not tackle the motivation behind the discounted fee request from the other side of the desk. The cost savings from reduced costs of appraisal services are not passed back to the customer/consumer. Rather the amc approach is to co mingle total appraisal fees, thereby creating an environment which creates variable opportunistic profit through downward fee pressure. / To put it simply with the walmrt analogy: I’m not reducing my fee if such reduction means a profit incentive (thing of value) for me to be assigned the order. Were cost savings being passed back to the customer, discounting would be more acceptable. Can you still call it a discount if it does not equate to cost savings and the borrower still pays a constant rate regardless of the appraisers fee? As a customer, when a vendor charges less for their product, you get to see those cost savings right? Would so many still shop there if the reduced vendor pricing merely equated to increased company profit and the product purchaser viewed no cost savings? / If you mailed these guys a hundred dollar bill back for every order, it would be clearly a thing of value. The industry has yet to tackle the ethical challenge of why discounting beforehand to create the 100 profit incentive ahead of time is not considered providing a thing of value. Clearly, the amc’s send the orders to the appraisers that all else being equal, provide the amc with the largest profit margins. They have a right to make profit, but I wonder what right the consumer has to save a buck when the cost of the service is reduced. Not one dollar of appraisal cost savings get passed back to the borrower. When amc’s abandon the preferential assignment based in individual order profit and move to a cost+ system instead, the aggravation of these overly competitive fee issues in a potential restrained trade environment will be greatly diminished. Then cost savings will be actual savings, and discounting is each appraisers individual business decision without undue bias. / My 1004 fee? 350/450 for most of them, and like Mr Harris states: Each order and order scenario needs individually considered. $250 is right out, considering the borrower is still probably being charged $500, regardless of my discount.
Sorry forget to say: Really enjoyed the article. Thought provoking with a side of inspiration. Thank you for the well written article.
I liked the consideration of complexity rather than letting the form type used dictate the fee. I don’t want this to go off to far afield, but as appraisers we bear responsibility for maintaining our own professionalism. I do not ‘do 1004’s’ at all, or quote fees for them. On the other hand if they are talking about a non-complex, sfr for loan purposes in accordance with FNMA guidelines, including a market conditions addendum for a transaction amount that does not require a residential certification, to be reported on a 1004; I can give them a quote following some of Dustin’s other rough guidelines.
It is a mistake to allow clients to order “1004’s” or anything else by form number. They order appraisal assignments of varying complexity and varying property types. They may prefer a 1004 but it is ultimately up to us to analyze the property assignment and determine if that is an appropriate form format for the assignment at hand.
Why am I being picky abut this? Because as long as we allow lenders and clients to think appraisals and their complexity are form driven they will continue to think “OK, it only takes them two hours at most to complete a 1004; and 15 minutes more for a 1004MC.” In their minds that portion of an appraisal is worth no more than $40 to $50. Somehow they neglect the analysis aspects; or verification process, or supporting our findings or reconciliation.
Finding out the ownership interest(s) in real property that we are being asked to appraise is supposed to be our first step-not which form or fee to charge.
Re-doing a report that you made a mistake on IS NOT DOING A REPORT FOR FREE! Its correcting a mistake. Wrong picture of a lot? Well, why take a picture at all? The most anyone can see from a picture of a vacant lot is that YOU KNEW WHICH LOT YOU WERE APPRAISING!
We DO have a LOWEST PRICE. Its the price that the VA allows us to charge. Why do we use that as our LOWEST PRICE? Because, as a veteran owned business, we feel that NO ONE should get a home appraised for less than a VETERAN has to pay for an appraisal. Its a matter of personal / moral / business ethics.
Therefore, we calculate the fee for any NON VA work based on the scope of work, the complexity of the assignment, the size of the home, the size of the site, and the LOCATION.
We do NOT DO a $1,000,000 home for the same fee as a $100,000 home.
We look at our expenses to complete an assignment, we consider what other professionals charge, we decided we were worth at least $50 / hr. That translates into what the VA pays us for one appraisal that typically takes us 1+ day to do. All others go up from there.
Also, while the correct form is supposed to be up to the appraiser to determine, if the appraisal is for loan origination to sell to FNMA THEN it has to be on a 1004 or other FNMA form. In that case, it is NOT up to the appraiser to determine.
And FYI MIKE FORD, a residential appraisal “that does not require a residential certification”????? NO SUCH ANIMAL!