The C&R Compensation Argument

The C&R Compensation Argument - Audit AMCs for C&R Payment Compliance

Audit amc’s for C&R payment compliance nationally…

A wrongful denial of that immunity is effectively unreviewable because it subjects states and related entities to the indignity of defending sovereign action through protracted litigation. Delaying appeals or orders denying state action immunity will interfere with their regulatory freedom by distracting officials from their duties and hindering their discretionary actions.

Please allow me to help with a summary of the past 10 years in the appraisal industry. Amc’s are billion dollar companies and they circumvent many long standing ethic and spirit of regulatory compliance laws in states where they operate. They shop for reduced cost, then pocket the differences in secret without returning cost savings to consumers. If they were mortgage lenders they would be in violation of junk fee and unearned fee rules. They pressure appraisers in one form or another, position like an advocate for the lender, then force appraisers to sign independence compliance statements. They often hire non licensed poorly qualified people because they have only limited interest in compliance and many would rather litigate than comply. It’s a more profitable approach. Despite clearly understanding the reason any individual state may impose a new ethical or operational requirement for the purpose of better consumer protection onto them in one location, they refuse to offer such benefit to appraisers and consumers in other states and lobby against such restrictions in the future elsewhere. Their position on legal compliance is usually the bare minimum. Please audit them for C&R payment compliance nationally.

Here, and specifically, here.

In the case of information based on fee schedules, studies, and surveys, such fee schedules, studies, or surveys, or the information derived therefrom, excludes compensation paid to fee appraisers for appraisals ordered by appraisal management companies, as defined in paragraph (f)(4)(iii) of this section.

That’s what this is all about right? Appraisers know in a very plain and straight forward way, the amc’s pay notably less than non amc work. The C&R fee rule with recurrent $10,000 / $20,000 per instance fines if the abuses continue were put in place to stop the obvious abuses of appraisers by appraisal management companies. Overnight the business entities we used to source orders from were forced to comply with separation from loan production rules, they sent that work through amc’s to comply. Overnight what used to be a $500 order dropped to $350, $250, sometimes only $175 dollars per order, while base consumer costs for valuation services often only increased. Overnight the fair distribution of orders changed and the lions share suddenly went to those few appraisers whom cut corners and often used outsourcing services. They were able to produce such reports at bare bones pricing via outsourcing essential services, using overseas typing and other services which may also compromise data security for consumers, using non licensed inspection runners, short cutting and automating many aspects of appraisal development. Setting a new performance standard that many appraisers can not match with more careful detailed developmental approaches. Amc’s immediately drove tens and tens of thousand of appraisers out of business and attrition has continued for 10 solid years while the amc business brag about record setting business growth. Most amc companies do not return cost savings to consumers so when an appraiser agrees to accept a discounted fee from an amc, it may be argued that the appraiser has violated the spirit of ethical guidance to not provide a thing of value to be the preferred selectee. It’s similar to pay to play, in a more complicated engagement setting riddled with other subjective regulatory compliance requirements. This is the typically expected engagement model the amc presents with and they absolutely do have a financial incentive to assign as many orders to the lowest priced vendors. They get to keep the variable fee rake in an unrestricted manner and do not have to comply with junk fee rules and unearned fee rules or even basic fee distribution disclosure which would otherwise be applicable to other businesses dealing with federally regulated mortgage lending.

Some states make small moves to help appraisers but very few if none were able to effectively implement the C&R customary and reasonable fee rule, that amc’s must compensate appraisers at a fair manner as if there was no amc involved. Also known as cost plus billing. The majority of amc’s in business today do not use a cost plus billing approach. Rather the billion dollar amc industry exists on the appraisers dime, exercising an infinite power and restraint over appraisers where we can not compete in the free market place of appraisal order engagement unless we accept these anti competitive practices, willingly working for less income in order to have access to the amc work. As amc’s reportedly have captured over 85% of all mortgage origination requests in the US, it is exceedingly difficult in many locations to source mortgage lending work without going through them. To add insult to injury amc’s also implemented a non disclosure agreement the appraiser was not allowed to share their fee with the consumer, cleverly concealing the amc fee rake in a singular ‘appraisal fee’ line disclosure in consumer documents. Consumers might get upset if they were to find out that although they paid over $650 for appraisal services, the appraiser himself only charged $350 or even less. Also there is an appraiser’s ethical guidance point that we should bill fairly. This of course is ignored because appraisers whom are forced to accept amc discount work to stay afloat do not then purposefully reduce the fees for the same working efforts elsewhere without such imposed billing restraints.

It is generally understood by appraisers that amc’s have remained in violation of C&R rules for more than a decade. It remains the hope of many remaining appraiser that they will receive the retroactive 10k / 20k fines for every instance where they have been in violation of fair compensation rules and have continued to restrict access to sourcing orders. They have become so empowered with the billion or more dollars of profit, they now seek to bypass the bulk of regulatory compliance by lobbying for hybrid and alternative appraisal products. Again, a more profitable approach. Consumers deserve better.

And the one state whom stands up for fair billing gets wiped out by an anti competitive suit when they were actually trying to defend appraisers from long standing anti competitive practices, if I have understood the recent anti trust article sequences correctly. FNMA CU system has the data to provide guidance, they can parse appraisal data in the CU system by amc vs not and they can make fee comparisons and provide the fee tables for what substantiated C&R should look like. The VA panel is not secretive and because they prohibit amc meddling and fee raking in general, they do have clear straightforward fee compensation tables from factual and substantiated free market appraisal cost surveying. All one needs to do to prove the theory amc’s have violated the original spirit of the C&R rule as literally intended is to compare the fee an appraiser gets if working with an amc vs the VA fee. For example, here in CO; VA fee; $700. FNMA typical direct lender fee; $550 or more. Amc fee if the appraiser wants similarly reliable order volume; $350. Yet consumer charges lenders impose for appraisal valuation services remain generally consistent on the front end regardless of where the consumer goes.

Meanwhile, amc expansion continues and only the VA puts out an unbiased and factual fee survey based on confirmed fair market appraisal charges which excludes amc fee raking. Some states are fighting back with C&R compliance rules of their own which hopefully will not be subject to such interpretation which goes against the very spirit of the C&R fee rules as originally written and intended. The spirit of the customary and reasonable C&R fee rule as originally intended is simple to explain; If the lender wants an amc to be involved they should pay for that in addition to what appraisers would be compensated as if there was no amc involved. We’d all rather just not deal with them if we had an option, the presence of amc’s has been devastating to the appraisal industry with lasting negative consequences. The intention of the C&R fee rule was to provide appraisers immediate financial relief since we could no longer source similar order volume without having to go through amc’s. There is a direct relationship to the rapid pace of amc growth vs the rapid pace of appraiser industry decline. After all, we’re the ones paying for it.

amc: “We have an available order in your area. This request has been sent to multiple appraisers. Please provide your best fee and turn time.”

By Champ, Certified Real Estate Appraiser – author requested to remain anonymous

Image credit flickr - Marcel Oosterwijk

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24 Responses

  1. Avatar Advocate says:

    Excellent article!

  2. Kathy Hubbard Bright on Facebook Kathy Hubbard Bright on Facebook says:

    If an appraiser even mentions customary and reasonable in response to an amc offer, they will use a different appraiser.

    • Kind of a chicken and the egg scenario. If appraisers refused to work for substandard fees, then AMCs would have no choice but to raise fees to C&R. We’ve already seen this happen in Washington; Oregon, Colorado and parts of Texas.

      If a majority of appraisers are truly too afraid to stand up for themselves, then yes. AMC’s will win, and any discussion of C&R will likely result in other appraisers being selected. No price fixing there at all, is there?

      • Baggins Baggins says:

        Soliciting directly to lenders matters a lot. Keep my flyer handy and when you get away from amc’s, I’ll be available. This amc solicited me the other day for a keystone reo. “Hey, they were my client. They paid consistent reliable fees. It is the management companies job to present with a reliable consistent upfront fee so what is that fee.” Their response for a multi family base fee I could rely on in the heart of the city; $350. That’s only 350 short of the VA fee for a single family…  Close, no cigar.

        What’s your fee and turn time? Response; What’s the consumer fee on this one? I could probably run with that fee if it’s adequate. Easy simple methods.

  3. Avatar Michael Wilbanks says:

    Well said my friend, well said.!

  4. Gregory Beck on Facebook Gregory Beck on Facebook says:

    If they are making all this money, then I find it odd that appraisers are not getting paid or struggling to get paid.

  5. Avatar Tommy says:

    Play to pay INDEED! Great article Champ!

  6. Shawn Vanderhart on Facebook Shawn Vanderhart on Facebook says:

    Amen to this !

  7. Well said Champ!

    Cost plus is the only solution IF the AMC or AMS model is to be retained.

    There is a strong argument for sending the AMC model the same way HVCC went. AMCs have almost universally adopted the mantle of the lenders (read commission compensated loan officer) surrogate violator of appraiser independence and Dodd Frank/Reg.-Z in general

    The temptation is to adopt the VA method and rate across the board because it is easier. I could live with that IF that’s the best we can do. I don’t believe it is.

    AGA already submitted a C&R fee proposal system that is based on assignment complexity; appraiser skill level and time required. Best of all, it follows U.S. Federal Civil Service appraiser pay guidelines.

    Let’s see the FTC challenge that one!

    Of course all the efforts to eliminate abuse assumes that’s the objective of the federal and state governments. Treasury Secretary Mnuchin’s recent report to the President on financial reform suggests consumer and public funds protection are very, very low priorities.

  8. Avatar pat says:

    Yep, consumer protections are very buzz words and very politically correct. However, even the states (excluding Louisiana) are scared of lawsuits from the AMCs. See Virginia for instance. But hey our executive director in charge of the Virginia appraisal board is much friendlier to their lobbyists than to our own licensees that pay salaries to the state employees. There are no known AMCs domiciled in Virginia that pays taxes.

    BB and T just showed the way.

  9. Diana Berlin-Smith on Facebook Diana Berlin-Smith on Facebook says:

    Nevada State published a customary and responsible fee study done by UNLV. I have sent it to AMCs. I think Nevada is waiting to see what other states are doing.

    • Baggins Baggins says:

      Every time we look at those we find they’ve consulted with ‘experts’ whom turn out to be amc’s or related somehow. It’s the methodology of data assimilation that really matters. One puts on their tin foil hat very quickly and says, well if they really wanted something without amc’s influence included in the data, why didn’t they simply turn to the public VA fee tables? It actually takes an act of congressional approval to move the VA table fees, they’re reliable long term reference points. Where as these surveys are often much too limited in scope to compare to the credibility of the VA research. VA tables source data from actively working appraisers in every place in the nation, whom work with a very wide variety of lenders and orders of all types. Nothing else compares in terms of validated data integrity.

  10. Baggins Baggins says:

    They’re like, doing it wrong.

    Louisiana Real Estate Appraisers Board, In the Matter of Louisiana Real Estate Appraisers Board | FTC

    The ftc should recognize the amc is restraining trade by having their fee improperly co mingled with the appraisers fee, which results in restraint of trade and eliminates the ability for the consumer to shop or benefit from cost savings of lower priced providers…

    They could force a cost plus requirement and make it all go away overnight.

    It’s one thing to provide a lower cost service and be the go to provider since you’re providing more for less cost to consumers. Be the wal mart of the appraisal world, if you’re able.

    It’s quite another to have a middle man driving the fees down and pocketing the difference, eliminating the consumers ability to shop for savings or benefit from lower priced vendors, restraining the ability of the vendors to price fairly themselves. That is restraint of trade and application of what equates to junk fees.

    The problem is not where the median value lies, the problem is improperly co mingled fees and the financial incentive that creates for amc’s to drive appraisers fees down while simultaneously driving consumer fees up. Now with the additional benefit of also promoting an inferior hybrid service product so they can offer even less and charge even more.

    • Good point(s). Under the old ERC format, the ERC Company would provide the owner with a list of three approved appraisers. All who had actually demonstrated competency. The owner interviewed us and made their selection; often selecting the higher cost appraiser because they believed they would get a more thorough job by someone they believed to be competent after directly interviewing them. Sometimes they would opt for the lower fee or faster completion time, but not that often. AMCs are supposed to assure competency and report adequacy-but they don’t. No more than they assure any degree of independence from their clients value needs.

      • Baggins Baggins says:

        ERC format? Geesh, wish I could have been there to enjoy that. I started 2005-2008 time frames.

        My mother still does amc work. Just yesterday she dealt with an mb pressing her for value, instructing the refinance borrower to state the number. Mom fell into the conversation trap and then next day, mb threatening to reassign the order.

        I keep telling her, the reason lenders select amc’s is because they want to pressure appraisers, not because they want better separation from loan production. If appraisers would simply get away from amc’s they enjoy better fees, less pressure, and less kickback. Win, win, win.

        Lately I just keep on winning, not all the time but enough. I’m nobody special and have no additional accreditation to speak of. However, I did stay at a holiday inn express, and I know how to seek out find and fill out direct lender panel applications. It’s not rocket science.

        If amc’s seek to compliment my service, they’ll have to be better at managing lender pressure and advocating for my best business interests than I am. As they have failed to do so; don’t want them, don’t need them, don’t answer for them.

  11. Mike Paul on Facebook Mike Paul on Facebook says:

    If you truly want to make money doing appraisal work while having attorneys beg for your services, then get out of real property and into personal property, specifically, divorce appraisals. You will have a backlog of work orders in no time at all.

    • Baggins Baggins says:

      Thank you Mr Paul. Where did you turn for comprehensive well rounded CE regarding those efforts? Is it possible to perform that service and cleverly just stay out of court? How would you compare the average fees to ML, or do you go straight hourly?

  12. Ron Schwartz Ron Schwartz says:

    It’s great that everybody’s talking about it. but no one’s doing anything about it…

    I’ve been writing speaking and discussing this for years …but who is going to step up to the plate to eliminate the AMC’s…?

    • Baggins Baggins says:

      Largest class action lawsuit ever? 10k/20k daily fines.

      Asking the government to help will result in an even worse anti competitive environment.

      Financialize the problem, use lawyers.

    • Ron, respectfully there are even bigger problems than the AMCs. FAR bigger problems. Like MISMO; TAF always dancing to the lenders tune; or one of their side ventures outside of their Congressional mandate. If standards are inconvenient; no problem just keep rewriting them til they are acceptable to the mortgage bankers.

      Appraisals too expensive? No problem, just mandate a systems of transmission that sets the data up to be stolen directly. Look at least one level beyond AMCs…as bad as they are.

      • Baggins Baggins says:

        Or keep it simple. “There is no such thing as a safe mortgage loan. You don’t own the home until the final payment is made and you are cleared from all possible clouded title issues.” The truth is there are entirely too many mortgage loans in America. The appraiser is the trusted local professional whom can help people and companies navigate price value relationships in a specific locale. The integrity and viability of the appraisal profession should not be predicated on the production volume of lenders.


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The C&R Compensation Argument

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