FTC Has Cost the Appraisal Profession Dearly
The FTC is asking for public comments on the consent decree by the Louisiana Real Estate Appraisal Board. The time line to comment is short and ends on July 22, 2021. VaCAP asks each of you to take a few minutes and read the consent decree as well as the analysis provided by the FTC before commenting.
It is important for each of us to comment on the practices of the Appraisal Management Companies and to encourage the FTC to investigate their practices.
So far only 3 comments have been posted:
Louisiana Real Estate Appraisers Board; File No. 161 0068, Docket No. 9374
The FTC’s pursuit of the State of Louisiana is, and has been, a case of over zealous interpretation of the Sherman Act.
Dodd-Frank specifically addresses customary and reasonable appraisal fees, and gives guidance as to how the fees can be determined. The state appraisal board was simply exercising this guidance.
The damage that low fees offered by AMCs is quite far reaching. It has resulted in a lack of new and diverse appraisers entering the profession. Appraiser supervisors cannot afford to train new faces because of low, non-competitive fees. AMCs has caused irreparable and far reaching damage to the profession. Any notion of an appraiser shortage is rooted in the fact that many appraisers are turning away from AMC ordered assignments.
The FTC’s time SHOULD have been spent investigating the AMC trade group known as REVAA to find TRULY non-competitive practices.
The FTC has cost the appraisal profession dearly in their pursuit of the State of Louisiana. This entire episode has been entirely misguided.
Three comments. Customary and reasonable “rules” are a cruel joke upon appraisers. Given the opportunity the Appraisal Management Company will cheat appraisers out of a fair fee, or not pay them at all with impunity. The bank simply uses the AMC as a firewall to give the banks a Sgt. Shultz defense, “I know nothing.”
As a result many appraisers eschew working for AMCs thus creating a shortage of available appraisers when times like this year when sales are off the charts. I am one of those. I do not have to take the stress of working with these moron AMCs.
Next, Real Estate agents who have an over-priced deal complicated by an appraisal that is less than the sale price are now dictating to banks (and banks kowtowing to it) that the targeted appraiser cannot appraise their listings. A blacklist. You can go into realtor sites where they openly brag about it. You can go into appraiser forums where they talk about it. Does anyone do anything about it? nope. When contacting the Real Estate board over the issue I was told to call the FTC…when has the FTC taken action on anything similar to that?
Finally, the idea that boards should be regulated by people outside the expertise of that industry is a two edged sword. No. They don’t have a dog in the fight. But they don’t know come here from sic’ ’em either. I don’t know which is worse. LA fought a poorly defended fight. But I don’t understand why the FTC cannot at least put some pressure on banks by punishing crooks running AMCs and then pounding the bank that hired them equally hard. As I said, the bank should be held accountable but instead is allowed a ‘bye’ as if they innocently hired these vultures.
As an appraiser, I applaud the state of Louisiana for supporting the Dodd Frank Act. When the Dodd Frank act was instated, appraisers were being pushed by lenders to provide inflated appraisals. After the housing market crashed, the Dodd Frank Act was created to help create a ‘firewall’ between appraisers and lenders to remove the pressure from lenders. Appraisers are now able to provide independent appraisals without undue pressure from the lenders. Lenders are responsible for paying appraisers and there is a dependent nature between the two parties in terms of income. The Dodd Frank act was in part used to relieve this pressure on appraisers, but it created the need for a 3rd party to facilitate the appraisal ordering and servicing for lenders. This created Appraisal Management Companies (AMCs) who now assign most appraisals within the nation. Appraisers are dependent on AMCs for work in a similar manner to the lenders. The AMC business model is based on ‘faster/cheaper’ and created a ‘race to the bottom’ for most appraisers during the downturn in the real estate business. AMCs typically would collect the appraisal fee from the lender, then turn around and offer an appraisal to a ‘for hire’ appraiser based upon the lowest available fee and turn time. As time went on, appraiser pay was dramatically cut in half. The AMCs would take half the appraisal fee and offer the rest to an appraiser for the work. The appraisers fee of $400 was now being cut in half; $200 to the appraiser and $200 to the AMC. The AMC model cut appraisal fees because they held all the work available and appraisers were held hostage in terms of work. Most appraisers must rely upon AMCs for work as the Dodd Frank Act has created a need for a 3rd party to facilitate the appraisal process. The Dodd Frank Act also stipulates appraisers are to be paid a ‘reasonable and customary fee’ which was almost never paid by the AMCs. The AMCs sometimes conduct their own ‘survey’ of fees and determine they were paying reasonable and customary fees based solely on what they were paying the appraisers on their panel. This is a self-fulfilling prophecy at best. Fast forward 10 years and we have more issues with the AMC model. Not only are the AMCs taking a significant portion of the appraisal fee, but they will also hold an appraisal order and shop it for weeks before getting it assigned. This is an effort to only keep fees low and to find an appraiser who will finally accept such a low fee. In the end, the borrower is punished by a slow turn time, low quality appraisal (low fee work), and still has to pay top dollar to the AMC. I am thankful the state of Louisiana is keeping AMCs in line and requiring them to pay the ‘reasonable and customary fees’ that are required by Dodd Frank. Without any penalty from the states to enforce the entire reason an AMC exists, it is the least they can do to enforce the other half of Dodd Frank to protect appraiser fees. Appraisers are becoming unwilling to work for AMCs who pay the low fees, and this is creating what appears to be a shortage of appraisers which is not the case. There is a shortage of appraisers willing to work for low fees that were created by AMCs. The AMCs themselves should be held accountable for their own price fixing by conducting in house surveys which are not accurate and do not reflect appraisal fees at large.