While most of us in the real estate industry have been negatively impacted by the economic downturn, there are changes put into effect by the financial reform bill known as Dodd-Frank that may continue to affect how we do business and our overall ability to earn a living.
Dodd Frank goes into effect on April 1, 2011 (Some are still crossing their fingers that it will be the greatest April Fools Day joke ever!) and with it comes the application of 'reasonable and customary fees' for real estate appraisers. What this means is that any company or person contracting an appraiser to perform a real estate appraiser must pay the appraiser a fee that is reasonable and customary for the type of report being requested in the respective region.
The problems with this scenario began shortly after the concept was rolled out to the public. Who determines what fee is customary? Who should the fee be reasonable to? Does the fee need to be customary AND reasonable or can it be customary OR reasonable?
That last one is the biggest issue right now. The way the language is written in the bill appears to state that it can be one OR the other. With many AMCs (Appraisal Management Companies) paying substandard fees to appraisers who are trying to keep the last bit of food on the table, customary is the same fee they've been paying, so no real effect would be evident and no change would likely occur.
However, reasonable is even more difficult to determine. There are surveys by independent agencies that are trying to determine what a reasonable fee is. Unfortunately they need to determine what a reasonable fee is for nearly every type of appraisal scenario such as exterior only, desktop quantitative analysis, interior SFR/Condo (1004/1073 the most common forms), multi unit appraisals, rental analysis, operating income statements, FHA appraisals, Repair Completion reports, etc, etc, etc. This is all compounded by the fact that different scopes of work may be involved for different properties that can still be reported on the same form. It's compounded again by the fact that the appraiser is bound by our Uniform Standards of Professional Appraisal Practice (USPAP) to work out the scope of work with the client as part of accepting the assignment, part of which is determining the fee for the agreed upon scope of work. Some lenders and AMCs are apparently requiring appraisers to affirm that the fee being offered is 'reasonable and customary' as part of accepting the assignment, which seems unfortunately to bolster the idea that lenders and AMCs will later use this to refute the afformentioned surveys form 3rd parties as to what a reasonable and/or customary fee is. Sounds awesome so far right?
My contention has always been that the appraisal fees charged by lenders and AMCs should be enough to cover the 85-90% of homes that are typically appraised for lending purposes. In my experience, this fee ranges from $325 to about $385 depending on the locale and the appraiser being contracted. Having managed our own AMC for some time, we were able to charge our lender clients the same fee on at least 90% of their appraisal requests and rarely had any appraisers feel that we were not offering them a reasonable fee. In those cases that there is a specific scope of work that requires more than expected, the higher fee can than be negotiated. It was never difficult to do this and I beleive we always had a mutual respect with our appraiser panel. This is similar to the VA model, and seems to me that this should hve been the model used in Dodd-Frank. There has not been a good reason to create a whole new set of rules when there was en exisiting model available that is very efficient and proven. Unfortunately this does not seem to be where we are heading.
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