So far, it looks like we may be seeing the first good news in the Appraisal Industry after over a year since the HVCC went into effect. This comes in the form of H.R. 4173, the Restoring American Financial Stability Act of 2010; if enacted, this could mean loads of good news for appraisers who have seen hard times over the past year due to the implementation of the Home Valuation Code of Conduct (HVCC), which dramatically changed the landscape of the appraisal profession for many Real Estate Appraisers who had spent years building business relations with clients. The HVCC essentially severed business relations between many Loan Originators and Appraisers by installing a “fire wall” meant to bolster appraiser independence. The effects of the HVCC included the bolstering of Appraisal Management Companies that are notorious for charging typical appraisal fees to the consumer while paying the appraiser, in some cases, half of the fee charged; the AMC keeps the other half of the fee, skimming money off the top. Typically, an AMC shops for the lowest fee among appraisers in a given area in order to retain more of the appraisal fee charged to the consumer; this has resulted in low quality appraisals that are sometimes performed by inexperienced or out-of-area appraisers. Okay, that is (some of) the history… now to the present.
This new legislation, if passed into law, will be the first major revamp of Title XI of the FIRREA Act since 1989 and should help to address several concerns among appraisers. The language introduced in this bill defines what I call “fee skimming” as “cram downs” of appraisal fees, calling them an “unfair and deceptive” practice (under the Truth and Lending Act). The language goes further to define that fees paid to appraisers must be “customary and reasonable”, much like the wording of the recent FHA changes; but, it even goes further by stating “customary and reasonable” appraisal fees should be determined by either government fee schedules (like FHA or VA) or through independent studies that would exclude fees paid by Appraisal Management Companies – this is what I think is a big win for the appraisal community. A few months back, a company that is a major provider of software for appraisers had compiled a list of appraisal fees tracked through their online ordering system that were not related to AMC work; shortly after publishing these findings, a large advocate for the AMC industry immediately made statements to effect that AMC fees are the new “customary and reasonable”; so far, this looks like the legislation will shoot that notion down (and, in my opinion, rightly so).
This new legislation, when passed, would also immediately “sunset” the HVCC. This would be a welcomed change to many in the Real Estate industry including appraisers, agents, loan originators, and local banks. This legislation would also put into place the means for regulating AMCs, something that only some states have been able to do so far; the new regulations would require AMCs to be registered in each state in which they operate and be required to verify that they use only licensed or certified appraisers; AMCs will also have to certify that the appraisal services they coordinate comply with USPAP and section 129E of The Truth and Lending Act (a provision of appraiser independence).
Another bane of appraisers has been the use of Broker Price Opinions (BPOs) by Real Estate Brokers; this legislation, if enacted in to law, would place restrictions on the use of BPOs, including prohibiting the use of a BPO as the primary basis of valuation for loan purposes in conjunction with the purchase of a consumer’s principal dwelling.
Back to some history: I have been appraising in the Seattle area for over a decade; in the first ten years of my career as an appraiser, the “customary” fee had not changed more than six percent (we actually saw a slight increase in fees sometime around 2005-2006) . Along came the HVCC and AMCs began to sprout up everywhere (some had been around for years, but many were founded after the implementation of the HVCC); most AMC’s immediately began offering appraisal fees to appraisers that were thirty-five to fifty percent less than the ”customary” fee for the prior ten years. To top that off, a large portion of clientelle were now off limits to direct ordering with appraisers, shaving off nearly 70% due to the HVCC rules. Large banks began forcing mortgage brokers to use the bank-owned AMC (only) if the Loan Originator wanted to broker a loan through their bank; large bank-owned AMCs are, in my opinion, ust another revenue source for the bank that is hidden within the mortgage loan process; the consumer, in many cases, never knows that the fee paid for the appraisal is (in many cases) 35-50% more than what the appraiser is paid.
Now, hopefully, this new legislation will pass and put an end to many of these issues. I am one of the few appraisers who has refused to work with the predatory AMCs; I have focused on retaining (and raising) quality standards in my own work and seeking out clients who genuinely want and need quality appraisal services (yes, there are some still out there). But, I also feel that I am one of the few taking this stance. There are appraisers accepting low-fee work and putting out low quality reports to build a “quantity versus quality” approach to the AMCs in order to remain profitable – how else would the AMCs survive? The bottom line is that not enough appraisers are saying “no” to low fee work and too many appraisers are turning a fast product of low quality to off-set the low fee. I, for one, cannot justify sacrificing quality – the clients I have retained can testify to that.
This legislation, when passed, will certainly help to solve some of the most pertinent issues that have come about since the HVCC went into effect; in some areas, it may not go far enough. But it is a start and, for once in the past thirteen months, I see it as “good news”.
The bill passed the Senate and the president has already said he will sign it into law next week. This has got to be the best news for residential appraisers in the last three to five years and certainly welcomed by most, if not all.
Word to appraisers: “customary and reasonable” fees are to be established WITHOUT consideration of what AMCs pay. I know for sure that appraisal fees have been squashed by AMCs over the years and also know that they typically charge the consumer the same as a “customary reasonable” fee while keeping the rest as profit (in most cases up to 50%). This is a “win” for our industry and for consumers who pay for our services. Now – PLEASE – do not continue to under-sell your professional services. This is the time to establish your fees and keep them where they are fair. On the other hand, please produce high quality, reliable appraisals in order to continue to bolster our professional reputation among the consumers/public. I, personally, have not seen significant fee increases for appraisals in the past decade – I know I am not alone.
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