After an overwhelming outpouring of response from appraisers all over the country, I am compelled to write a follow up article to “Appraisals and The Real Cost of Doing Business.”
I must stress that my original intent was to highlight the ever increasing cost in all aspects of our industry, passed on to our clients, due for the most part to increased compliance requirements, additional staffing required to monitor said compliance, Dodd Frank rules, HVCC, TRID etc. I had ranted previously about other compliance issues taking their toll, unintended consequences of increased fees, and this was an addition, or follow up to that. In light of all the emails, messages, calls, and comments received, and the fact that so many took time out of their busy schedule to reach out, I feel it’s only prudent to put my ten cents, or more, in on the subject of actual cost, versus paid fees for appraisals.
As I had pointed out, only recently up to a couple of years ago, appraisals in our area of Northern California were costing in the region of $350 to $400 depending on complexity, region or loan type. This was the case for as far back as I can remember, but for sure around 2002 onwards. And, until HVCC and the Dodd Frank ruling reared their ugly heads, it continued to be the norm.
So, let’s think about that for second. For at least ten years, the cost of an appraisal did not change. At that time, the fee went directly to the appraiser, no middle man, no AMC, no additional fee disappearing into an abyss that we aren’t aware of. But, surely, the cost of living has increased at least 3% to 5% a year over that time? Anyone in a regular salaried position, such as Underwriters, Escrow Officers, Processors, and so forth has likely been given a regular cost of living increase for most years over that same time period. We, as originators, are no longer legally allowed to give any of our commission to our clients for closing costs, or unexpected items that showed up to be paid, which most of us did to some extent on every transaction. So we, inevitably, are now making more money per file.
Then, let’s dissect this a little further. When the Home Valuation Code of Conduct (HVCC) was originally introduced, and most opted to employ a neutral third party Appraisal Management Company (AMC) to dish out and assign appraisals, the fees suddenly jumped. Appraisers were forced to sign up and be approved with the AMCs in order to continue to be delegated business. Yet, in order to be chosen to undertake an appraisal they also had to be subject to a bidding process. This saw their actual fees drop as low as $200 to complete the same appraisal they had recently commanded $350 for.
This debacle went on for a good few years, until only more recently, I’m being told by a number of appraisers, they are back to their original fees level of $350 to $400. But, within that time they have now been given an additional number of tasks to complete within the scope of the appraisal report, required by the majority of lenders, adding more hours to the work load, and yet still they are being paid the same fee (if they’re lucky) as they were in 2002! These include quality of home codes, market analysis, additional comps, more photographs of the home, not to mention the more stringent requirements FHA/HUD have placed on their certified appraisers to complete their report.
This indicates that our appraisal management companies are pocketing as much as $250 per file on some transactions for delegating the task to an appraiser, taking a cursory look over the appraisal, and then sending the report onto us, all in order to ensure the appraiser is anonymous through the ordering process. How is this really in the best interest of the borrower? And, how is this really in the best interest of the appraiser?
To add insult to injury, they are, just like originators, a dying breed. It’s almost impossible to attract young blood into the industry as it’s ever increasingly difficult to qualify and become an appraiser. One is now required to have a college degree, two years of mentoring/experience, and then pass numerous exams, all of which increases exponentially if you want to continue on and become FHA approved too.
It has come to my attention, although I’m not sure it’s available here in Northern California yet, that other areas have Appraisal Portals. They’re all entirely electronic, don’t require a management company, and the cost is about $10 to $24 per report. This allows an appraiser to sign up to be a part of the “round robin” type system of appraisal assignments, they can command their proper fee, and the borrower/clients will be paying at most about $25 more for the report! How fabulous is that? For my own piece of mind, I want to investigate this further, discover the success rates, quality of appraisal reports, and so forth, then determine why we can’t use this locally here.
The culmination of all this is the Tier System I had commented on in my previous article. In order for us to attempt to accurately disclose a fee for an appraisal on a property, a home that we likely know nothing about at the time of the order, unless our Realtors have the wherewithal to give us some information, but nonetheless are bound by TRID to disclose right at the beginning, it seemed a good option to categorize regions, and appraisal types and we can pick and choose accordingly.
But with this system the fees have increased once again, however not it seems for the appraiser. The Middle Man is sopping up the surplus. And, while we are forced to disclose as accurately as we can for fear of having to start the entire loan file over should we mistakenly misquote something (due to TRID rules and still not in the best interest of our clients), the AMCs are somehow not required to specify exactly how much of the total fee is being funneled to them. Does that seem a tad unfair?
If we must quote our fees to the penny, our processing fee, the underwriting fee, the owners’ title policy, the full lenders’ title policy along with the discount that is never seen, alongside a myriad of items such as home insurance, escrow/impound accounts, prepaid interest and more, shouldn’t there be absolute clarity on the appraisal fee, how much the appraiser is being paid, and just how much is being added on for the AMC?
In this age of complete transparency, required by our government, one would think something as important as the appraisal, a report that is required on pretty much every transaction, should be properly disclosed. And, in the meantime, that our appraisers would be allowed a cost of living pay increase or two, instead of a pay decrease each time something changes above and beyond their control. Again, I’m thinking perhaps I need to chat with Mr Trump!
Suzanna Ravin has been working in the lending industry for the last twelve years, currently managing a retail branch Peak Mortgage, a division of Finance of America Mortgage, LLC. She maintains her top originator status by remaining very hands-on with her clients’ transactions. Often referred to as the Loan Guru, she loves to be completely informed on lending guidelines, and regulations.