The ugly truth about appraisal fees

I had a bad experience with an AMC recently and I want to share it. This is not because I’m wanting to rant or be negative, but only to highlight some of the ugliness that happens behind closed doors when it comes to appraisal fees during loans. This is especially worth knowing about for any home owners and real estate agents for the sake of their clients. Any thoughts? I’d love to hear your take. 

35462423 - closeup of thief taking money out of back pocket over white background

The Issue: I was asked to appraise something challenging, so I quoted a fee that was higher than a standard fee in Sacramento but still reasonable for the job because the house was funky. Anyway, I was comfortable with the fee and it was accepted by the AMC (Appraisal Management Company) that the lender hired to manage the appraisal ordering process. But then things got interesting because through the course of the transaction someone showed me an email from the loan officer where I learned the AMC was actually charging the buyer $345 higher than the fee I quoted. What the? That seemed excessive, but the real clincher for me was the email showed a chain of conversation with the AMC where they said I was the one who quoted the much higher fee. Not only was the AMC gouging the buyer in my opinion, but there was a blatant lie that I was the one dictating this fee that was 43% higher than the one I quoted.

Look, I’m not a complainer and I am a total optimist, but this is not okay on so many levels.

Why this matters:

1) Anger & The Real Fee: Let’s remember the appraisal fee charged to the buyer might be far different from what the appraiser actually gets. Thus before becoming angry at the appraiser for charging so much, try to find out what the appraiser is being paid (and what a market rate is for your area too). Is the appraiser actually getting that rush fee your buyer paid too? Keep in mind many AMCs tell appraisers not to discuss fees, so unfortunately it’s not likely you’re going to get an answer from the appraiser (maybe ask the loan officer to dig around). To complicate matters, it’s common for AMCs to tell appraisers NOT to attach an invoice to the appraisal report, so it’s not easy for anyone to find out how much the appraiser made from the fee the buyer paid unless there are disclosure rules from the state.

2) Appraisal Quality: In many cases AMCs are scraping so much off the top that the appraiser really isn’t making a reasonable market fee. It’s easy to gloss over this as insignificant, but it matters because over time if appraisers do not earn market rate fees it is going to weed out more experienced appraisers from doing loan work. Could this impact quality? I think so. By the way, if you didn’t know, an Appraisal Management Company is NOT used during a private valuation such as a divorce, pre-listing appraisal, estate planning, litigation, hard money loan, bankruptcy, etc… By the way, let me make it clear that not all AMCs are bad either.

3) Longer Turn-Times: At times it’s difficult for an AMC to find an appraiser because a property is so unique or it’s in a rural area. This can be frustrating for everyone else in the real estate transaction because it hands-down makes an escrow longer. Yet sometimes the problem isn’t the lack of an available appraiser, but rather the AMC broadcasting an absurdly low fee to countless appraisers for weeks. If the AMC would have simply started the process with a market rate fee and a realistic turn-time, maybe the order would actually be finished by now.

4) Lack of Transparency: California does not require disclosure on the HUD-1 of the fee paid to the appraiser vs the fee paid to the AMC. Since these fees are not separated, there isn’t any transparency as to what the appraiser and AMC are getting. I would think some buyers would be shocked to learn the appraiser didn’t get the full fee in the first place – not to mention a $345 AMC fee. Why would we not disclose these fees? Can’t we do better at being transparent?

I hope this was helpful or interesting. Any thoughts?

New Video: I made a video called “The market isn’t doing the same thing in every neighborhood.” It’s a quick look at three neighborhoods. Watch below (or here).

Questions: What stands out to you most about what I mentioned above? Anything else to add? Did I miss something? What is the best way to avoid working with bad AMCs?

If you liked this post, subscribe by email (or RSS). Thanks for being here.

Fees, turn-times, & eliminating appraisers

Blah, blah, blah. That’s what people tend to hear when we start talking about issues facing the appraisal industry. But here’s the deal. What happens to appraisers can absolutely impact the public AND the entire real estate industry. Let’s take a minute to consider some current trends. Any thoughts?

27066568 - black hands shadow control a businessman action

Some important appraisal issues going on right now:

  1. Turn-times & 30-day escrows: Many Appraisal Management Companies (AMCs) order an appraisal and expect the appraiser to turn around the finished product in seven days or less. It seems like the better AMCs give appraisers more time whereas the worst ones expect reports in only 3 or 4 days. Here’s the thing though. Appraisers in Sacramento and many parts of the country have been turning down an avalanche of work every single day because AMCs are asking for unrealistic turn times for today’s market. Just the other day a colleague told me he literally turned down 19 appraisal orders in one day alone because he couldn’t meet the deadlines. It seems like seven days has been the benchmark of a reasonable turn-time, but that’s not doable right now for many appraisers. Remember, turn-times are not written in stone and they should change according to the market. Moreover, if nobody accepts the appraisal report because the due date is too fast, it will eventually get to someone who may not be an ideal candidate to appraise the property. Thus a quick turn-time rule ends up catering to whoever is going to get it done faster (and maybe cheaper). On a related note, appraisers being so busy can cause escrows to slow down, which means it can be far more difficult to close in only 30 days. Keep in mind though appraisals are often one of the very last things ordered during the loan process, and that’s surely part of the problem in closing escrows more quickly.
  2. True Cost of Low Fees by Ryan Lundquist - Working RE MagazineIncreasing fees: For years many appraisers have dealt with below-market rate fees from lenders because of Appraisal Management Companies skimming off the top. Well, lately fees have been increasing, and you’ve probably noticed that if you work in real estate. The increase is a byproduct of appraisers being very busy, the fee market changing after years of being stale, a shortage of appraisers willing to work for low-paying AMCs, and many appraisers having left the business over the past 10 years. A few years ago AMCs were in control and appraisers were desperate to get approved to be on their panels, but these days AMCs are desperate to get appraisers to work for them. For more thoughts on fees, check out Jonathan Miller’s Housing Notes from a few weeks ago (scroll to the bottom of the post for some really sharp commentary that influenced some of my thoughts above). Also, I wrote an article for Working RE magazine recently called The True Cost of Low Fees, and it helps show just how much of a financial impact there is when fees are below market rate.
  3. Letting trainees inspect: If you didn’t know, before becoming a full-fledged appraiser you have to train under a supervisory appraiser. In California, a trainee actually has to do 2000 hours of work under a supervisor (and have a 4-year degree if the trainee wants to eventually get a certified appraiser’s license). Anyway, many lenders have actually not allowed trainees to sign appraisal reports or inspect properties alone without a supervisor. On top of already lower fees from AMCs, this has created a real lack of incentive for existing appraisers to train the future generation of appraisers. It’s understandable that lenders require a certified appraiser to do the bulk of the report and inspect the property, but if trainees are not allowed into the mix under the supervision of a trainer, there is going to eventually be a big shortage of appraisers. This will only cause longer turn-times and higher fees. Seriously, this is a huge deal and it would be wise for real estate organizations to get behind this point to advocate for appraisers and pressure lenders to relax their short-sighted regulations.
  4. Replacing appraisers: There have been a number of recent articles about lenders eliminating appraisals or even potentially allowing real estate agents to do BPOs in lieu of appraisals. For those who don’t like appraisers, this may sound like welcome news, though the truth is any new valuation system would inherit all the problems we have in today’s system. It’s easy to think the grass would be greener and consumers would save money on expensive appraisals, but we’ll still have issues with turn-times, fees, valuation disputes, pressure to “hit the number”, skill level, interpreting the market, choosing comps, making adjustments, etc…. To me this issue reminds me of people who say we need to just get rid of all politicians. As much as that sounds appealing (particularly for some candidates right now), it wouldn’t solve the problem because we’d still need new leaders to take their place. Maybe that’s not the perfect comparison, but do you catch my drift?

I hope this was interesting or even helpful.

Questions: Which points stand out to you the most? Agents, are you seeing any of these trends in your escrows? Loan officers, what are you experiencing? Appraisers, anything you’d add?

If you liked this post, subscribe by email (or RSS). Thanks for being here.

The big problem of low fees in the appraisal industry

There is so much conversation about the appraised value coming in too low, but let’s turn the tables to talk about appraisal fees being too low. I know, who cares, right? But if you are a home owner or work in real estate, it’s good to know what’s going on. Is this happening during your escrows? Is it fair to pay so much for an appraisal when a huge chunk of the fee gets skimmed off the top by a management company?

Low appraisal fees - image purchased by Sacramento Appraisal Blog and used with permission

Why This Matters: 1) Low fees for purchase and refinance appraisals are crippling to the longevity of the appraisal industry. If fees are too low, appraisers simply cannot stay in business. Also, if you think it’s taking too long to get an appraisal back to you right now, just wait until the industry shrinks more as appraisers leave because they can make better money elsewhere; 2) Consumers are likely not keen to pay good money for an appraisal only to have Appraisal Management Companies (AMCs) scrape a substantial amount of the fee off the top.

Here are three real life examples of low fees offered to appraisers:

EXAMPLE 1: Low fees with the promise of bulk business

low feesComment: It’s shocking to see marketing emails like this because fees haven’t been this low for decades. Of course the consumer is probably paying at least $450 to $500 for the appraisal. The ironic thing too is the word “reasonable” in the last line. This word is used strategically because AMCs are mandated under Frank Dodd to pay customary and “reasonable” fees.

EXAMPLE 2: Cheap fees with a quick turn-time:

need a 4-day turn time at $250

Comment: Most local lenders easily pay the appraiser $400-500+ for an FHA appraisal, so $250 is definitely low. The kicker is the appraisal was ordered on a Thursday and due by Monday morning at 10am. When is the appraiser going to have time to do the report?

EXAMPLE 3: A blast order sent to MANY appraisers

field review

Comment: This was a blast order to who knows how many appraisers. A massive blast email is one way for an Appraisal Management Company to get the quickest and cheapest appraisal fees because someone is going to accept it (which is a different issue). Some AMCs use a blast email system like this with a link. Whoever clicks “accept” first gets the order. This lender is wanting to do “quality” control, yet they are reaching out to pay an appraiser only $200 for a field review of a complex property. Do you think they can get quality for such a low fee?

ACTION STEPS:

  1. Agents Find Out: Real estate agents, be aware what your recommended lenders are paying appraisers and how they order appraisals. I’m not talking about what your buyers are paying, but what are appraisers actually getting? If you are concerned about appraisal quality as well as reasonable turn times, choose lenders who build a relationship with appraisers and pay them well. There are many local mortgage companies (and some national companies) with in-house appraisal departments who hand-pick a group of local appraisers and pay them a reasonable fee. I tend to like this system the best, though there are also some larger AMCs that I hear are okay overall. Remember, what happens to one group in the real estate community can end up impacting everyone else.
  2. Appraisers: Work for Reasonable Fees: Appraisers, are you working for clients like the examples above? Or maybe you are approved with several AMCs that seem okay overall, but their fees are still too low. Hey, we all need to feed our families, and there is no fault in getting paid. But why not start looking for better clients and then begin dropping the bad ones? Heck, start an appraisal blog to share your voice and expertise. It may take many months or even years to diversify your clientele, but go for it. Who do you want to work for? What type of work do you want to do? What does it look like to be intentional about finding great clients over these next 1-2 years?

I hope this was helpful. I’d love to hear your take in the comments.

Questions: What do you think of the examples above? Does it surprise you to see these real life examples? Any stories or insight to share?

If you liked this post, subscribe by email (or RSS). Thanks for being here.