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?
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
Comment: 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:
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
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:
- 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.
- 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?
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It would be easy to get comments on this if you cross post it on https://www.linkedin.com/grp/home?gid=1900348
I think the typical consumer of loan services (borrowers) does not care that much about the appraisers fee, only to the extent that it hits thier pocketbook. It will be interesting to see how RE Agents and consumers on your distribution list respond.
Thanks Mike. I think you do have a point. If consumers are paying more for appraisals because of the AMC model, that’s not good for them for sure. Yet at the same time, when they do pay for an appraisal at say $500, I imagine they expect they are paying the professional to do the report. I recently paid for an appraisal for personal use, and I definitely had the expectation the $425 lender fee would be going to the appraiser and paying for a quality report.
Mike
I hear often that the borrower or consumer wont care where their appraisal fee is going. I have a really hard time believing that. Most consumers care about quality and how they spend their money. If you pay $600 for a service that you are getting at a marked up rate while the appraiser is getting $225 I think most would care. Especially when / if they understand they are
“buying” the fastest quickest (often means not quality as there is not time to do a proper or good job) and paying for top quality. I believe most folks expect to get what they pay for and are just not aware that for many lenders they are paying most of the “appraisal” fee to the lender or the lender’s AMC. Unfortunately California does not require this be disclosed. California law for appraisal management companies is well behind many other states that require the fee being paid the actual appraiser be disclosed to the borrower, not does it mandate appraisers be paid in a timely manner. Many other states require appraisers be paid within 30 or 60 days maximum and the fee be clearly disclosed.
Great job for taking this topic to your public Ryan. The appraiser’s I know and work with that do top quality work will not work for the AMC’s that pay so poorly. Who does that leave to do that work? You are so correct when you say folks complain about quality appraisals (typically only when they don’t get their loan or if the lender gets a buy back) but they set themselves up for it by the system they use.
Appraiser’s know who the worst abusers are.
Well said, Cynthia. You added lots of value here. Thanks for your two cents. I don’t think a “quick and cheap” mantra is a good way to run a business on so many levels.
This gos on with home inspections also.
Thanks Brad.
The first Appraisal Management Company (LA) has several typos in their published request…. I predict many review kickbacks and a very low effective hourly rate.
Great catch, Jeff. I agree completely.
I wonder if it is rookie appraisers taking these assignments? Twice the work for half the fee, such a deal! Why is OREA not involved? In AZ we must post our appraisal fee in the report, when dealing with an AMC; thus there should be some consumer awareness if they look at their HUD 1. We should all be grateful to Cuomo for this mess. At least he lined the pockets of his buddies….
Good point, Mark. OREA/BREA, are you listening? Almost all lenders will ask the appraiser to remove the invoice from the report in California at least. Consumer awareness is a big deal.
I recently received a phone call from a client. He had hired an appraiser directly and was shocked to find out an appraisal did not cost over $450 (which he had just paid for a new loan). He wanted to know if he could trust the appraiser. Of course, the fee was still reasonable for the appraiser because there was no need for the middleman.
Any hope the law can be changed?
There is an important thing to remember about appraisals. The scope of work which is driven by the intended use and the depth of analysis required to answer the “appraisal question” differs greatly on different type of assignments. You mention a client ordering an appraisal directly from an appraiser costing less – this could be for many reasons. Appraisal fees paid to well qualified appraisers for standard lending work is typically $450 or more – that is not unusual. For non lending work it can vary greatly depending on the depth of analysis the client needs. It can be much higher or lower.
The laws here in California are well behind for regulating appraisals and no hope on the horizon of a change. The users of the product and the appraisers need to assess their needs. The lenders I work for pay full fees and expect very good quality work. That being said some of the largest banks are the worst offenders using the appraisal as a profit center taking a good portion of the fee. Knowing what your paying for and what to expect (at least in Calif. at this time) is up to the borrower for lending appraisals. Agent’s that understand how this all works can help their clients also understand no all lenders are working with the same “rules”.
Hey Ray, I think Cynthia nailed the answer here. 🙂 I’d also say fees vary tremendously based on the complexity of the appraisal and the use. Sometimes potential clients are puzzled after asking about fees. They might ask, “How much is an appraisal?” Then I’ll say, “Tell me about the property and situation.” The response is often, “You mean the fee is not the same?” I then add, “The price depends on the complexity of the appraisal (how long it is going to take) as well as the reason. There can be a huge difference if this is an appraisal for IRS tax purposes, mortgage financing, a home owner’s personal knowledge, or if I am being called to be an expert witness in court for a very nasty divorce.” Appraisers should definitely be fair with their fees of course, and that’s what I aim to be. Some appraisers do still undercharge for private work because they think these lowball AMC fees set the pace for the market. Your friend’s example paints the picture well. The appraiser for the private work could have probably charged $450, but maybe the appraiser is used to working for way too little, and thus charged too little. Consumers are used to paying more though. This is a loaded issue, isn’t it? 🙂
Thank you for tackling this topic Ryan. I did not want to write about appraisal because I did not want to come across that I was complaining. I know that you’re not complaining, you just want to educate. One thing is true in my area, good appraisers have no trouble getting work at a good fee. This means that the appraisers accepting the low fees typically cannot get the other work because of poor quality. It seems the AMCs that pay the very low fees just work to get the report back very quickly and then they have their quality reviewers just keep sending the report back to the appraiser asking for changes until they get what they want. Low fees, broadcast orders, and silly requirements (that have nothing to do with value) are the reasons that I have not done a single lender appraisal this year and hope to never do one again. If all appraisers just said no to low fees, there would be no problem.
Thanks Gary. I echo your sentiment about coming across as complaining. I have not written about this before because I am very sensitive about being perceived as a complainer. You are right that this is about education though. It’s so important to see the bigger picture for the appraisal profession as well as very long turn-times in the future if this does not get worked out. I do not accept low fees, but I am entertained (and saddened) by these blast emails. I have excellent clients (whether lender clients or private clients). In the past 10 minutes I accepted a pre-list appraisal from a blog reader. What a joy it is to help this person establish a list price.
Appraisers, part of finding new clients is dealing with fear. It can feel scary to market yourself to better clients, which is why many small business owners have a marketing plan of waiting for the phone to ring. But don’t think of “marketing” as the yellow pages, or online ads, or somehow passing out business cards, but rather connecting with people. Go connect with others. Be yourself. Have fun with it. Build relationships. Add value (so to speak). Answer people’s questions. Get in front of others on a consistent basis. People will want to do business with you as you get to know them.
This is interesting because this week I’ve heard several times from agents that appraisals on their listings did not work out. Now I’m not saying the fee the appraiser got is related to the property not appraising but it could be. If an appraiser is trying to make up in volume for the low fees then they cannot spend the necessary time to do a good job. We only have 24 hours in the day and if you are getting out 5-7 jobs a day (made up number) then you are not going to do as thorough of a job as when you’re getting out 2-3 jobs.
Thanks Tom. Trying to do more volume at a lower rate will definitely impact quality. This goes for about any industry probably.
Took it straight out of my mouth. I’ve made that transition over the past 2 and a half years really working to get onto direct panels. I think its necessary for an appraiser to evolve in this market. There is a definite shortage of residential appraisers and banks are hosting direct panel conventions every now and then. I personally couldn’t stand the thought of an “administrator” taking half my fee. I did something about it and my running average on a basic non-complex assignment exceeds $400. Looking forward to future articles.
Paul, that is so great to hear. Congratulations. Many appraisers feel like they are victims to the worst of the AMC system, but there are good clients out there. It’s a matter of searching for them and positioning ourselves to work for them (whether lender or private clients). Way to go, Paul. Thanks for the comment.
I work for an appraisal management company as a fee appraiser. I was always tier 1, meaning I would be called to accept assignments. This week I dropped to tier 4, meaning this company will not call me and may not use me. I called to ask why my score (report card) dropped and they said because I asked for 345.00 on two of my appraisals and they only pay $315.00. Also because I spelled one letter wrong in a report. This is just an excuse to drop my score down a notch and only employ appraisers that work for $315.00. PS- the borrower told me She paid $500.00 for the appraisal I got paid $345.00 for. Do you know of any other industry in which your tier rating would be dropped down because you spelled an letter in a word wrong ? TYPO. Imagine being demoted for making a typo and being forced to work for less because of it. This entire industry is just an excuse for big business to make the money and the little guy doing the work (the appraiser), to get screwed. I have been in the industry a long time, I can make more money shoveling _______ out of my backyard.
Hi Diane. I’m so sorry to hear about that situation. I can understand the frustration, and I think it’s absurd to have a fee at $315 because it is probably a one-size fits all fee, and it ought to be much higher. I am not glossing over the anguish here, but on the bright side this is an opportunity to find some better clients. I say work for the current ones until you can taper them off and let them go. You are the one in charge here thankfully. Again, I’m sorry to hear of this. You are welcome to email me anytime to brainstorm ideas to attract different clients. I’m always glad to help other appraisers.