RESPA & the Appraiser Full Fee Controversy

The news of the Supreme Court ruling yesterday in favor of Quicken in the case Freeman v. Quicken Loans is, I believe groundbreaking not only for the contentious topic of transaction fees for real estate agents and brokers.  But, it is also a precedence-setting decision relative to the topic of appraisal management fees.  Specifically, I feel it is yet another testament as to why appraisal management fees should be disclosed separately from the appraiser’s fee.  Two separate services, both provide legitimate consumer benefit and both should be paid in full to the provider of said service.  The CFPB apparently also sees merit in this concept and has indicated them separately on the samples of their two draft Good Faith Estimate Disclosure templates under consideration.  

Since the promulgation of the Interim Final Rule, and perhaps to please a few national lenders, a few more AMCs have jumped on the band-wagon of a cost-plus (appraisal fee plus management fee) business model.  This fits the potential new disclosure requirements of the new GFEs under consideration.  But unfortunately, many AMCs still cling to limited, self-serving interpretations relative to unearned fees and controlled business arrangements which have origins that predate Dodd-Frank.  While these concepts, although clarified and expanded are in the latest Interagency Appraisal Guidelines, the original mindset still persist.  Further adding to this debate are the RESPA 2010 rules that add capped tolerance provisions for fee changes between initial disclosure and settlement.   And, the less publicized permissibility of an Average Fee for certain third party provided settlement services.  

Timely to the topic is a new white paper, "AMC Full Fee Hypothesis" by Jeff Schurman and Rick Grant also released yesterday, which explores the AMC fee controversy in a well-written and reasonable way.  Ironically, the industry's use the term “full-fee” seems to imply that those AMCs that pay the appraiser only a portion of the appraisal charge passed on to the consumer would be in violation of RESPA.  In fact, when the appraiser accepts an assignment, he is also accepting the fee offered.  Whatever that agreed to fee is, would actually be considered a “full-fee” for that portion of the process.  This is what fuels the debates around Customary and Reasonable Fee language implemented by the Interim Final Rule into TILA.

Some would say the real nature of the controversy is that disclosing AMC fees separately would expose business models and competitive details that most AMCs would prefer to keep private.  However, without such transparency, appraisers are being pushed by a new kind of pressure:  not the kind that attempts to influence the appraiser to deliver a value that meets the “target”, but rather, to deliver a high-quality appraisal report for a fee that is ridiculously low and unfair.  This is driving a mass exodus of qualified and competent appraisers out of the profession.  Appraisers are experts trained to measure value, including the value of their own services.  A lack of competency in the ranks not only harms the public trust but, it severely cripples the profession further by not being able to sustain apprenticeships for incoming candidates attempting to meet licensure requirements.

The appraiser is a critical, independent third party in the health and well-being of the real estate economy.  We cannot afford to allow them to become extinct.