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.
