Appraisers: Fed rule has hurt our pay, borrowers

Written by Lily Leung

A trade group of home appraisers is digging into a federal rule it says has driven down the quality of home valuations, negatively affecting appraiser wages along with borrowers trying to get mortgages or refinances.

In-depth: 'Middleman' appraisers spur concerns

The American Guild of Appraisers recently requested key documents from the Federal Reserve on regulations that dictate what is "customary and reasonable" pay for appraisers. The paperwork was requested by the group’s law firm, Garvey Schubert Barer, under the Freedom of Information Act, essentially a federal open-records law.

The trade organization says the compensation rules allow appraiser management companies, who are middlemen, to call the shots on how much appraisers get paid, leading to reduced wages for the same amount of work, or more, even though homeowners are paying the same, or sometimes more, for home appraisals.

Lenders, instead of requesting their own appraisals, now typically go through these middleman firms, who contact the appraisers to do the work, manage the case and deliver the finished products to lenders. Lenders and appraisal management companies maintain the process is easier to outsource, and it reduces the chances of collusion.

“It is clear that appraisal management companies have interpreted rules issued by the Fed as permitting practices that result in real estate appraisers being compensated at levels that are far below ‘reasonable and customary fees’ as required in the Dodd Frank Law,” said Guild President Peter Vidi. “We want to learn whether the Fed intended this result and if so why."

What do the Fed's rules say exactly?

Appraiser pay is "reasonable and customary" if it’s:

• In line with what’s seen in the "geographic market of the property" but can be adjusted based on several factors, including the appraiser experience and property type.

• Based on lender-approved information, such as studies and fee schedules from "third parties" that include appraisal management companies.

The appraisers' guild has told the U-T San Diego it would prefer using pricing already set by agencies such as the U.S. Department of Veterans Affairs fee panel, which has state breakdowns, said Vidi in the fall.

The guild, which has been weighing legal action against the Fed since November, says the request for documents will cement their legal approach, if any. It maintains the compensation rules are in violation of the Dodd–Frank Act, a 2010 overhaul of the country’s financial rules.

“We are hopeful that these documents will allow us to better understand the seriousness with which these issues have been considered and the potential for future corrective action," Vidi said in a statement.

Appraisal fees vary across the U.S. The typical rate for borrowers in San Diego County is $400 to $550. About half of that usually goes to the appraiser, while the rest goes to an appraisal management company. In the past, appraisers routinely were paid the full fee.

One local appraiser, Don Lowe, told me in the fall he makes between $250 to $375 for what he calls “standard, noncomplex” orders that are below $1 million. Before appraiser managers proliferated, he earned between $350 to $500 per order.

Other appraisers across the U.S. have told the U-T that giving appraisal management companies the authority to set pricing has led to an increase of industry novices who are willing to travel longer distances to fulfill orders and likely cram more into their schedules to make up for lower rates.

In a November interview with the U-T, William Fall — whose company, the William Fall Group, owns an appraisal management company based outside Houston — said the middlemen are worth it because they oversee the quality, timeliness and management of appraisals from an objective position.

The length of time it takes for the U.S. government to reply to a records request varies, depending on the amount of documents it yields and other factors.

URL to original article: http://www.utsandiego.com/news/2012/jan/26/appraisers-say-feds-rule-has-hurt-their-pay-homeow/?page=1#article

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