The story of the most elusive mythical figure: Customary & Reasonable Fees (C&R)

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Let’s face it, at one time or another in our lives we believed in such mythical figures as Santa, The Easter Bunny, Unicorns, Sasquatch, the Tooth Fairy, and Leprechauns. All of these amazing figures have a long history of stories, sightings, and have created excitement and joy for millions of people past and present. As we grew up though we had to come to the realization that these were indeed just mythical figures and not real. While these figures will continue to generate stories of joy and excitement for years to come there is a new mythical figure that as emerged, one that brings with it pain, suffering, lies, deceit, and most importantly control over an entire profession. One that many grown-ups in the valuation world still believe in.

I introduce to you, the newest mythical figure… Customary and Reasonable Fees.

Now, this figure may be news to many of you out there but to those within the Real Estate Appraisal Profession, this mythical figure has become so powerful that it has single handily taken the free market system away from real estate appraisal business owners. Its powers are far greater than anything the profession has had to overcome and as time goes on it grows and grows. So just who or what is this Customary and Reasonable Fee?

Answer: If I knew I’d tell you. See that’s just it. No one knows exactly what this figure is or what its doing or how it works. All I can do here is give you the little bit of information we do know about it.

First C&R isn’t that old. It came about after the 2008 market crash and its creator’s Government, Appraisal Management Companies, and Lenders have given it so many forms to take that even they themselves lost control of it and have 0 ideas what it’s supposed to be. Let’s look at the genetic makeup of this mythical figure according to Dodd-Frank:

  1. AMCs are presumed to comply with the new law, if:
    (a) The AMC (agent) compensates the appraisers in an amount that is reasonably related to recent rates paid for comparable appraisal services performed in the geographic market of the property being appraised. In determining this amount, a creditor or its agents shall review the factors below and make any adjustments to recent rates paid in the relevant geographic market necessary to ensure that the amount of compensation is reasonable:
    (1) The type of property,
    (2) The scope of work,
    (3) The time in which the appraisal services are required to be performed, (4) Fee appraiser qualifications,
    (5) Fee appraiser experience and professional record, and
    (6) Fee appraiser work quality (b) The AMC (agent) and the Client (creditor) do not engage in any anticompetitive acts in violation of state or Federal law that affect the compensation paid to fee appraisers, including:
    (1) Entering into any contracts or engaging in any conspiracies to restrain trade through methods such as price fixing or market allocation, as prohibited under section 1 of the Sherman Antitrust Act, 15 U.S.C. 1, or any other relevant antitrust laws; or
    (2) Engaging in any acts of monopolization such as restricting any person from entering the relevant geographic market or causing any person to leave the relevant geographic market, as prohibited under section 2 of the Sherman Antitrust Act, 15 U.S.C. 2, or any other relevant antitrust laws.
  2. AMCs are also presumed to comply with the new law by determining the amount of compensation paid to the fee appraiser by relying on information about rates that:
    (a) Is based on objective third-party information, including fee schedules, studies, and/or surveys prepared by independent third parties such as government agencies, academic institutions, and private research firms,
    (b) Is based on recent rates paid to a representative sample of providers of appraisal services in the geographic market of the property being appraised or the fee schedules of those providers, and
    (c) In the case of information based on fee schedules, studies, and surveys, such fee schedules, studies, or surveys, or the information derived therefrom, excludes compensation paid to fee appraisers for appraisals ordered by appraisal management companies

Still, Following along here? Good. Lets break this down some more. I will copy and paste some info here and then expand upon it in my own words.

AMCs are presumed to comply with the new law, if:
(a) The AMC (agent) compensates the appraisers in an amount that is reasonably related to recent rates paid for comparable appraisal services performed in the geographic market of the property being appraised. In determining this amount, a creditor or its agents shall review the factors below and make any adjustments to recent rates paid in the relevant geographic market necessary to ensure that the amount of compensation is reasonable:
(1) The type of property, (Shouldn’t be too hard to figure this one out)
(2) The scope of work, (The appraiser who is the expert in the area should be the one to figure this one out however many AMCS try to do this for them thus not accounting for complexities, etc)
(3) The time in which the appraisal services are required to be. (Yes there are due dates that need to be met however in order to provide an accurate report the appraiser who is doing the work is the one who should be determining the time it takes). (4) Fee appraiser qualifications, (Not all appraisers hold the same qualifications. Would you be willing to accept the same compensation as someone with fewer qualifications than you in any other job? My guess is NO)
(5) Fee appraiser experience and professional record (This one is interesting. Most AMCs use a rotation method thus not accounting for the appraiser’s experience thus comparing them to an appraiser who may be new or has 25 years, therefore, qualifications are not a priority to get the appraisal done. Let’s face it. as a consumer are you going to hire the new company with less experience or the one that has been doing their craft for years?)
(6) Fee appraiser work quality (Quality is very important in doing an appraisal, therefore, one that does better quality just like having higher and better qualifications and experience should require higher compensation)

I’ll take this a step further. The notorious and out of business AMC Coester VMS creates a one size fits all Fee Calculator in order to determine fees to be collected by the amcs from the borrower to the fee paid to the appraiser. Yes. With all of these factors listed above, an AMC decided to create a calculator to determine the fee that an independent appraiser should be paid.

Or you have a company like Valuation Partners that are owned by an appraiser and owns an appraisal company who thinks it’s ok to send out appraisal orders to appraisers at fees from the 1920s (I’m joking some). When did they get to decide what appraisers get paid and it’s apparent they have 0 respect for the above criteria.

Now I need to break this down a little more with how this mythical figure has gained its power. See after the crash and the AMCS came to power they first began sending out orders at fees that were acceptable in the 1980’s and 1990’s. However, since appraisers had no voice and either had to accept it or go belly up they accepted the fees presented. this went on for years. As appraisers started pushing back the need for a stronger and more powerful entity was needed… thus creating C&R. But how would this C&R gain its ultimate power??? Well, it’s written right here and although no one wants to admit it the results did.. to years of sub-par, below-average fees paid prior to this new written language. I’ll explain. First, see below.

AMCs are also presumed to comply with the new law by determining the amount of compensation paid to the fee appraiser by relying on information about rates that:
(a) Is based on objective third-party information, including fee schedules, studies, and/or surveys prepared by independent third parties such as government agencies, academic institutions, and private research firms, (now remember this didn’t come about for a couple of years after the new AMC domination. Many states conducted fee studies, many third parties (also owned by lenders and or AMCS) conducted fee studies and of course, the results were what they hoped to be. They weren’t getting data on fees prior to the crash… they were getting data on what was being accepted after the crash and after they had a foothold in the market)
(b) Is based on recent rates paid to a representative sample of providers of appraisal services in the geographic market of the property being appraised or the fee schedules of those providers, (now I know you can see through this one. Based on RECENT rates.. lol. How about what was being paid before the crash or based off the prior years and inflation, etc. or how about the notion that not everyone charges the same or accepts the same fees. Again we look back at qualifications and experience. You just can’t decide because 2 appraisers accept below-average fees that this is acceptable for everyone).
(c) In the case of information based on fee schedules, studies, and surveys, such fee schedules, studies, or surveys, or the information derived therefrom, excludes compensation paid to fee appraisers for appraisals ordered by appraisal management companies. (honestly, I can’t even answer this one cause it makes no sense)

So now we have figured out what we actually know and my own comments as well. Are you a believer in this mythical figure or are you just as confused as I am? Let me put this into some context for you. I have been an appraiser since 2003. I have known and worked with many really amazing appraisers over this time. In 2003 the fee I was getting for an appraisal is pretty much exactly what I am being asked to take today. 17 years later while everyone else out there in a professional capacity is getting raises, getting paid what they should be based on their qualifications, based on their hard work and experience, and based on their dedication and quality, I am actually going back in time. What makes this worse is how the AMCS are paid and that’s for a different discussion at a different time (or you can read my blog here entitled What’s Not in Your Wallet which is still perfectly accurate for today).

Side Note: Many will say to find new clients. Many will say that you can decline the fee and counter with a new one. Many will say you still have control and you need to only accept work that is worthy. hmmm. easy for them to say that. I say: AMCS, Lenders, and no one else should have this much control over anything when it comes to housing. Agents make thousands on commissions, Lenders make thousands on commissions and no one tells them what they can and can’t do however everyone likes to tell appraisers how much they are allowed to make.

So in closing, I’ll say this. C&R is a mythical figure created to allow other entities to make more money in a way that no one will question other than appraisers and appraisers are the ones that in the end are unbiased and held to the highest of standards. Standards no others are held to. problem here?? I hope so.

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