How many appraisals can you do in a day? What is the going rate for an appraisal? These are common questions that come up in conversation. I’ve had the opportunity to speak to appraisers around the country, and I have a pretty good feel for what appraisers are being paid. But if you’re doing the math based off of what you paid for your last appraisal, it might not be accurate.
Appraisal fees can range as much as 200% in some cases, from coast to coast. Appraiser supply and demand can certainly play a part in how much the going the rate is; however, the assignment itself influences the fee even more. There are some areas that have homes that are very similar and trade hands regularly; we might refer to these homes as “cookie cutters.” When there is a massive amount of data that exists, these types of assignments are fairly simple and straight forward, and often subject to a lower fee. (Fun fact: Freddie Mac recently announced an appraisal waiver program for these “easy” homes. More on that in another article.) Locally, and in most of Montana, these homes are an exception to the rule. Our low inventory of sales, rural communities, and being a non-disclosure state, all add a lot of difficulty to the assignment. Regulatory changes in the industry over the past years add a whole other layer of complexity.
The use of appraisal management companies (AMCs) has driven up the cost of the appraisal, while often reducing the fee paid to the appraiser. It is very common in the market place to hear of an appraiser being paid “x” number for an assignment, and the purchaser being charged “xxxx” for the appraisal. Why? Because the middle man, the AMC, is charging it. To use an example with some hypothetical numbers, it goes like this: The borrower goes to a lender to buy a house. Mr. Lender discloses fees to Ms. Buyer including the fee for the cost of an appraisal which is quoted at $800. An important side note: on October 3rd, 2015, the TRID rules became effective as set forth by the Consumer Financial Protection Bureau. (This is a mouthful, but: Truth in Lending Act (TILA) and the Real Estate Settlement Procedures Act (RESPA), Integrated Disclosure (TRID)).
Now this is important because the rule says that once the fees (we’re taking appraisals here – that’s the area I know) are disclosed, they cannot exceed that amount. Good for the protection of the buyer, right? Yes and no. Not all appraisers change the same amount, even in the same market. Lenders don’t know who will be doing the appraisal when they quote it, so it’s impossible to disclose the exact correct amount. Most lenders have adopted a policy of disclosing high in order to cover the fee, then reducing the cost on the disclosure for their borrower when the actual fee is known. Good policy. But let’s continue with the scenario.
The lender needs an appraisal and contacts ABC Appraisal Management Company. The AMC is authorized to secure an appraisal for the fee up to the amount disclosed in the borrowers, which if you remember for our example is $800.
ABC AMC then solicits bids for a fee and turnaround time from appraisers that cover the area. (Those are their criteria for hiring, how much and how quick. Appraiser qualifications are typically not a consideration.)
ABC AMC gets responses from appraisers with fees ranging from $350 to $550. They award the order to an appraiser that says can compete the assignment for $350 and have it done in 1 week. The appraisal is completed, and submitted to ABC AMC who then returns it to the lender. (There is a lot goes on in between these last two steps. The appraisal process is lengthy and outside of the scope of what we’re discussing.) After ABC AMC goes through their process, the appraisal is delivered to the lender. The lender gathers all of the documents, sets a closing date, and sends Ms. Borrower on her way as a happy new homeowner. Sounds simple enough, right? On the surface, it does! And wow, Ms. Borrower paid $800 for an appraisal… because that’s what the HUD1 says, right? Here’s where it gets deceptive though: ABC AMC was paid $800 to get an appraisal completed. They paid the appraiser $350 to do it. What happened to the other $450??? Are you starting to piece this together? The appraisal management company has hired the appraiser with the lowest fee. And yes, they have kept the remainder of the “appraisal fee” for their payment.
I want to make it very clear that this is not the practice of every lender and it is not how every transaction goes. But it happens, and without current regulations – there is no way for a consumer to know how much they are paying for an appraisal verses how much they are paying to have that appraisal facilitated by a third-party management company.
Perhaps not all AMCs operate this way. I know of some good ones that I do business with, although I honestly have no idea what they are charging the bank for my appraisal. Every now and then I talk to a homeowner who is shocked that they’re paying $XXX for my appraisal, and so am I.
Remember, it’s reasons like this you need experienced, reliable help; someone you can count on to answer the questions. Thank you for letting us be your residential and commercial appraisal experts.