An article by Kenneth R. Harney on Realtytimes.com examines the issue of appraisal fees under the Home Valuation Code of Conduct (HVCC). The code establishes a firewall between appraisers and loan originators in an effort to ensure appraisal independence. This has led to the increase in use by lenders of AMCs.
Most AMCs have a business model where they charge a fee upfront for an appraisal, and then pay the appraiser a part of the fee. In his article Harney gives the following example, “an appraiser who’d normally charge $325 for a valuation ordered though a lender or mortgage broker, now might be required by a management company to do the same work for $175 to $200.”
The downward pressure on fees suffered by appraisers is a major factor in deciding to work with AMCs. A recent poll by Valuation Review asked appraisers if they were going to focus their work on AMCs under the HVCC. A majority said they would be, but only partly.
Most of the comments received cited the lower fees as the main reason not to build relationships with AMCs. Indeed, one respondent wrote “Until they regulate the fees and give experienced and qualified appraisers their due fee – I will work as little as possible for AMCs.”
Harney notes that the AMCs driving up of costs for appraisals will be passed on to the consumer, who could now be charged $400 or more for an appraisal. After paying the appraiser half of that amount, or even less in some cases, the AMC then pockets the difference.
To make matters worse for the consumer, the appraisal needs to be paid upfront, making the success of the loan file an irrelevant concern for AMCs.
The author claims that, as well as Fannie and Freddie, appraisal fees are increasing for FHA loans too. He cites anecdotal evidence from a broker of an instance where appraisal fees for an FHA cash-out totaled more than $1,000.
Harney concludes his article by calling for home buyers and realty professionals to “be aware of these sharply escalating fees – and their controversial use on FHA loans that are supposed to be exempt from the Fannie-Freddie code.”