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Should you care how much money your appraiser makes?

This question was asked in a recent New York Times article. The article goes on:

SHOULD you care about how much money your appraiser makes?

That question is at the heart of a dispute in the mortgage industry, pitting independent appraisers against established banks, which in recent years have built vast networks of affiliated appraisers, through appraisal management companies.

Appraisers who work on behalf of these companies typically receive less pay than those who do not. Some appraisers say the lower fees mean consumers are less likely to get a high-quality appraisal, which could jeopardize their loans.

It is a claim with which banks strenuously disagree. “Obviously, it’s in a lender’s best interest to have the most accurate appraisal possible,” said Terry Francisco, a spokesman for Bank of America, “and it’s in the homeowner’s best interest, too.”

Borrowers, though, pay the same amount no matter who orders or conducts an appraisal. In the New York region, for example, an appraisal of a single-family home will cost around $300 to $500. But independent appraisers say that when a big bank orders an appraisal, it typically pays the appraiser about $200 of that fee and pockets the rest.

Lenders are essentially arguing that a home-owner will receive the same quality of appraisal, no matter how much the appraiser is paid. Color me skeptical. Somehow I think an appraiser getting paid $500 an appraisal is going to create a higher quality appraisal, than an appraiser gettting $200.

Update: In addition, a blogger at WalletPop had this to say about the article:

Here’s what Congress should do: Require that lenders disclose to home buyers how much of the money they pay for the appraisal is actually used for the appraisal — and how much is just skimmed off for an undisclosed profit for the bank.

Given all the cash that United States taxpayer has poured into Bank of America, I think we deserve better than to be charged $600 for a $200 service and not told about the difference. There’s is no way in hell that lenders should be allowed to profit by paying a third party to conduct the appraisal without that being disclosed to the consumer. That just seems obvious. There’s nothing wrong with a lender paying $200 for a third-party appraisal and charging the consumer $600 for it: But the consumer should be told that that’s what’s happening.

The article also included this cool graph:

22mortspan

Comments
  1. Henry J

    Of course the banks are going to say the quality is not diminished by paying the appraiser 1/2 the normal fee. Why? They pocket the difference- charge the homeowner $400 and keep half. Duh!
    Let’s see how the Wells Fargo / Rels lawsuit exposes this scam.

  2. AJ

    Let me ask you something; If you pay $7 for one steak and $21 for another, do you really think they are prepared with the same attention to quality? Do you think the chef might be more highly qualified at the place selling $21 steaks? Is it not reasonable to assume that the chef with 10 years experience should make more than the guy who just finished high school and is picking his nose in the kitchen? Would it concern you if the waiter walked outside and auctioned off the preparation of the steak to the lowest bidder?
    How does expanding the use of bank owned AMCs reduce the potential for collusion on a massive scale anyway?

  3. Tim

    It would be nice for Mr Francisco to explain then why so many Senior Staff Appraiser’s there at the Bank Of America were let go so they could use the Countrywide AMC for their valuation reporting. Yes, the same folks who brought you the housing crisis !
    But the pay is not the only thing….48-72 hour turnaround requirement and property reporting guidelines that could never be met in the real world forces “discount” to simply make stuff up. Eventually AMCs will raise what they pay because the real cash is what they get to keep. Lots and lots of intellectual data, scanned, sorted, collated and sold and then resold again.
    Think those sale flyers from Lowes and Home Depot come by mistake ? They know when its time for you to look at a new roof, a/c or dishwasher…they know how old yours is. Could anyone have your homes photo, floorplan, kids rooms location, alarm system and maybe interior photos of your stuff ! They are in the appraisal report.
    Smart burglars go to Burglars.com for high tech, long distance casing of housings for only a small subscription fee. Remeber our motto “Know before you go”

  4. DW- 19 year appraiser veteran

    Why should Bank of America, FNMA, Freddie Mac, or Chase care if an asset is backed by a quality reliable appraisal? If a few trillion dollars in bailouts from bad business practices didn’t teach them anything, a few hundred thousand cheap shoddy appraisals certainly aren’t going to make them change their business plans.
    Oh by the way, if $150-$200 AMC appraisals are worth just as much as an independent appraiser’s $400 appraisal, then why not pass on some of that savings to the consumer? Bank of America could require that their AMC appraisers only be paid $100, pay the AMC $100, and the consumer could get an appraisal at a fee of only half price! I guarantee you price does make a difference, and if you pay the lowest price for appraisal work you’re going to get what you pay for.
    I wish I could have the job of reviewing the appraisals that are produced by AMC appraisers, but unfortunately, review appraisers are saddled with high volume quota requirements. So, if you perform solid reviews of those appraisals, once again you will make no money because you don’t get paid for finding errors as much as you do for maintaining volume of assignments reviewed.

  5. msp

    I’ve been appraising for over twenty years, and know that if you are doing the proper inspections, verifications and research, twenty-four to forty eight hours is just not enough time to produce a quality report. This was true in stable and increasing markets, and more so today. Makes me wonder just how much research the powers that be did on the typical practices of the AMCs. As for the discounted fees to appraisers, at $350 a report the users are getting a bargain. Any less than that, and it’s no longer worth my time as a professional. A million thanks to the few crooked lenders and appraisers that got us to this point.

  6. pansy buzhardt

    Serious food for thought.As a Realtor of seventeen years I am appalled at the Idea that the bank is keeping part of the money for an appraisal. When you sonsider that we are under enoumous pressure to diclose every thought, word and deed in our transactions I am discussted by this beavior!This kind of behavior is insidious and exposes many of the reasons we are are in the mess we are in.

  7. pansy buzhardt

    Serious food for thought.As a Realtor of seventeen years I am appalled at the Idea that the bank is keeping part of the money for an appraisal. When you sonsider that we are under enoumous pressure to diclose every thought, word and deed in our transactions I am discussted by this beavior!This kind of behavior is insidious and exposes many of the reasons we are are in the mess we are in.

  8. I agree with Tim 100%. You get what you pay for. My fee for a standard residential appraisal is over $400. If I receive an order from an AMC, my fee is still over $400; why should it go down? I wish appraisers would stick together and not cut their fees for AMCs. In the long run, if nobody says “ok, I’ll do it for $200″, AMCs will have to pay whatever your normal fee is, or close to it.
    I have no problem working with AMCs as long as they pay me my full fee, and guess what…they do.

  9. Gregg Brown

    For my two-cents, I agree with the comments so far. First, disclosure is key. There simply is no justification for a lender or AMC to take a portion of a fee that is represented as an appraisal fee and not disclose that to the borrower. You certainly do get what you pay for and the consumer deserves to know what they are paying for and who receives the money.
    For my part, I will take every opportunity to push for greater transparency in the lending process, especially where appraisal fees are concerned.

  10. Roy Weddle

    Here in Ohio I have not seen that kind of ripping off the buyer thu appraisals I do see management companies trying to save money any way they can by appraisals, commissions, warranty insurance, title work but really who can blame them take a close look at what kind of bath they been taking on some of these mortgage’s. I will tell you what I have noticed is realtors ,local governments and just regular citizens ripping off the banks any way they can but hell you know they just deserve it don’t they? You remember what happens when everyone gangs up you?

  11. C Loma

    How dare they suggest that the lenders have any interest in the qulit of the appraisal. They jsut want a big and cheao rubber stamp of approval so they can gin out loans just good enough to last long enough to sell to the suckers who buy the overated mortgaged backed securities – your retirement fund.

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