Missing: Invoice For Appraisal Services

Typically when you sell a service, you include an invoice to the buyer or consumer for the services you provided.  This invoice lays out the products sold, the quantities, and services provided as well as the price or fee charged.

The invoice is a vital part of any business. It is an official document that businesses use to show the terms of the agreement, it specifies the buyer of the product or services, and it documents the terms of payment. An invoice allows businesses to keep track of payments made or outstanding payments due. Some business will even tack on fees if the invoice is not paid within a proper amount of time stated on the invoice.

As a Real Estate Appraiser and business owner, I always include an invoice to my clients for their records, and mine as well, and that invoice is always attached to the appraisal report—my product—when I deliver it to the client. When I say ALWAYS I mean my private clients. (“Private” means consumers hiring me directly or a direct lender who does not use an Appraisal Management Company or AMC).

You see, there is an issue with AMCs and the process of using invoices which we will get to in a bit.

For those unfamiliar with AMCs, they are the appraisal middleman companies put in place after the housing crash of 2008. Their intended purpose was to serve as a firewall between appraisers and lenders. They were to manage the appraisal ordering process by assigning orders to appraisers, doing some quality control before the report is delivered to the client (the client being the lender), and paying the appraiser for doing the appraisal report. While this sounds like a good idea, it has turned into a mess.

The mess I speak of is this: The AMCs make their money by tacking on a fee beyond the appraiser’s fee or they simply bill the lender and then take a portion of that stated appraisal fee.

For example: A lender is told the appraisal will cost $600. The lender agrees and the process begins. The AMC then does two things. First, they take the portion they claim for their services out of that total fee. Second, they set out to find an appraiser willing to accept the assignment for the lowest fee possible so that the AMC can make a larger profit. What they don’t tell the lender is how much of the “appraisal fee” the AMC keeps versus how much the appraiser is actually paid.

Some states like Georgia have laws requiring that the appraisal report specify both the AMC fee and the fee paid to the appraiser. While this is a good thing, without reading the entire report, the lender/borrower may not see where the fee actually went. It gives the impression that the AMC is the entity that developed the appraisal and wrote the report.

This brings me to the whole point of this post and one word: TRANSPARENCY. Where is the invoice that would break down the fees paid and to whom? Where is the invoice that states the terms of payments? It’s missing from the report. Why is that? I’ll tell you why. Most AMCs specify in their engagement letters that the appraiser is NOT to include an invoice within the report. Some will have the appraiser upload it separately and some will bypass an invoice altogether. Why is that?

It’s part of business right? You get an invoice for your lawn service, from your mechanic, from other businesses that you order products from online and so on. So why are appraisers not allowed to send an invoice attached to their appraisal product with the stated fees for their service? The answer is simple… AMCs don’t want to make it easy for you the lender or the borrower to know where the money went and for what. It makes it easier for the AMC to take more of the fee they quoted for the appraisal and pay the appraiser less. Imagine being charged $600 for an appraisal. The appraiser would normally charge,  say $350, for that service. You’ve just paid $250 to a middleman to manage an order. Did you know that? As a lender or a borrower, are you being told the appraisal would be $600 or are you being told it will cost $350 with a $250 fee to the AMC for whatever they do? Are you aware of the breakdown of the costs? Probably Not.

Another aspect of the problem is this: The Bid Request Are you aware that many AMCs broadcast bid requests to many appraisers at once? Specifically to find the cheapest so that they can retain more of the total fee? Probably not. The AMC sends out requests for bids on a job, although they’ve already charged you $600. If they look long enough, they’ll find an appraiser who will do the appraisal for $250, and the AMC has a minimum fee of $100 per order. They charged you $600 for the Appraisal. That leaves $250 left over. Shouldn’t the borrower be given a refund for that $250.00? I would think so, however it’s my guess that $250 will go into the pockets of the AMC. Are you okay with this? I know I wouldn’t be.

This is where transparency comes into play and the invoice breakdown will show just that. To be fair, not all AMCs practice this behavior. Some actually only take a set fee for their service, pay the appraiser customary and reasonable fees, and they disclose to the appraiser the fee breakdown. But there are very few of these reputable AMCs out there. Ask any appraiser. 

This practice of not including an invoice needs to stop. Consumers have the right to know where their money has gone and for what.

A recent House bill has been introduced and assigned to the Financial House Committee, which is a positive step in the right direction. In short:

The bill states that all fees SHALL be stated on the settlement statement and broken down into appraiser fee and AMC fee. Now lets take this one step further and start allowing appraisal business owners to include an invoice with the fee breakdown in ALL reports. While the AMC may not be able to hide this from the consumer, they are still hiding it from the appraiser. Why?

It’s time for another change. It’s time to allow all parties involved in the process to know who is charging what fees and for what. Is there some big secret the AMCs are hiding from appraisers? Will allowing the appraiser to know what the AMC is making be an issue?

The solution is simple: Separate the fees paid to the AMC and the appraiser. Allow appraisers to include an invoice on every report that breaks down the fees for services. If this practice of AMCs charging a fee then paying a separate fee to the appraiser is to continue, then its only right that it be disclosed on an invoice for all parties to be in the know. Then again, AMCs need not take money off the top of the appraiser’s fee or add money to it to make a profit. This fee should be paid to them separately. If lenders want to use an AMC ( which they are NOT required to do) then the AMC and the lender should have an agreement in place regarding the AMC fee to be paid per order. The Appraiser fee should be what the lender/appraiser deems acceptable in their market for the scope of work and service provided, and should be paid directly to the appraiser from the borrower or from the lender, NOT THE AMC. AMCs should never have to touch any money owed to an appraiser and if the reason is unclear, please see these two previous blog posts:

https://thepeoplesappraisalblog.wordpress.com/2019/02/12/planet-of-the-cheapskates/

https://thepeoplesappraisalblog.wordpress.com/2019/01/30/appraisers-outraged-end-the-appraiser-payment-issue/

A Little Push Can’t Hurt Right? Wrong!!

Well, here we go again.

In my previous blog posts titled “Round and Round” and “Pressure My Story”, I spoke to examples of how lenders and/or AMCs have been pushing and pressuring appraisers to hit certain values on transactions. If an appraiser did not hit these numbers, or make changes to make the transaction work in the lender’s favor, the appraiser would be threatened with non-payment, removal from appraiser panels, and/or blacklisted. If you haven’t read those blog posts, feel free to go back and have a look. This post, however, is about another issue that has recently come to light.

Let me set this up for you. A consumer is looking to refinance their home. They get everything set up on their end and ready to apply for the loan. But as the process with the lender gets going, they get a letter like this one below from the loan officer or banker:

I don’t know about you, but in my opinion, this violates Dodd Frank, Appraiser Independence. It clearly shows that issues of the past are still being presented today, just in a different way. It’s not necessarily the lenders that are directly trying to influence values (although many still act as described in previous blog posts), but they are instructing the homeowners to exert influence, and as this person said, “PUSH” the appraiser for a certain value because the lender is prohibited from doing so. The very person the consumer is trusting to do what’s right on their loan, is now instructing the prospective borrower to “SELL YOUR HOME to the appraiser” to achieve the magic number that will close the loan. Forget ethics, forget trying to do what’s right, and forget the risky position foisted on the consumer by the loan officer. Have we as members of the national economy not learned anything from ten years ago?

Since the crash, laws have been put into place to protect Appraiser Independence and YOU as the consumer. The Dodd Frank law specifically spells out what must not happen among lenders, AMCs and appraisers. 

The following is directly from Dodd Frank:

Dodd-Frank and discussions between appraisers and agents

The Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”) prohibits “any act or practice that violates appraisal independence…” It also states:

It shall be unlawful, in extending credit or in providing any services for a consumer credit transaction secured by the principal dwelling of the consumer, to engage in any act or practice that violates appraisal independence as described in or pursuant to regulations prescribed under this section.

For purposes of subsection (a), acts or practices that violate appraisal independence shall include—

‘‘(1) any appraisal of a property offered as security for repayment of the consumer credit transaction that is conducted in connection with such transaction in which a person with an interest in the underlying transaction compensates, coerces, extorts, colludes, instructs, induces, bribes, or intimidates a person, appraisal management company, firm, or other entity conducting or involved in an appraisal, or attempts, to compensate, coerce, extort, collude, instruct, induce, bribe, or intimidate such a person, for the purpose of causing the appraised value assigned, under the appraisal, to the property to be based on any factor other than the independent judgment of the appraiser;

‘‘(2) mischaracterizing, or suborning any mischaracterization of, the appraised value of the property securing the extension of the credit;

‘‘(3) seeking to influence an appraiser or otherwise to encourage a targeted value in order to facilitate the making or pricing of the transaction; and

‘‘(4) withholding or threatening to withhold timely payment for an appraisal report or for appraisal services rendered when the appraisal report or services are provided for in accordance with the contract between the parties

Now that you have read the above excerpt from Dodd Frank, notice that in #1 the word INSTRUCT shows up twice. The example provided here appears to be a clear violation, by the loan officer, of the law as it’s written.

Now read #3 again. Yet another clear violation of the law as it’s written. This is a perfect example of the collusion that still goes on today, besides other indirect ways that lenders influence value and violate appraiser independence.

Consumers already face many challenges when obtaining a loan. They shouldn’t have to face another with loan officers’ unethical and illegal practices. Influencing a value just to make a loan is not protecting you the consumer. The consumer shouldn’t be directed to influence the appraiser in order to get a professional opinion of the value of their home. The loan officer shouldn’t have to instruct the consumer to influence the value because he “can’t talk to the appraiser.” If the value is there to make the loan, then great. If it is not, the lender should move on to the next loan and the consumer should move on to their own next step. 

This is why appraisers exist: to provide an unbiased and honest opinion of value of a property. Where are the ethics and laws to protect the consumer from these types of lenders? Today’s lenders want fast and cheap and will do anything they can to close a loan. They will use desktops, appraisal waivers (which the consumer should never agree to without an independent appraisal as well), AVMs, and yes, they will do exactly what this person did in the example above. Is the consumer protected? Does the consumer’s confidence in the integrity of the loan process improve because the loan officer is asking them to press the appraiser for a value? My answer is NO

The only unbiased part of the process is the Appraiser and it should remain that way. The Appraiser should not be influenced in any way at all in order to give you the consumer the best professional opinion of your home as possible. The Appraiser has no interest in the transaction, is the expert when it comes to the valuation process and is bound by USPAP (Uniform Standards of Professional Appraisal Practice) as well as state and federal laws. Consumers should remember this and remember that Appraisers are not trying to screw you out of a loan or make things difficult for you. Appraisers are there to protect the public trust, you the consumer and provide the lender with an accurate opinion of market value.

I suggest to any consumer reading this to remember that your home is most likely your biggest asset and that obtaining a loan based off an overvalued valuation set forth by influencing the professional appraiser may come back to bite you in the end. All because you were instructed to do so by the loan officer or others wanting to make your loan close and pad their pockets. Do you really want that issue later on?
Think about it…

Appraisers Outraged! End The Appraiser Payment Issue!

” I am owed $20,000.00″. “I am owed $2000.00”. “I am owed $500.00”. “I am owed $1500.00”. These are just some of the quotes pulled from various groups, message boards and forums from appraisers all over the country that are owed money for the appraisal services they provided. Services they provided for a Lender, Mortgage Company or Bank through an Appraisal Management Company or AMC as they are known.

What’s an Appraisal Management Company you ask? Well for those that do not know, AMCS have been around a long time. Appraisal management companies (AMC) are business entities that administer networks of independent appraisers to fulfill real estate appraisal assignments as Agents of the lenders. However it wasn’t until the financial crash of 2008 that they became a permanent fixture in the Real Estate Process due to the HVCC (Home Valuation Code of Conduct now known as DODD FRANK). They were installed as the “Middle Man” between appraisers and lenders to help insure Appraiser independence and manage the appraisal ordering process. Overnight many of these Amcs were formed and began entering into contracts with the lenders to perform the duties of managing the appraisal process as Agents of the Lenders. Notice how Agents is in Bold? I’ll explain shortly.

So now that we have that out of the way lets get into the real issue here. Appraisers are being left unpaid by Appraisal Management Companies and it’s an outrageous, painful and terrible result of poor legislation and regulation. I will compare this to the recent Government shutdown. The outrage of federal workers not getting paid. The outrage of them not being able to pay bills. The outrage of how could this happen. It’s nice to see all the outrage over this but where is the outrage over appraisers being owed money and not being able to pay bills? Exactly. There is none because no one knows about it. Let me give you some insight and maybe you too will have some outrage.

First lets go back in time.

2011 an AMC named Appraisal loft closed its doors unannounced owing appraisers Millions. The scramble began by appraisers to get their monies owed. Some appraisers were successful but most were not. In this case Lenders were collecting the fees from the borrower and passing them along to Appraisal Loft to pay the appraiser. But over time that didn’t happen and the doors closed leaving appraisers not paid for their time and services.

2012 an AMC named JVI Solutions closed its doors owing appraisers Thousands of Dollars. Once again appraisers scrambled to get their monies owed however only some were able to do so. In this case as well Lenders were collecting the fees from the borrower and passing them along to Appraisal Loft to pay the appraiser. Some appraisers sued the lenders that used JVI and one in particular won his case (no update on if he actually received the monies owed). However others were left without payments ever being made.

2013 an AMC named Evaluation Solutions filed bankruptcy thus leaving appraisers without payments. JP Morgan Chase was the largest client of Evaluation solutions and through a courts decision in Florida the Amc and Bank were absolved of all payments and liabilities to appraisers. Once again borrowers paid for appraisals to the Lender and the AMC failed to make those payments to appraisers.

2018. An AMC named CoesterVMS goes silent and leaves appraisers unpaid. Per numerous articles, web searches & message boards appraisers are owed thousands of dollars and hoping to get paid. According to other various articles, blogs and web searches, Coester VMS stopped responding to appraisers, was paying them late, owed payments from over 6 months and more and now is apparently out of business. Once again appraisers are scrambling to get paid. Many have called the lenders that used CoesterVMS and some lenders have paid up however most have not. Many Lenders as in the other examples state they already paid the AMC for services and are not responsible for any further payments.

There are a couple other AMCs that have ceased business between 2011 to now as well. Some have tried to settle with pennies on the dollar and some have just disappeared. Hell there are some that just rename themselves and continue to not pay appraisers.

Now let me explain this. Most states have AMC laws and regulate them. Many require an AMC to carry a Surety Bond in order to do business in that state. Some don’t. So referring back, one AMC had a surety bond in NC that was for $25,000. When it was announced that the AMC had canceled the surety bond, appraisers flocked to file against that bond for payments. Within a day or so the bond was exceeded. Yes $25,000.00 was exceeded in 1 state. Imagine the filings in other states since the company operated in all 50 states plus Puerto Rico.

So a question comes to mind. If these AMCs are doing this much business and handling this much money then why are they only required to carry a $25,000.00 Bond? A million seems more reasonable.

This brings me back to the beginning and the word Agent. As an independent appraiser I work for myself. I am considered an independent contractor. According to the laws and regulations an AMC works as an Agent of the lender. If they are acting as an Agent (they have a signed agreement), how come the Lender is not ultimately responsible for making sure the appraiser that their Agent obtained is paid properly and on time? Think about this for a minute. The borrower paid the Lender and the lender passed that payment to the AMC to pay the appraiser however no payment was made. Who would you hold accountable?

If the lender takes payment from the borrower and then passes it along to the AMC for the appraisal then shouldn’t the lender who hired this Agent make sure they are doing things correctly? I would think so. I’d like to know if my agents were doing things correctly representing me.

Now what can be done here? I have a couple thoughts:

  • The laws need to be redone to make all parties (Lenders/AMCs)responsible for paying the appraiser and in the event the AMC goes under the Lender takes full responsibility.
  • As discussed earlier, A Larger Surety Bond of at least $1,000,000.00 should be required.
  • Lenders pay the Appraiser their fee for the report and pay the AMC they hire a separate fee. Separate checks or transactions.
  • Escrow Accounts. Money is collected by the lender and put into an escrow account OR if the AMCs do collect money they take their fee and put the rest in escrow.
  • Do not let AMCs handle the appraisal fees. They should have nothing to do with collecting or paying appraisal fees.
  • Go back to the days when the actual borrower paid the appraiser at the door for the appraisal service. With technology today the appraiser can be paid quickly via many different payment options without having a 3rd party commingle in the process.

Enough is Enough. It’s time to change the way appraisers are paid for their services. With all the talk of technology and changing the way appraisals are performed one would think with said technology appraisers can be paid properly. It’s time make changes and that time is NOW!

**** all info regarding AMCs was researched via web searches, blogs, and other public articles*****.