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/

Closed for business! Sorry Folk

It feels good to be back. Thanks for all for waiting. For those who aren’t familiar with what an AMC is, its short for Appraisal Management Company. After the 2008 crash they were installed to be the order manager for the lender and ensure appraiser independence. If you’ve already read “what’s not in your wallet or round and round” go get a little more familiar before reading this.

Amcs are to manage the orders. They find the appraisers to give the orders to and then through quality control are supposed to help facilitate the process so that the lender can make a lending decision. These AMCs are then the ones to pay the appraisers for work done.

Over the course of the past 10 years we have seen many AMCs collect the money you pay to them to which they are to pay the appraiser they hired. Now many AMCs do a good job at paying appraisers however there are many that do not or worse, they leave appraisers in pain and suffering wondering what the hell just happened.

See there were companies like Appraisal Loft, a big AMC who pocketed millions of dollars from consumers only to never pay the appraisers, close their doors and leave appraisers without compensation for their work. JVI AND ES. Companies like Newtown AMC, Maverick AMC, Nationwide AMC who did the same, made money, never paid appraisers and closed their doors but were all owned by the same guy who once again formed another AMC called Atlantic 1 who well you guessed it, isn’t paying appraisers. Valuation Concepts as well as COESTER VMS are the newest additions to this trend. Not answering calls or emails leaving appraisers without their hard earned money. Some AMCS are closing down and are trying to settle for pennies on the dollar with appraisers. This is a major concern. Hard working appraisers not getting paid for their work. I’m sure you would be upset if your company didn’t pay you. So here is theQuestion?? Where’s is your money, the money owed to appraisers going? Good question. I’m sure some of these current and former amc owners are living much better than all of us.

Under Dodd frank lenders are supposed to be responsible for the third party amc they have chosen to work with. However that’s not the case. Many lenders simply say sorry, or if they do do anything many will get you some sort of compensation. However that’s not good enough. You the consumer paid for a service. You paid for the product and the person who supplied this gets 0? I’m sure you wouldn’t be ok with this. Refer back to my blog post “what’s not in your wallet.” Revisit how it used to be. I’m sure your mechanic, plumber or your lawyer isn’t doing work for free or allowing anyone else to collect it for them before they release your product. So why do independent appraisers have to abide by different rules than anyone else? Why do we have to wait 30-60-90-120-600 days to get paid and risk another company going out of business never to see our hard earned money? Why do independent business owners have to have someone else collecting their money and determining when they get paid. Why does it take 30 days+ to get paid when it used to be at the door when we did the inspection? If you have paid for the appraisal up front before it’s ordered then why can’t the appraiser be paid the moment he submits the report? I know when I do work for the consumer directly they pay me before I leave the site. Independent appraisers are subcontractors NOT employees. This system is broken. It needs to be fixed.

Anything can happen. Maybe one day you will have to fork over money you already paid.

HELP WANTED

Real Estate Appraisers

REQUIREMENTS

Active appraiser license, preferably certified, a computer, appraisal software, MLS, E&O insurance, dependable vehicle, camera, smart phone, a background check (by us) because the one your state requires every year is just not good enough and good communication skills (see smart phone requirement).

JOB DESCRIPTION

You will be responsible to perform valuations subject to 30 pages of requirements set forth in the engagement letter. We will require availability always to answer our redundant calls and emails.

Special note: if you live in ND and have a license in GA, TX, and NJ you qualify for our special desktop hybrids and never have to visit a property site again.

Using your smartphone, assignments will be broadcast at fees WE determine acceptable for the area. The fee is non-negotiable as we have included our special fee in addition to your fee and cannot go back to the lender/client for more money. All jobs will be bid out to our panel of appraisers and those who accept the assignment first will get the order (so make sure you are quick and have that smart phone or tablet with you at all times to accept the orders).

On occasion, we will ask for a fee and turn time to build an AMC C&R survey. Jobs are assigned to the lowest fee and fastest turn time submitted to us. You don’t have to be located near the subject property but reports are required within 48 hours. Nearby proximity to a subject property and expertise are not important factors.

Upon completion, please be available at all times to answer superfluous stipulations to meet UAD or address all value reconsiderations or sales sent to us by the lender, realtor or any party that believes your opinion of value is not high enough.

COMPENSATION

DO NOT INCLUDE INVOICE WITH APPRAISAL REPORTS. We do not accept invoices this way by our team members. Upon completion, we will send you your payment in 30-days or more, depending on your state AMC regulations and rules.

COMPANY MISSION AND VISION

Our mission is to maintain infinite client satisfaction.

If you feel that you can meet the job description, send your resume, three sample appraisals, your driver’s license, bank account info, credit check and health history.

AMC

Unintended Consequences, USA

What’s not in your wallet?

Before the housing collapse, when applying for a loan, you would go to your bank or mortgage broker and apply. Upon approval, they would explain the property would be appraised by a real estate appraiser and as the borrower, the cost of the appraisal was to the borrower (even though the appraisal is for the lender). The appraiser would either bill the lender the cost of the appraisal or coordinate payment when the appraiser was at the house. Sometimes, the lender would pay for it and roll it into your mortgage and all was said and done. The appraiser would most likely be on the lenders list of approved appraisers and had a professional working relationship with the lender and as a borrower, you knew exactly how much was paid for the appraisal and to whom it was paid.

Fast forward to post crisis and today. When buying a property, do you know how much you are paying for an appraisal? Does your lender have a professional relationship with the appraiser? The answer is typically no, but how can this even be you ask? We know how much we pay for other services, we know their experiences, shouldn’t appraisals be the same? Well, it should be but it’s not and this is why……

Post crisis, appraisers were blamed for almost everything, the crash, high and low values, the weather, super bowl losses and pretty much everything wrong under the sun. There were some bad apples, but they did not make up the majority? Enter the Appraisal Management Companies (AMCs) to save the day. They grew panels of appraisers from all over. All you needed was a license, insurance, a computer and a phone (so they can call you multiple times a day for updates). They were to act as a firewall between lenders and appraisers to “ward off collusion” and make things better. The AMC was to MANAGE orders and place them with the appraisers, make sure that appraiser independence is fully enforced, and to act as third-party affiliates of banks. This was governments way to “fix” things, although the real broken aspect of the process were the banks and lenders themselves and we all know how nothing happened to them. So where am I going with this? I’m headed to the part where you, the consumer is being cheated and overpaying.

Remember how consumers once knew the cost of the appraisal up front and who the payment was made to? Do you know this information with confidence today? Do you know for sure that all that money you paid for the appraisal is going to the appraiser for their services?

If you said yes, the answer is, actually no. No one is being honest with consumers about this aspect of the mortgage loan process. In fact, lenders and their AMCs make it a requirement that appraisers can’t discuss the fee with you, much less include an invoice with your appraisal.

In short, the fee you pay for an appraisal, with your money, is not going where you thought it was and I’m writing this to help consumers dig deeper into the representations being made to them.

Say you pay the bank $550 for an appraisal up front. You paid the fee to the lender or AMC thinking this is how much the appraisal costs. I would think that as well but this is an example of what is actually happening.

Here are a couple examples. These examples come from various appraisers around the country.

Example #1

In this example the Appraisal management company charged the borrower $1,150.00for the appraisal. The Appraiser who is doing the work is only paid $500.00, while a mysterious profit of $650 is kept by the AMC for managing the order. The Appraiser who carries the ultimate liability is making less than the managing middle man AMC, and they have gotten rich doing this. As a borrower, you just paid an extra $650 out of your pocket for an appraisal that cost $500. Sound fair and honest? This makes me sick! Actually it makes me sad.

Example #2

In this example which is not as extreme as the first one, the AMC charged the borrower $500 for the appraisal. The Appraiser was paid $259.00 for once again doing all the work and carrying all the liability, while the AMC made $241. With this example, I can almost for certain say that this fee paid to the appraiser is well below a fair and customary market rate for an appraisal, but AMCs wanting to maximize their profit find appraisers to work for much less. It represents perfectly how AMCS search for appraisers (who could be from very far away and not understand your market) to take work for less so that they can pocket more.

Example #3

With this example I need to clear some things up. First, this is an appraisal order for a typical appraisal plus additional forms. In my area, the reasonable fee would be at least $500 for a similar product. As you can see the AMC has charged a total of $545.00 and decided that a product that requires more work on the appraiser’s part is worth less and that they will take $245.00 out of the fee for themselves.

I have many more examples to share but hope these shed light on what I believe to be a new issue taking from consumers by lender third party affiliates. AMCS are up charging consumers while searching and finding the cheapest and fastest appraisers to do the job, so they can profit more.

I probably know what you are thinking now. Nothing wrong with finding the cheapest. We all do this all the time to save money. Here is the difference; this was a culture created. AMCs must make money and make their shareholders more money. By pitting appraisers against each other they created a culture where work goes to the cheapest and fastest while ignoring quality, competency, knowledge and experience. Ask yourself this…are you looking for the most experienced realtor when selling your home or just the cheapest and fastest? Are you looking for the cheapest and fastest lawyer when you need one? Probably not. But at least you know what you are getting either way and you know exactly where the money is going.

Are you laughing with me now? No…..Ok.

Yes, consumers are paying what they think is a market fee for an appraisal but making the middle man rich. Why do you need to pay money to someone acting on behalf of the lender? I ask myself this question every day, which is what inspired me to write this blog. Why isn’t the lender paying this company for their services? Why are consumers paying extra money for a bank affiliate? Especially when the actual appraisal costs less than what consumers are being charged. I know this to be fact because laws in my state require me to disclose what I was compensated in the appraisal report. At least in my state when I report I was paid $450, and you were charged $550, you would know where that extra $100 went. Well, maybe not but I hope that consumers begin to ask. This my friends is called TRANSPARENCY. Shouldn’t consumers know where their money is going to? Shouldn’t you be allowed to know? Shouldn’t you have some sort of trust in your lender to know that you are going to get an experienced appraiser to appraise probably your biggest asset? If you were able to hire your own appraiser, would you look at their experience, reviews, knowledge, pricing, and at the end do an interview with them? I know I would.

Appraisers today sign so many certifications and documents, bound to USPAP (google it, it’s easier that way), state and federal regulations, as well as professional affiliations and continue to protect the public trust. But here’s the question…how is the AMC protecting the public trust?

So, what’s not in your wallet? It’s the extra money you should have left over if you were paying for the appraisal and not paying for a banks third party affiliate.

Do your homework. Ask your lender these hard questions and see what they say.

Game On!

Time to dive into the blogosphere world with my first post.   They say you are supposed to write these from the heart and be passionate about what you are writing.  Most people who know me would affirm how passionate I am about the real estate appraisal industry and profession.  Sometimes, so passionate that I get caught up doing all the talking while sprinkling some F-Bombs, a couple shits and damns within a 15-word sentence.  I guess then, I’m on the right track and here goes. 

There are many blogs, articles and links to what or who a Real Estate Appraiser is.  You should be able to find that information easily on Google, so I will skip this part.  I don’t desire to tell you things you can look up for yourself.  I desire to tell you the things you don’t know or want to know more about.  I want to share thoughts, ideas, my experiences, the hidden costs, the secret information, the misconceptions, and the unseen things that drive me to do what I do. All this set me on a Goonies like treasure hunt to find the answers, make new friends and keep the bad people away from what is ultimately yours.  I want this blog to be a journey for everyone but also realize that while I do consider myself an expert in my profession, I may not have all your answers or my take on things may be different from someone else’s.  I assure you that my take on things will be different.  Why you ask?  For starters I rarely hold anything back. I’m not doing this to make people happy, sad, or even gratified.  I’m doing this because I care about people’s lives and wellbeing and want more consumers to have real information with better understandings of what is going on in the banking and valuation sector

There are really great valuation bloggers out there already who give you the ins and outs of the appraisal process, how we do things, what we look for and how we determine value.  Some bloggers provide detailed charts and graphs as well as great content for the industry.  I have the most respect for them helping other people and their blogs are great.  While I’ll certainly share my experiences and some similar content, this type material is not my main objective. My goal is to use my voice, other avenues of information resources, and my passion to hopefully shed some light on this wonderful business enterprise.

The real estate appraisal profession is so much more than a person coming to your house for 20-45 min and taking pictures.  It’s more than a person pulling comparable sales, market data and then coming up with an opinion of value.  There is a deeper world that exists. For example, the regulations (or currently I should say, the loosening of regulations), a former Attorney General of NY who made some bad deals and decided to create more issues, AMCs (Appraisal Management Companies) that overcharge consumers and underpay appraisers, and of course poor lender behavior.  These are some of the things I hope to share with you in my own words, and hopefully become a better writer along the way.