North Carolina proposes legislation to establish fair “customary and reasonable” fees for appraisers. Prompting the FTC (Federal Trade Commission) to go to bat for the AMCs.
While the state North Carolina is trying to ensure that the public receives quality appraisal services and pay fees that are “customary and reasonable” using data from the Veterans Association studies, etc., it looks like the FTC has chosen to protect the AMCs.
In North Carolina there is currently proposed legislation designed to establish what customary and reasonable fees are in specific regions. The legislation would establish that AMC fees are not always considered “customary and reasonable” and are precluded from being part of any average.
The state of North Carolina is not fixing fees, but establishing what “customary and reasonable” fees are for specific regions in that state. For instance, it costs an appraiser more money in the rural, mountainous, less populated regions of North Carolina to develop a credible appraisal than it does an appraiser in the city of Raleigh, North Carolina.
For the second time in the last two months, the FTC is accusing a state of pursuing appraisal fee laws that could restrict price competition and violate federal antitrust laws.
The FTC would be better served to look closer at the AMCs that charge the lending institution servicing fees that are sometimes greater than the amount of the appraisal itself. Ultimately, those fees are paid for by the consumer, they are just not called an appraisal fee.
May 2017, the FTC filed a complaint against the Louisiana Real Estate Appraisal Board, accusing the Board of “unreasonably restraining price competition for appraisal services in Louisiana” by stipulating that appraisal management companies must follow the state’s established policies for the fees that AMCs pay to appraisers. The FTC suggests that the bill “may have the effect of displacing competition for the setting of appraisal fees and ultimately harming consumers in the form of higher prices.”
The North Carolina General Assembly is currently considering a bill that seems to be aimed squarely at the AMCs, because it would establish a single resource for determining what is customary and reasonable when it comes to fees in specific regions. Legislature includes a method for determining how the state’s appraisers are paid based on “academic studies, government fee surveys (Veterans Administration studies), and independent private sector surveys,” rather than allowing the fees to be set by market competition.
The North Carolina Assistant Attorney General requested the FTC issue a comment regarding its opposition to the North Carolina bill.
According to the FTC, North Carolina’s proposed legislation has some of the same issues as the proposed Louisiana legislation. In its comment, the FTC states that the bill’s method for establishing appraisal fees “is not mandated by – and, in fact, may be inconsistent with – federal law.”
Authors note: Something can be inconsistent without violating the law!
The FTC claims that North Carolina’s proposed legislation goes beyond the rules established in the Dodd-Frank Wall Street Reform and Consumer Protection Act. Dodd-Frank requires appraisal management companies to pay “a rate that is customary and reasonable for appraisal services performed in the market area of the property being appraised.”
The FTC states in its comment that it believes federal law does not require states to impose standards for customary and reasonable fees beyond what federal law provides, or to set customary and reasonable fees at any particular level. FTC claims that North Carolina’s proposed legislation establishes a specific price schedule for appraisal fees that is not representative of the market place.
According to the FTC, the North Carolina legislation establishes the following rules for paying appraisers (from the FTC comments requested by NC AG Ouellette):
- The bill states that “Compensation and offers of compensation provided to an appraiser shall be presumed reasonable” if the amounts are “reasonably related to recent rates paid by the consumer for comparable appraisal services performed in the geographic market of the property being appraised.”
- The bill then states that “Recent rates paid shall not include those amounts paid by appraisal management companies.”
- The bill further states that “Customary and reasonable rates shall be based on objective third-party information, such as academic studies, government fee surveys, and independent private sector surveys.”
- Finally, the bill requires the Board to “adopt rules necessary to enforce this subsection.”
Those rules carry a number of issues, the FTC said in its comment.
The bill, as structured, could “effectively preclude AMCs from negotiating market-based fees with appraisers,” the FTC said. “We are concerned that this approach restricts free-market determination of appraisal fees and therefore may ultimately result in higher prices for consumers.”
Additionally, one piece of the North Carolina legislation’s language could lead to appraisers being paid the full amount that buyers are charged for the appraisal, rather than AMCs taking a portion for their services.
“The bill also expands this definition to include ‘recent rates paid by the consumer.’ We question whether it is appropriate for appraisers to receive the full rate that the consumer pays,” the FTC said.
“Typically, the consumer pays for additional services beyond the appraisal (e.g., other services provided by the AMC), the costs of which might be recovered by the lender as a lump-sum fee for the loan,” the FTC continues. “Thus, this provision also might have the effect of inflating the prices paid by AMCs for appraisal services, above the levels that would otherwise exist in a competitive market.”
The FTC also states that if North Carolina begins dictating that AMCs use a fee survey as the basis for how they pay appraisers, the free market will be removed from any role in determining the price of appraisal services, and might inflate appraisal fees above competitive levels.
“In other states that have commissioned fee surveys, methodology issues have resulted in a report of appraisal fees that may not accurately reflect market rates, and may have been significantly higher than market rates,” the FTC states.
“These fees, when paid by AMCs, are then passed on to consumers,” the FTC continues. “Where surveys report only median or average fees, rather than a range, the surveys fail to account for the variability of appraisal circumstances and fluctuations in the real estate market.”
The FTC concludes its comment with a bit of a warning for North Carolina.
“We urge the North Carolina General Assembly to consider whether HB-829 will promote competition and benefit consumers,” the FTC states.
“We are concerned that, if HB-829 were enacted, real estate appraisal fees in North Carolina might not be based on competitively set market rates, and that AMCs – and, ultimately, consumers – might face higher prices for real estate appraisal services,” the FTC concludes. “As evidenced by the recent filing of the FTC Board Louisiana Complaint, we will continue to investigate and, where appropriate, recommend that the Commission challenge potentially anticompetitive actions by real estate appraisal boards.”
Whomever is spearheading this at the FTC should consider taking a closer look at the fees AMCs are charging on top of the appraisal fee, which ultimately costs the consumer much more money than paying appraisers customary and reasonable fees. They should consider whether these fees are not “other service”, but an extension of the appraisal cost and not the FTC doubletalk (above).
Let’s hope that the state of North Carolina prevails and their legislation passes creating an example that might be followed by other states throughout America.
Here’s a novel idea, real estate appraisers organizing and developing appraiser owned co-ops that would displace the AMCs and pay appraisers fair and reasonable fees. Co-ops would make money the appraisers would make more money (than they currently do), and the lending institutions would pay less money. Meanwhile, greater fees being paid appraisers would promote and stimulate the continued evolution of appraisal reports that is required by today’s higher standards.