Kenneth R. HarneyContact Reporter
The Nation's Housing
Are you getting fleeced on appraisal charges when you buy a house or refinance? Could you be paying as much as double what the appraiser is receiving for actually doing the work, with the excess going to an undisclosed third party?
Many appraisers say yes. And they're eager to let consumers know that when the appraisal charge is $500 or $800 or $1,000, they're frequently being paid just a fraction of that. The rest is going to an "appraisal management" company under contract with the lender to oversee the appraisal process. Management companies hire the appraiser, negotiate fees, review the appraisal and send it to the lender. Management companies often select appraisers willing to work for relatively low fees. In exchange, they make assignments available to appraisers that they might not otherwise receive.
Controversy arises when management companies add 35 to 50 percent surcharges — or more — onto the final bill to the consumer. Federal rules do not require disclosure of the surcharges, nor do regulations in the majority of states. Appraisers say management companies often seek to hide the amount of their add-ons by prohibiting them from attaching their invoices to the appraisal report the consumer receives.
Worst of all, they say, is when the consumer blames the appraiser for the high fee being charged, unaware that much of it is going into a third party's pockets.
Ryan Lundquist, an appraiser active in the Sacramento, Calif., market, told me about a recent experience: The house he was asked to appraise had complicated features and was difficult to value, requiring a higher-than-typical fee — $800. Subsequently he learned that the management company tacked on an extra $345 — a 43 percent surcharge — hitting the consumer with a $1,145 bill. After the homeowner complained, he learned that the management company said the $1,145 was solely Lundquist's quote, not theirs.
"I was shocked," Lundquist said. "It wasn't honest, it wasn't ethical," plus the borrower was being "gouged." Forty-three percent extra "just seems too much for a middleman service."
Lundquist described his experience in a blog post, which drew dozens of responses by appraisers around the country, mainly critical about management companies' add-ons to consumers' bills.
"I got chewed out by the owner of the house," wrote one. "Yes, I charged $700. But he (the owner) paid $1,700," a $1,000 add-on. "Now that is an excessive fee." Another complained that a management company had "hit (the homeowner's) credit card three times" for the appraisal fee before the work was performed and then tacked on a 45 percent surcharge. The owner "yelled at me" for the rip-off, he said. The appraiser ultimately declined the assignment rather than work for the management company.
Richard Hagar, an appraiser in the Seattle area, said in an email that "I'm still receiving fee 'offers' (from management companies) below $400, while the borrower is being charged $800."
Carl Schneider, a Tulsa, Okla., appraiser, said excessive markups are commonplace, but consumers usually "know nothing about it" because the appraiser is prohibited from revealing the actual fee.
"I resent forcibly being complicit in this fraud," Schneider said. "Why can't they be transparent?
David Doering, a Jefferson City, Mo., appraiser and president of the National Association of Independent Fee Appraisers, said "we often don't know what's being charged to the consumer. We only hear about it when people are angry."
When asked about fee add-ons and efforts to conceal charges, Mark Schiffman, executive director of the appraisal management companies' national trade group — the Real Estate Valuation Advocacy Association — declined to discuss pricing, noting that "I am not a party to any (appraisal management company) contracts."
Jeff Eisenshtadt, president and CEO of Title Source, whose TSI Appraisal division is a major management company, said "there's a tremendous amount of value" his industry brings to the table, but "we believe the consumer really should be focused on the bottom line charge for the appraisal," not the split between the appraiser and the management company. Consumers don't care about the individual costs of "the pickles and onions and lettuce" that go into a hamburger, he said, nor should they when it comes to appraisals.
Maybe he's right. But if you care about where your money is going when you pay for an appraisal, ask the lender or the appraiser. Who's getting what? And why?