Prisoner’s Dilemma: Customary and Reasonable Fees

Prisoner’s Dilemma: Customary and Reasonable Fees

I’ve been out of residential appraisal for a little while, however my staff does quite a bit of residential appraising.  I am also very active with residential appraisers groups…one thing over and over again is fees, Customary & Reasonable (C&R) fees to be exact.

One of the reasons I think our industry cannot seem to deal with fees is a common economic problem called the Prisoner’s Dilemma…basically you have no idea what fee to quote, because you have no idea what your competitor is bidding…and what the Appraisal Management Company’s (AMC) client is willing to pay.  So most people would historically bid less with that information vacuum and I believe forces fees down. Overall the market will slowly drag fees down, which if you are a residential appraiser there has not been a fee increase since the early 1990s.

With the increased reporting requirements ultimately the quality of the analysis will drop, while appraisal fees drop.  If you are a Realtor…buyer…seller…neighbor of a buyer/seller…homeowner, the quality of the appraisal is of utmost concern to you and is the most common complaint from Realtors.

At this point most people throw their hands in the air and say “…I paid my bank a whole of money for an appraisal”.  Well cut that price in half and that was how much the appraiser got, with the AMC getting the other half.   That fee the appraiser received is generally quite a bit less then what it was 5 years ago…despite the cost to the homeowner going up.

Right now Dodd-Frank requires an AMC to pay an appraiser a C&R fee, however there is very little data an appraiser can use to determine whether or not the fee is C&R.  There is also little an appraiser can do to hold the AMC accountable for paying less then C&R…too many waves you lose a client.  Which brings us back to the Prisoner’s Dilemma.

Currently a few brave groups like Virginia Tech or Louisiana Appraiser’s Board will put out a fee survey…but those only apply for a certain geographic group of appraisers for a small window of time.

These surveys do not address specific clients or client’s scope of work…

So I had a thought, what if as an appraiser you could go on a website and look up how much another appraiser in your market just received from XYZ AMC?  You could also read how quick other appraisers got paid from that client, how many times that particular client calls for each order.  It would be like an AMC Angie’s List…user supplied and verified data.  Realtime data…you could have it pulled up on your screen when the AMC calls.

Would that be something as an appraiser you would be willing to use…supply data?  Would you be willing to pay for it? How much?

Brian Kirksey, ASA, MAI, FRICS, SRA

[email protected]

(248) 336-2086 x. 101

Brian is managing director at Ethos a commercial and residential real estate valuation and brokerage firm. He is former Chairperson of the Michigan State Appraisers Board, AQB Certified USPAP Instructor, and a Subject Matter Expert for the Certified General Appraisers Exam.  Please like us on Facebook,LinkedIn, and Twitter.

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