The Dodd-Frank legislation set new boundaries on the appraisal industry, especially in the areas of valuator independence and fees paid to those who perform work through appraisal management companies.
But now there are those on both sides of the business who each claim that those responsible for setting the rules under the law are moving away from the legislation's intent.
George Demopulos, the president and chief corporate appraiser at Lincoln Appraisal & Settlement Services, a Rhode Island-based AMC, said while Dodd-Frank did create rules for his industry on the federal level, it also pushed a lot to the state level, where by 2014 each will have to come up with their own laws (29 states have so far).
He said the "spirit and intent" of Dodd-Frank was to promote appraiser independence. But as states begin to enact their laws, Demopulos said each one is moving "farther and farther away from the original intent of Dodd-Frank, and are beginning to put rules and regulations that have nothing to do with appraiser independence.
"And in my opinion, and in many of my friendly competitors' opinions, they are beginning to tie the hands of AMCs and in fact may put some of us of business."
On the other hand, the American Guild of Appraisers, which is affiliated with the AFL-CIO's Office of Professional Employees International Union, said the Federal Reserve Board's regulations to implement Dodd-Frank go against Congress' intent regarding the payment of reasonable and customary fees by AMCs to appraisers. It has filed a petition with the Fed and the Consumer Financial Protection Bureau to have that part of the regulation revised.
Demopulos brought up the law passed in Texas that every AMC has to pay $10 to the state's appraisal board for every appraiser it works with in that state. If an appraiser is removed from an AMC's panel, it has to pay an additional $10. Texas is also mandating annual reviews of an AMC's work, which also could be costly for those companies.
The appraisers, he said, are independent contractors who voluntarily work with an AMC. Use of an AMC is not mandated under Dodd-Frank or secondary marketing agency policy.
But lenders choose to work with AMCs because they add value by reviewing appraisals and managing the network of appraisers, "and it has worked quite well for 25 years," said Demopulos.
But under the new rules, several states "are punishing us. In no other business, whether it be a life insurance company or a real estate company" does that company "have to pay the state board a $10 fee for every sales agent they work with," and in the end, the homeowner will have to pay this fee, he said.
Demopulos has extrapolated the various fees states are charging and figures he will be out $150,000 each and every year. On an industry basis that could be as much as $15 million being pulled out of AMCs, 90% of which he states are privately owned businesses.
Washington state has bumped up its requirements for a surety bond and that increases the cost to the AMC. These costs have to be absorbed by someone and that is the consumer, he reiterated.
On the federal side of the equation, an entity created by Dodd-Frank, the Appraisal Subcommittee can collect from an AMC up to $50 annually for each appraiser on that AMC's panel.
Meanwhile, nothing stops an independent appraiser from undercutting his fees, a situation Demopulos described as unfair. Speaking about another business where independent locals compete against national franchises, pizza, he said states don't charge Domino's surcharges to do business in their city or state.
From the independent appraisers point of view, the regulations from the Fed were not favorable to the industry, said Peter Vidi, president of AGA.
AMCs keep a percentage of the fee paid by consumers for the appraisal; Demopulos said that is for services provided and therefore they are entitled to it. However, Vidi feels the AMCs have thrown appraisers "under the bus" when it comes to split.
The Fed put in two presumptions when it issued the pay the appraiser "reasonable and customary" fee rules for Dodd-Frank. The law adds that that does not include AMC fees.
But in the second of those presumptions issued in the Fed regulations said, "maybe you can use AMC fees," in the reasonable and customary calculation, Vidi explained.
He said this allows AMCs to using "greenmail to take advantage of appraisers.
The instrument of coercion against appraisers has been switched from the lenders and Realtors to the AMCs, he continued.
So it its petition, AGA is asking the Fed and CFPB to go back to the language in Dodd-Frank regarding appraiser fees.
Right now, AGA is trying to do this through channels, Vidi said and it is hoping it won't have to go the legal route to get the Fed to remove the second presumption. But it realizes it might have to file a lawsuit.
Vidi noted that situation with AMCs and fees have caused a large number of appraisers to leave the industry (he had anecdotal statistics that the group working on confirming). And there are very few newcomers looking to become real estate appraisers.
As a group, appraisers have not been well organized and one of the purposes of the AGA is to give the industry a collective voice, Vidi declared.
