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The Great Debate on Appraisal Fees

by Isaac Peck, Publisher

The appraisal industry is abuzz with a discussion about appraisal fees.

The Consumer Financial Protection Bureau (CFPB) recently issued a Request for Information Regarding Fees Imposed in Residential Mortgage Transactions [Docket No. CFPB-2024-0021] in which it solicited feedback from the public and industry stakeholders on the fees charged to consumers by mortgage providers and related settlement services. The CFPB framed it as an inquiry into “junk fees” in the mortgage space, writing that it wants to “understand why closing costs are increasing, who is benefiting, and how costs for borrowers and lenders could be lowered.”

“The CFPB is looking for ways to reduce anticompetitive fees that harm both homebuyers and lenders,” said CFPB Director Rohit Chopra. The real estate appraisal profession responded—with nearly 100 comments submitted that addressed appraisal fees in some way. Appraisers spoke up, alongside many of the national appraisal organizations, highlighting the need for regulatory action and greater transparency around appraisal and appraisal management company (AMC) fees.

Specifically, a key point of contention is how the current TILA-RESPA Integrated Disclosure (TRID) allows for a “bundled appraisal fee” that includes both the AMC’s fee and the appraisal fee. Many believe this bundled fee is one of the main reasons there is so much animosity between AMCs and appraisers; and that it has a seriously negative effect on market transparency, free market competition, appraisal quality, and the total cost to consumers.

Separating the AMC fee and the appraisal fee on consumer mortgage disclosures is something several national appraisal organizations have been trying to accomplish for the last 15 years, arguing that it would bring much needed transparency for all stakeholders and remove the incentive for an AMC to seek the cheapest appraiser it can find for an assignment instead of properly focusing on the “appraiser’s qualifications and credentials.”

Now, the CFPB’s request for comment has sparked a national debate on what can or should be done to address appraisal fees and the current AMC appraiser dynamic. There is a sense that regulators are finally looking closely at the issue.

Additionally, many other professional groups are weighing in. The National Association of Realtors, the Collateral Risk Network, mortgage brokers, credit unions, lenders, more than a dozen state mortgage bankers associations and, of course, AMCs all chimed in. Here’s an inside look into the arguments being made.

Appraiser Pain, Consumer Cost
Appraisers are currently in a difficult spot. During the peak of the mortgage market in 2021 and 2022, appraisers saw their fees increase due to growth in demand for appraisal services. Conversely, demand for appraiser services has declined substantially in 2023 and 2024, leading to a dramatic decrease in the fee amounts being paid to appraisers for their services.

In their letters to the CFPB, many appraisers point out that while the fees AMCs are offering them have fallen steeply—sometimes by up to 50 percent compared to a few years ago—the cost to consumers has not declined proportionally (if at all). This will likely be something the CFPB pays close attention to since it is trying to figure out why consumers are paying more than ever at mortgage closings and what can be done to lower costs.

Desiree Mehbod, a certified residential appraiser in Virginia, argues that appraisers have seen their income plummet, in part, because AMCs are engaged in a “race to the bottom” and “driving down compensation for the actual valuation work while simultaneously increasing their own fees charged to lenders and consumers.” Mehbod includes in her letter several different fee split examples indicating AMCs retained as much as 70 percent of the total appraisal fee paid by the borrower, which prompted her to stop working with AMCs because of the lack of transparency. “I took umbrage with the contractual clauses imposed by these companies, which prohibited the disclosure of my fee to the borrower & the inclusion of my invoice in the appraisal report. By keeping the borrower in the dark about the true cost of the appraisal, the AMCs are able to charge exorbitant prices & pocket the difference, exploiting the consumer’s lack of knowledge” [CFPB-2024-0021-0431].

Jereme Chervenak, a certified residential appraiser in Ohio, shares the painful struggle many longtime appraisers are facing nationwide due to AMC fee pressure, writing, “After 20+ years in the appraisal industry, I find myself barely making ends meet working full time.” Chervenak goes on to explain how the status quo has led to stagnant pay for appraisers while consumers are actually being charged more. “[The] fees the actual appraiser receives [have] not changed in 20+ years, but the cost to the consumer has doubled or more. I am constantly asked to ‘bid’ (mass emails sent to every appraiser in the area) on typical/non-complex appraisal assignments, even though there is already a fee structure in place … I usually have less than a minute to accept or decline an assignment before it is accepted by another appraiser. How can I possibly review a property? The bid requests appear to be simply designed to see whom will perform the assignment for less, regardless of qualifications or any other professional metric,” writes Chervenak [CFPB-2024-0021-0043].

Pat Turner, a certified residential appraiser who has served on the Virginia Real Estate Appraisal Board and is president of the Virginia Coalition of Appraiser Professionals, writes that consumers are being sorely misled about the true cost of appraisal services. Turner argues that the total cost to consumers for AMCs is in the billions. He notes he has a copy of a full appraisal report that indicates the appraiser collected $205 while the consumer actually paid $834 and was shown that amount listed as the cost of the appraisal on their closing statement. “Every engagement letter by these egregious AMCs instructs the Appraiser not to include their invoice with their reports delivered to them. Why? The borrower is deceived into believing that the appraiser’s bill was that amount,” writes Turner [CFPB-2024-0021-0954].

Kyle Engel, a licensed real estate appraiser in Texas, says he works with few AMCs because of the low fees offered and the way charges confuse consumers. “[When I do AMC work] I will routinely be confronted by borrowers with the line of ‘I am paying $950 for the report! Better be worth it!,’ only to have to bite my tongue because I [am] getting paid $450. [Many say] appraisals cost more than ever! But why is that? Is that because the average appraisal fee is the same level it was 20 years ago? Or is it because there is another entity which is inflating appraisal fees and increasing costs without providing substantial benefit to the overall system? … Most AMCs I have [worked with] disclose that they are being paid between $825-$1,200 to obtain an appraisal on behalf of their client, only to offer a fee of $350-$400 to the appraiser who is actually responsible for producing the report and the liability involved with its use,” writes Engel [CFPB-2024-0021-0970].

Josh Tucker, chairman of the Appraisal Regulation Compliance Council (ARCC), a non-profit organization that describes itself as being dedicated to fact-based, non-partisan research, wrote a spirited letter to the CFPB raising myriad concerns about TRID and AMCs, including the dominant position that many AMCs have in the appraisal marketplace, the lack of transparency around appraisal fees, large AMCs’ use of their own staff appraisers to fulfill up to 35 percent of their client’s orders, and the fact that some AMCs are taking 70 to 80 percent of the fee that is charged to the consumer as the “appraisal fee.” Tucker submitted a variety of evidence, including over 30 examples of AMC bids and orders for appraisal products in which the AMC’s portion of the total fee ranges from 61 to 84 percent. “Appraisals exist to protect both the safety and soundness of our banking system and consumers. We are not able to fulfill this function with the lack of accountability and oversight of AMCs and lenders with the current regulatory environment,” writes Tucker [CFPB-2024-0021-0973].

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State Mortgage Bankers Associations
The mortgage bankers associations of 10 different states, including Massachusetts, New Hampshire, Connecticut, Rhode Island, Maine, Arkansas, Louisiana, Missouri, Oklahoma and Tennessee, wrote different letters but included the same general message to the CFPB about separating appraisal and AMC fees: “The Association(s) would also like the Bureau to consider itemizing the cost of an appraisal …We should ensure that regulated institutions are fully cognizant of the practices of AMCs they hire. By disclosing the appraisal fee breakdown on the mortgage disclosures, we believe that it will be easier for an institution to monitor the practice of appraisal selection and track the amount that the borrower-paid fee goes towards the appraisal” [CFPB-2024-0021-0385 and CFPB-2024-0021-0841].

MBA National
The Mortgage Bankers Association (MBA), which is the national organization for the real estate finance industry, chose not to weigh in on the appraisal fee issue directly. Instead, it simply asserted that lenders do not have much control over appraisal pricing and that “attempts to ask appraisers to lower the cost of an appraisal on the borrower’s behalf may impinge on appraiser independence” [CFPB-2024-0021-0850].

Appraisal Organizations Speak Up
The Appraisal Institute (the largest association of appraisers in the nation), the American Society of Appraisers (ASA), the American Society of Farm Managers and Rural Appraisers (ASFMRA) and MBREA issued a unified statement calling on the CFPB to do away with the “Bundled Appraisal Fee” and exercise its authority under Section 1475 to separate the two fees [CFPB-2024-0021-0040].

These esteemed organizations, collectively representing more than 20,000 appraisers nationwide, succinctly shared many of the concerns voiced by independent appraisers.

Here are some excerpts from their letter highlighting the problems associated with bundling the appraiser fee and AMC fee together:

• Distortion of Free Market: “Lower fees paid to the appraiser do not benefit the borrowers by reducing the fee they are charged—these remain static regardless of what the AMC pays the appraiser.”
• Harm to Consumers and Lenders: Bundling the fees “paid to appraisers and those paid to AMCs is directly harming consumers and lenders.”
• Consumer Confusion: “Borrowers are being misled into believing the appraisal fee disclosed before and at closing is being paid only to the appraiser, with little to no understanding of the presence of AMCs in the transaction.”
• Appraiser Quality: “The process involves … seeking the lowest appraisal fee and fastest time … often with no emphasis on the appraiser’s competence or qualifications.”

REVAA Fires Back
The Real Estate Valuation Advocacy Association (REVAA), an organization that represents the largest AMCs in the country, submitted a 19-page letter [CFPB-2024-0021-0419] which directly attacks the Appraisal Institute’s (et al.) letter, dismissing their arguments for separating the appraisal fee and AMC fee as “unsubstantiated” and charging that they “provide no evidence to support consumer confusion or harm with respect to current disclosure practices.”

Answering complaints about increasing consumer costs, REVAA argues that the free market determines the bundled appraisal fees, writing that “when the price a consumer pays for a product or service is based on a properly functioning free market, consumers generally pay the lowest reasonable price for a quality product or service.”

In response to concerns about appraisal quality, REVAA argues that an AMC is responsible for selecting appraisers based on “quality of past work, skill set, education, experience, geographic competency” and more.

REVAA also goes on to dismiss any connection between appraisal quality and appraisal fees by pointing to Customary and Reasonable (C&R) Fee provisions in Dodd-Frank, writing that “appraisers are uniquely protected under federal law by the pricing floor established by the C&R fee requirements imposed upon lenders and AMCs.”

Interestingly, REVAA goes on to share its interpretation of C&R fee regulations: “Determining what is a C&R fee for an appraisal is a transactional process, not a ‘catch-all’ representative number found on a chart or in a fee survey.”

Here, REVAA seems to be suggesting that a protective “pricing floor” exists for appraisers while simultaneously suggesting that a C&R fee is whatever fee a panel appraiser will accept on a “transactional” basis.

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CRN Says Cost-Plus
Joan Trice, CEO of the Collateral Risk Network (CRN), an influential networking group of chief appraisers, collateral risk managers, regulators and valuation experts, dedicated much of her letter to the CFPB quoting a 2016 article written by Ernie Durbin, the current chair of the CRN Government Affairs Committee, titled “Customary & Reasonable Fees, the Elephant in the Room” [CFPB-2024-0021-0434].

In his article, Durbin echoes many of the points made by individual appraisers and the national appraisal associations, writing: “We all know that appraisers have been bearing the burden of the cost of outsourcing. From the lenders point of view, it doesn’t get any better than free. Ironically, fees increased to the consumer, which haven’t trickled down to the appraiser … The truth is, the rank-and-file appraiser began to pay for the lender’s responsibility to manage the valuation process out of their own pockets.”

While written in 2016, Durbin’s point is particularly salient in today’s market. Fees have increased for consumers— particularly in the last few years—but many appraisers today are facing seriously depressed fees. Durbin also addresses a conflict of interest in bundling together the appraisal fee and AMC fee: “AMC margins were exacted from appraisers’ overall fees. AMCs were faced with the misaligned incentives of seeking the cheapest appraiser, allowing them to earn the best yield.”

Finally, Durbin argues that these “misaligned incentives,” and the low fees that result from them, have an irrefutable effect on appraisal quality. “Fee compression affects overall appraisal quality. Many will argue that appraisers are responsible for providing good quality reports regardless of the fee involved. After all, USPAP [Uniform Standards of Professional Appraisal Practice] requires an appraiser to produce a credible report without discussion of the amount of the fee. This argument makes sense theoretically but not practically. The reality is appraisers are required to produce more work product in the same amount of time in order to earn the same dollars as a result of fee compression. Even the best appraisers, under operational pressure, make mistakes. Paying customary reasonable fees will allow appraisers to spend more time in development of the valuation and make the same dollars they have been accustomed to previously.”

The solution, according to the CRN’s board, is a cost-plus AMC fee model. As Durbin explains in his article: “AMCs would compete for business, based upon their value-add to the lender alone. Their margins would be based on their service, not on managing the cost of appraisals. Those who could perform compliant appraisal management at the lowest cost with the best service would win the business. Lenders would pay for services that they have traditionally paid for in-house and still enjoy the outsourcing benefits of elasticity during market change. Appraisers could charge their customary and reasonable fees and negotiate different fee levels based on the amount of work required by the assignment. And in the spirit of the mission of the CFPB, the consumer would be protected from paying for fees that should really be the lender’s responsibility. Everyone wins.”

CRN believes this uncomplicated cost-plus model can be accomplished by the CFPB issuing a “clarification of the rules stating a consumer may not pay for outsourced services required by the lender for the closing of the loan. This would rectify many of the issues surrounding customary and reasonable fees, AMC, Appraiser relations, and most importantly, protect the consumer in the process,” writes Trice.

National Association of Realtors
On behalf of the 1.5 million members of the National Association of Realtors (NAR), Kevin Sears, 2024 president, weighed in on the appraisal fee debate, offering strong support for separating the AMC and appraisal fees on the closing disclosure:

“When appraisal fees are listed in the closing disclosure (CD), fees for third-party AMCs are bundled with them … Thus, the figure reported in the CD is an amalgam that masks the true cost of the appraisal and third-party fees paid by consumers. Worse, the opaque nature of the true appraisal fee prevents competition in the appraisal industry and inhibits regulators, analysts, and consumers’ ability to evaluate price discovery for appraisal and AMC services. This opacity opens the door to an adverse selection issue where AMCs may provide low quality or poorly matched appraisers without a market or regulatory mechanism to correct it. It also confounds the ability of regulators and the industry to determine whether appraisers’ compensation is reasonable, and customary as required under the §1026.42, the Valuation Independence Law. REALTORS® believe that for regulatory oversight and enforcement purposes, transparency, and market efficiency, fees charged by AMCs should be identified separately from those charged by appraisers. To this end, REALTORS® urge the CFPB to amend the current structure of the CD to mandate that lenders stipulate separate line items for the appraisal fee and AMC fee” [CFPB-2024-0021-0843].

Free Market?
NAR’s reference to “market efficiency” is really a nod to free-market dynamics. One of the points valuation industry stakeholders consistently make in their comments is that while the fees paid to appraisers have remained stagnant or declined in many markets, the amount billed to the consumer as the “appraisal fee” has actually increased substantially. As NAR suggests, this dynamic begs the question about how free the market for appraisal services really is.

CRN’s Trice and Durbin also address the free market as it exists for AMCs today. In unbundling the appraiser fee from the AMC fee and moving to a cost-plus model, they see a world where “AMCs would compete for business, based upon their value add to the lender alone. Their margins would be based on their service, not on managing the cost of appraisals.”

Today, the vast majority of AMCs are not competing directly with each other by quoting a definite AMC fee to lenders (or consumers) as a separate line item. They’re quoting an “appraisal fee,” hiring an appraiser and keeping the difference. In many states, consumers never find out what the AMC’s profit on an appraisal order is, and lenders generally only find out the exact amount after the fact.

From the comments submitted to the CFPB, it appears that many industry stakeholders feel strongly that a free market requires transparency.

What Happens Next?
There appears to be broad consensus on the solution to this issue: the appraisal fee and the AMC fee need to be separated on consumer disclosures.

For many appraisers, it is no doubt refreshing to see so many voices within the valuation space, as well as the real estate industry at large, join in this call to the CFPB to take action on this important issue.

If the CFPB chooses to address this chronic appraisal-profession concern, it would arguably be a huge step in the right direction for appraisers and consumers alike. As Desiree Mehbod puts it: “Restoring transparency around appraiser compensation is a crucial step in addressing these longstanding issues and ensuring a healthy, functional real estate market.”

To read full copies of the letters sent to the CFPB by these industry stakeholders, please visit WorkingRE.com/CFPBletters.

About the Author
Isaac Peck is the Publisher of Working RE magazine and the President of OREP Insurance, a leading provider of Appraiser E&O insurance that includes additional Discrimination Claim Coverage for appraisers (many programs exclude this important coverage). OREP serves over 10,000 appraisers with comprehensive E&O coverage, competitive rates, and 14 hours of free CE for OREP Members (CE not approved in IL, MN, GA). Visit www.OREP.org to learn more. Reach Isaac at isaac@orep.org or (888) 347-5273. CA License #4116465.

OREP Insurance Services, LLC. Calif. License #0K99465