Fighting Back
A persistent question on the Working RE/OREP.org Customary and Reasonable Fee Blog, an information exchange for appraisers disputing low fees, is this one by David McGonagle. “I have been receiving requests now that state, ‘by accepting this assignment you are acknowledging that the indicated appraiser fee is a ‘customary and reasonable’ fee in the market area of the subject property.’  I don't agree with this statement but I cannot turn down the work,” said McGonagle. “Is it acceptable to accept the assignment with the condition that the fee is not considered customary and reasonable but will be completed anyway?”  
 

As reported previously (WRE: Fed Board Update: Customary and Reasonable Fees), there is specific language in Dodd-Frank that addresses this issue, making such statements moot. Fed officials also address the issue at AARO, according to the Appraiser News Online story, which says: “The Interim Final Rule states that just because an AMC requires an appraiser to sign a document indicating that the fee that they are paid for an assignment is customary and reasonable does not necessarily satisfy the AMC’s responsibility to ensure that an appraiser is actually paid a customary and reasonable fee.” 

As the winds of opinion shift, it seems increasingly likely that change is coming: whether it is the result of stronger government oversight and sanction, voluntary compliance on the part of more AMCs or a combination of the two.  It is also worth noting that, according to some appraisers, many AMCs are paying fair fees or at least fees that they can live with (read WRE: Notes from a Busy Appraiser).   

Final Thoughts

Driving to work early this morning I passed a scene familiar to most of us: a small group of laborers pouring cement for a neighbor’s new driveway. As I noted the contractor driving up in his new F-150 truck, I wondered if the powers that be in Washington D.C. or the American citizens they are elected to serve, understand what is happening in this profession and what it means to them.

It would be like, overnight, by edict of the Attorney General of a single state, say New York for example, this contractor in San Diego and every other contractor nationwide would be prohibited from working directly with any homeowner for any remodeling, repair, building or construction job. Contractors would no longer be able to interact directly with any home or business owner. This means no more work from referrals, no more direct advertising for clients, no more “regular” clients or repeat business based on past performance and the quality of the job done.

From now on, contractors would be required to “bid” for jobs through a handful of large, national construction management companies (CMCs). Homeowners would have to engage these CMCs directly.  Costs to homeowners would increase, of course, in some cases by 30 percent or more. Contractors would be offered about half of their “customary” fees for jobs, with the rest remaining in the pockets of the CMCs. Homeowners would not be able to shop contractors to compare fees and would be unaware, because of a lack of transparency in the invoicing, that a substantial portion of the “contractor” fee listed in their billing statement would not be going into materials or skilled labor but to the order-shuffling CMC. Eventually, large corporations, that control lumber and other building materials, might begin purchasing these CMCs or starting their own subsidiaries, realizing that they could roll into the bids increases for lumber, nails, flooring and so forth. They could add it to the "contractor fees": the less the contract will take for his/her services, the more room there is to markup everything else.

Contractors would be hired for the remodel and construction work by CMCs, based not on past performance or particular expertise but on the lowest bid and quickest completion time estimate. The CMCs would handle billing and the details of the job, though some would be slow to pay. Some might turn out to be fly-by-night and not pay at all. The staff they hire to administer and oversee the jobs would be inexperienced in the building trades, in some cases, causing confusion. Some CMCs would shift the administration duties to off shore personnel.

Despite making about half as much, contractors would remain responsible for making sure all building, safety and municipal regulations are met and that other construction details are taken care of, as it is still their licenses that are on the line. Some of these large, corporate CMCs, with insurance of their own, would require the small contractors to indemnify them contractually as a condition of doing business, should any problem arise with any contracting job, no matter who is at fault. In the event of a problem, these contracts would likely bankrupt the contractor should they ever be enforced. Still, many contractors, desperate for work, would sign anyway.   

If a contractor refused a low bid on a job or complained about it, he or she could expect being dropped by the CMC from the order roster because there are many other contractors eager for the work.  Because of consolidation, there would be fewer and fewer CMCs handling more and more of all the remodel and construction jobs for homeowners, so if a contractor is dropped from one CMC, he or she could expect a considerable loss of work. Opportunity might open up for the newer, more inexperienced contractors with lower expenses; being eager for work they might step in to take the lower fee jobs that the more seasoned contractors know they can't complete to their standards.

As I continue my drive to work I think, wait, most politicians are attorneys, so if they can’t visualize the “contractor” analogy, they might understand a world where attorneys suddenly (by edict of the attorney general in one state) have to bid through large, attorney management firms (AMFs) for their work. They would compete for cases based on the lowest bid, regardless of their particular expertise or experience. They would make about half of what they are accustomed to making with the balance going to the AMFs. As citizens they, and we, would pay more for our legal services and have to settle for the lowest bid Counsel we are assigned to defend our legal interests in everything from a divorce to a criminal proceeding. Sounds absurd, doesn't it? 

Girardot says, “I have gone from a staff of 30 providing quality value opinions to major banks, down to my daughter and myself. I have resurrected my once disgruntled and defeated attitude simply because I have seen too much damage wreaked on good people by banks that gambled with other peoples' money and personally took home large bonuses. I have resolved that I will continue to do what I can for that reason and because I also realize, having been politically involved myself before, that as long as one is alive, one's rent is never paid in full.  My message today, even if I stand alone, is that I believe that if we can get government to see what their complicity with the banks is doing to consumers, change will happen and issues facing appraisers will be taken care of in the fix.”