Don’t TRID on me: How the TILA-RESPA Integrated Disclosure rule impacts appraisal fees
Written by a la mode on October 28, 2015
This is a guest post from Woody Fincham, a Vice President with The Trice Group, LLC, which is a part of Valucentric. Woody serves as the Chief Residential Appraiser for Valucentric, which is a growing national full-service firm. He is a dual-designated appraiser with the Appraisal Institute having earned the SRA and AI-RRS designations. He specializes in complex residential properties, non-lender work, and conservation easement valuation. Woody is also an approved instructor with the Appraisal Institute, as well as a frequently requested conference speaker.
There has been much discussion amongst appraisers and on social media regarding what the TILA-RESPA Integrated Disclosure rule means for appraisers. Already, many lenders and appraisal management companies have sent out directives to their appraisers as to how they will increase fees moving forward. Some have stated they will only allow a set increase for specific things, such as having a standard fee of $400, and only allowing a $75 fee increase for waterfront, and/or another $50 for large or complex properties. This presents a problem when dealing with unique situations. For example, if an assignment has an external obsolescence such as being next door to a gas station, or if the subject is under some kind of illegal zoning use.
These types of situations can add hours, if not days, to an assignment in order to adequately complete your due diligence and satisfy USPAP. A set-in-stone fee list as described above could be detrimental for appraisers. This new rule has caused some lenders and AMCs to continue to look at the appraisal process as a commoditized service. But it's not as easy as ordering a hamburger or manufacturing widgets in a factory. Every appraisal written is a standalone research project that requires unique research and analysis.
If you're unfamiliar with what TRID is, let me give you a quick rundown. It's a new set of requirements that the Consumer Financial Protection Bureau (CFPB) has created, which recently became enforceable on October 3rd, 2015. It is designed and intended to disclose all fees and simplify the closing process for the borrower using such catch phrases as “Know before you owe”. The CFPB says there are two primary things it will do:
- Simplify and consolidate some of the required loan disclosures, and…
- Change the timing of some activities in the mortgage process.
I spoke with Bill Garber, the Director of Government and External Relations at the Appraisal Institute, to get a better idea of what exactly it means to our profession:
“The rule has a couple of flaws from an appraisal standpoint. First, the rule is a classic example of an agency choosing to walk the fence on an important policy issue in how it treats appraisal management company fee disclosure. The CFPB studied whether consumers might be confused by additional fees being disclosed on the new Consumer Disclosure Statement, including AMC fees. Despite this, it chose to allow AMC disclosure, but not require it, even though the Dodd-Frank Act clearly authorized the agency to do.
Second, the constraints around zero tolerance and changed circumstances will unnecessarily complicate the performance of appraisals on complex appraisal assignments and could actually compromise the preparation of credible appraisals. It’s simply unrealistic and unreasonable to require appraisers to predict the exact scope of work for the assignment sight unseen, as some lenders may require of appraisers to avoid complications with the rule. Public records are not perfect, and situations will arise that require more due diligence to prepare a credible report. Lenders should be mindful of this from a safety and soundness standpoint.”
Mr. Garber also mentioned that the Appraisal Institute is part of a coalition of real estate finance and development organizations that supports legislation that would hold off TRID for six months and allow a grace period before enforcing the new regulations. Coalition members include the American Bankers Association, the Credit Union National Association, and the National Association of Realtors (NAR) among several others.
In my own practice, I have had several clients send me new fees that they would agree to that cover normal orders, along with what they would accept as escalation fees for common scenarios such as complex properties, waterfront, large size, acreage, etc. The concern here is that once again, this is putting undue pressure on appraisers to accept lower fees than what they might otherwise quote. There still seems to be some misconception with a few AMCs and lenders that appraisal services are exactly the same across the board in all cases. We all know that isn't the case. Every single report that I write is case-specific. In many cases similar tasks may occur across the spectrum of similar assignments, but there are many cases where there will be exceptions and variation from the norm. For typical everyday valuation work, TRID seems to be an excuse to set base and escalation fees to a standard level, which will lock fees at an artificially low price-point.
I do have some clients (AMCs and direct-engagement lenders) that have continued to allow me to quote new jobs as I see fit. Since TRID came into effect, I have quoted thousands of dollars in single-property residential work, and have escalated fees on several of these assignments to deal with moderate increases in complexity. My personal market is a great example of where these new TRID-induced fees break down, as much of my coverage area is a rural area requiring a lot of driving, and consisting of a relatively large base of high-end real estate. Gentleman estates, equestrian hobbyists, and large estates each require a completely different approach and many lenders and wealth management entities are in sync with that concept.
There does seem to be some fluidity on this side of the residential valuation world. Our firm works with just about every major lender that lends in Virginia, Maryland, Pennsylvania, Washington DC and Delaware. So we have seen both sides of this issue, and the different ways most clients are handling it. In fact, we've seen an uptick in fees because of TRID as some lenders are paying the same to AMC-engaged work as they are to directly engaged appraisers.
Woody's two cents
My advice is to stick to your guns in regards to what you think your time is worth. If you are familiar with the excess work involved in an assignment, then bid accordingly. Make sure that you research the property before you accept the order, in order to avoid getting stuck with an assignment for which you're being underpaid. If you are unable to get a good fee, consider passing on the assignment if you can.
As much as most appraisers hate Zillow, there are few tools that are better and easy-to-use to help appraisers research a property on a mobile device. Zillow has access to most public record data, so they will often have reasonably accurate property information. In my area if the property has been listed in the MLS, Zillow will show that listing information, along with MLS pictures, maps, aerial views, etc. I use it and RPR quite often on my cell phone to get bids back in quickly.
In conclusion, some clients have moved towards reality and are coming to terms with the importance of allowing appraisers to price at customary and reasonable fees. Still others have not, and I've even seen a few that describe some fancy calculator system that once again treats the valuation process in a cookie-cutter fashion. Lenders are having to rethink how they engage appraisers.
While appraisers obviously cannot discuss fees in any way that approaches price fixing, it is a good idea to understand what your competitors are charging and how they are escalating fees for various scenarios. And, it's more important than ever to be a member of a professional appraisal organization, whether it’s a large one like the Appraisal Institute or even a small state coalition.
Get involved so that you are aware of what is happening and to ensure that your voice is heard on these important matters.