With the recent passage of the Financial Reform Bill (a.k.a. the Dodd-Frank Wall Street Reform and Consumer Protection Act: HR 4173), everyone’s eyes are on Wall Street and the Banks. The Bill, however, may have the greatest impact on the appraisal profession since FIRREA was enacted in 1989 in the aftermath of the S & L debacle.
A recent webinar presentation for members by the Appraisal Institute laid it out. Most of the new rules are aimed at correcting the havoc created by HVCC, but some may have a profound impact on commercial appraisers as well. My favorite is the requirement that the appraiser is paid “customary and reasonable fees” for his or her work. According to the Bill,
“Lenders and their agents shall compensate fee appraisers at a rate that is customary and reasonable for appraisal services performed in the market area of the property being appraised. Evidence for such fees may be established by objective third-party information, such as government agency fee schedules, academic studies, and independent private sector surveys…”
This is clearly intended to address the reduced fee to residential appraisers after the appraisal management companies (the AMC’s) took their fee off the top. I have no idea if this will impact the commercial guys. Is there a “reasonable and customary fee” for appraising a $1.2 million square foot office building in Midtown Manhattan? My only experience with “customary and reasonable fees” is with going to an out-of-network doctor on my health insurance plan, and those fees deemed reasonable and customary are usually a fraction of what I was actually charged!
Another provision in the Bill requires two appraisals is the property was resold (flipped) within six months. There is mandatory referral to state boards for USPAP violations and these Boards are to be better funded to deal with enforcement issues. Also, the Bill clarifies that professional designations can be considered when hiring an appraiser, in addition to education and experience levels. (This was always confusing to Banks in the way it had been written in the past.)
Not sure what any of this means yet, and if it means anything at all to commercial appraisers. But historically whenever the fed tries to “fix” the appraisal process with more regulation all hell breaks loose.
My solution: Two appraisals for every transactions over a certain threshold. If they are more than 10% part in value they must be submitted for mandatory review by some independent agency, sufficiently staffed to respond within 7 days.
