How Georgia Enforces a Violation by AMC’s for Nonpayment of “Customary and Reasonable” Fees to Residential Appraisers.
I was appointed Georgia Real Estate Commissioner in January of 2011. As such, I am also CEO of the Georgia Real Estate Appraisers Board (hereafter “the Board”). After my appointment, I quickly became aware of a problem many residential appraisers were having with being paid a reasonable fee by AMCs for their work. Experienced residential appraisers complained to me that they were not being fairly compensated by AMCs. The result, they said, was that less experienced appraisers were getting the work for a lower fee and that their appraisals were inferior in many cases to what an experienced appraiser could produce. Of course in today’s world everyone wants it “quicker and cheaper” and “therein lies the problem” quoting a former Board member.
Georgia passed AMC legislation in 2010, but the legislation at that time did not address “customary and reasonable” fees. In March 2014, I was asked by a member of the Georgia General Assembly and its Legislative Counsel to meet with a small group of residential appraisers to see what could be done in Georgia by the Board to help them with the squeeze on fees they were paid when they did appraisal work for AMCs. They felt that the fees were neither customary to what they had been paid in the past nor reasonable for their work product.
As a result of that meeting, I became much more familiar with the 2010 Dodd-Frank Act and the federal requirements on AMCs to pay “customary and reasonable” fees to residential appraisers for covered transactions. Thus, there was federal law that already existed and that already required AMCs to pay “customary and reasonable” fees to residential appraisers. However, the issue to me then became who could or would enforce such a violation? Is it the federal agency that regulates the lender? Is it the Consumer Financial Protection Bureau? Is it the State through its Attorney General? Is it the State through its appraiser regulatory agency? Is it all of the above? Because of the uncertainty over how a state agency could enforce federal law for a violation for nonpayment of “customary and reasonable” fees and because I felt filing a complaint with a federal agency against an AMC was overly burdensome for most Georgia appraisers, I sought advice from the Georgia Attorney General (AG) to determine if the Board could enforce a violation by adopting a rule under its existing AMC statutes to do so.
After opining that the Board did not have the legal authority to enforce a violation by rule under Georgia’s AMC statutes at that time, the AG’s advice was to seek passage of new statutory enabling legislation to give the Board power to adopt and enforce by rule a violation for nonpayment of “customary and reasonable” fees by AMCs. This is the way Louisiana and some other states have addressed the problem rather than enforcement through a federal agency. In other words, give the state powers to enforce violations by adopting state laws rather than having appraisers seek violations of federal laws through federal agencies. While getting House Bill (HB) 253 passed at the 2015 session of the Georgia General Assembly was not without some difficulty caused particularly by late input from AMC advocates and lobbyists, the Board did have the backing of the Governor on the bill. Lobbyists from the Georgia Association of Realtors (“GAR”) were instrumental in getting the bill passed. GAR knew the importance of lenders getting “good” appraisals and that the bill’s passage would benefit the real estate industry overall. After passage of HB 253 and its signing by the Governor, the Board subsequently adopted Rule 539-1-.23 that generally followed the language of the federal law. The Rule became effective on September 9, 2015. The Rule also gave the Board authority to contract with an objective third party to develop a schedule of “customary and reasonable” fee rates of residential appraiser compensation in Georgia.
In anticipation of passing HB 253 in early 2015 but without any statute or rule in place at that time giving it specific authority, the Board voted in December of 2014 to have an independent study conducted to determine what “customary and reasonable” fees were paid to appraisers in Georgia for the year 2014. The Board contracted with Dr. Joseph S. Rabianski, Dr. Alan Tidwell and Dr. Andres Jauregui to conduct the independent study. Dr. Rabianski is the Chair and Professor Emeritus of the Department of Real Estate, Robinson College of Business, Georgia State University and Drs. Tidwell and Jauregui are members of the Department of Accounting and Finance, Turner College of Business, Columbus State University, Columbus, Georgia. Conducting and analyzing surveys and the data arrived therefrom was something that they were familiar with.
The surveys and subsequent study were extensive. A link to it can be found on the first page of the Georgia Real Estate Commission website at www.grec.state.ga.us. The study was completed in May of 2015 shortly after the Governor signed HB 253. Thus, the Board had the enabling legislation and study ready at the same time.
While I wanted a study that was less complex than similar surveys I had seen in other states, it turned out to be 103 pages long with a lot of detailed backup information. So much for simplicity.
Some interesting facts of the appraisal fee study were:
- It provided the Board with an analysis of fees experienced by appraisers and lenders in Georgia excluding compensation paid to appraisers for appraisals ordered by AMCs. This was similar to the requirement in Dodd-Frank that AMC payments be excluded from surveys in the determination of what fees were “customary and reasonable.”
- It was an online study to document residential appraisals fees paid in 2014.
- Both real estate appraisers and lenders were surveyed.
- Two separate but similar surveys were prepared. One for appraisers and one for lenders. The surveys can be found at the end of the appraisal fee study. Participants were asked to provide typical appraisal fees on five (5) appraisal types, in urban, suburban, and rural areas located in 20 geographic regions in Georgia.
- The appraisal types were Form 1004 (Full appraisal), Form 1004 FHA (Full appraisal for FHA), Form 1025 (Small (1-4 units) residential income property appraisal), Form 1073 (Individual condominium unit appraisal), and Form 2055 (Exterior-only inspection appraisal).
- Because Georgia has 159 counties many of which are rural, the geographic areas for the study were chosen based on Metropolitan Statistical Area (MSA) classifications. Counties not classified in an MSA were grouped in Non-MSA regions based on location and proximity.
- The surveys were hosted by Qualtrics, an online study management system. In support of the surveys and in order to increase appraiser participation, the Board sent two invitation emails thirteen days apart to Georgia appraisers containing a link to the appraiser survey. The Atlanta Chapter of the Appraisal Institute also sent a reminder email to its members. Similarly, the Georgia Bankers Association (“GBA”) sent two invitation emails twenty days apart, with the lender survey link, to key contacts at member banks. The Mortgage Bankers Association of Georgia (“MBAG”) also emailed its members a link to the survey. Both the GBA and the MBAG understood the importance of experienced appraisers being fairly compensated and more importantly the need for “good” appraisals for their lender members.
Contained below are some interesting findings of the Appraiser survey.
- 1,192 appraisers responded to the appraiser study, representing a 34% response rate.
- Approximately 55% of the respondents had more than 15 years of appraisal experience and 66% of them completed more than 100 residential appraisals that year.
- The appraiser respondents performed appraisals on properties located in all twenty of the MSA and non-MSA regions in Georgia.
- Approximately 67% of respondents were from the Atlanta MSA.
Below are some interesting findings from the Lenders study.
- The GBA distributed the survey to 210 member banks. All but a handful of banks in Georgia are members of the GBA. The MBGA distributed the survey to 150 members. In all, 146 lenders responded to the survey.
- Approximately 61% of the lender respondents were involved in more than 50 loans secured by properties located in Georgia.
- Lender respondents ordered appraisals on properties located in all twenty of the MSA and non-MSA regions of Georgia.
Also interesting is a comparison between the Appraiser and Lender studies.
- Appraisers reported average and median fees that were $39 and $36 higher respectively, than lenders. This represents approximately a 10% differential. An IT safeguard was used in the appraiser survey to make sure that appraisers could not game the system.
- The largest differentials occurred with Form 1025 ((1-4 units) residential income property). This property type also contained the largest variance in reported appraisal fees.
- Form 1004 FHA (Full appraisal for FHA) offered the smallest differential and the second highest fees for appraisers and lenders.
The combined appraiser and lender medium fee schedule is found at Table 4 on pages 15 and 16 of the study. It combines all the survey data at one place in the study. Note the appraisal fees found at Table 4 are the average median values of the appraiser and lender groups, generally affording equal representation. We felt the average of the two groups gave a more accurate picture of what fees were “customary and reasonable.”
To date, the Board has received three requests for investigations on AMCs for failure to pay “customary and reasonable” fees. None of the cases has yet reached the Board for a determination of a violation. Stay tuned.
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