Rush Fees—Fair or Foul?
By Melanie McLane
One of the symptoms of our currently overheated real estate market is an increase in appraisers charging ‘rush fees’ to accommodate a lender, borrower, agent, or any combination of those. Some agents are reporting that their clients are paying what sounds like excessive fees—ranging, in some cases, over $1000.
Let’s talk about the appraisal ordering process itself, which will shed some light on this. For the past several years, under Dodd-Frank legislation, virtually all appraisals for residential properties have been ordered using an Appraisal Management Company (AMC). There are very few, mostly brick and mortar banks, which have created a second, separate department for ordering appraisals, but the vast majority go through AMCs.
The history between appraisers and AMCs is not all pleasant for appraisers. When this practice began, appraisers found that there was now a middleman between them and the lender. In many cases, the appraiser had an established, personal relationship with that particular lender. And, in that time period, lenders were offering acceptable fees to appraisers, and for the most part, also offering a reasonable turn-around time for the report.
When the AMCs got involved, two things happened. The first one was that the AMCs took a slice of the fee off the total fee. One very irritating thing to appraisers is that, except in Georgia, where they passed a law requiring disclosure, the amount of this fee is not disclosed to the consumer. So, the consumer sees a $900 appraisal fee and assumes that the appraiser is getting it all, but that is not correct. And the AMCs shortened the turnaround time. In a nutshell, appraisers were being asked to do the same job, only for less money and in a quicker time frame. So, frankly, for some appraisers, rush fees are a pay-back to the AMCs.
Dodd-Frank and AMCs changed all of that. Today, it is most likely that the appraisal request is not going to a specific appraiser; instead, the AMC is sending out a blast email to everyone on their list. That list could include appraisers without geographic competency, appraisers with competency for the particular type of property, etc. From here on out it becomes which appraiser accepts the initial terms and fee from the AMC. The AMCs are generally cagey, preferring to initially offer low fees and quick turn-around times, both of which benefit them. They get to keep more of the fee they’ve already quoted, and getting the appraisal in quickly makes them look good to you and your borrower. At this point, I’m compelled to say what I always say in appraisal classes, and it is something any competent appraiser agrees with: “The quick answer is not always the right answer.” Some assignments are complex. They require more research. They take more time. Appraiser fees are based on the Scope of Work, which includes complexity, and time. But, back to the AMCs: if no one takes their bait of a low fee, and a quick turn-around time, they sweeten the deal by offering more money and more time. Eventually, someone will take it. However, appraisers have the option of rejecting either the fee or the turn-around time with most AMCs. So, the appraiser can say: “I’m totally booked, and I appreciate the jam you are in (since this appraisal is now already overdue). For a fee of $XXX, I can move this file to the top of the pile and get it in.” To a degree, that is simply supply and demand.
Where do you come into this, as an agent? Well, first of all, before setting time frames in a contract that are quick, check with the lender to see what their turnaround time is. Ask if they are getting appraisals done quickly, or are they backed up? I’m both an appraiser and a broker, and I’d rather know up front that the lender can’t do a 45-day closing than get my client into that contract, only to be told we need an extension when we are one week from the original closing date. Are you working with an online lender, or a local brick and mortar lender? My personal experience is that I get more honest answers from my local brick and mortar lenders. As an agent, I had a very well-known, national lender go radio silent on my buyer two weeks before a scheduled closing. They had promised my client they would get it closed, when they realized they could not, rather than admitting their mistake, they stopped responding to emails, text messages, and phone calls from both me and the client. A local brick and mortar bank saved the day and funded the loan. This is not true of all national lenders, of course, nor do all brick and mortar lenders behave well. This is why you need to know and trust the lender. If you are a seller’s agent, you are at a disadvantage, because you won’t usually have the opportunity to say to the buyer: “Our company has used XYZ Mortgage before, and they rarely meet their deadlines.” If you are a buyer’s agent, check out the lender and tell them up front that bad news is always handled more easily early in the transaction, not at the last minute. Explain to your buyers that some appraisers are charging rush fees, so they are not blindsided by this. Also, if the pressure for a quick closing is coming from the seller, see if you can negotiate with the seller’s agent to have the seller pay part of the rush fee.
This market won’t last indefinitely, but a lot of this advice will hold true in any market. Know your lender, decide if they are reliable or not, don’t set unrealistic time frames in a contract, and inform your buyers of what might happen.
About the Contributor
A thorough and diversified educator, Melanie J. McLane has decades of experience in all facets of real estate education: from course development to presentation. She is a REBAC Hall of Fame trainer and was RSPS of the Year in 2012. She was recently named Pennsylvania’s REALTOR® of the Year. Melanie is a certified appraiser, licensed associate broker, and seasoned real estate educator. A veteran of 36 years in the real estate industry, she has owned and operated a real estate brokerage, taught everything from pre-licensing through designation courses, and continues to practice as both an appraiser and an associate broker. She is a certified USPAP instructor. In addition to her own courses, Melanie’s sessions include most of the National Association of REALTORS®, REBI and REBAC courses.