I am alarmed at the new trend of AMCs requiring appraisers to include a copy of their E&O within the body of the appraisal report.  I am equally alarmed at the lack of resistance by both appraisers and the agencies that regulate them to this dangerous practice.  E&O insurance is a very expensive cost of doing business for appraisers, even those that have no complaints on their record. Lenders look at E&O history when determining whether or not to begin a relationship with an appraiser, and complaints and inquiries can show up on an appraiser's E&O history, even when they have been dismissed as unfounded.  In this age of hyper-regulation, any complaint can cause an appraiser loss of business, no matter how frivolous. 

Now consider how dangerous it is for an appraiser to have their PRIVATE E&O insurance information being distributed to every Tom, Dick, and Harry who has no legal right to it.  Federal law requires that the appraisal report be provided to the borrower prior to closing.  Once it reaches the hands of the borrower, it it no longer under the control of the AMC, the lender client, or the appraiser.  We all know that copies of appraisal reports end up in the hands of builders, realtors, homeowners, neighbors, family, etc.  That means that appraisers' private insurance information is being distributed to all those people.  They have the insurer's name, contact information, the amount of insurance carried, etc.  They are not clients or intended users, but suddenly they have the power to easily create huge problems for the appraiser.  The motivation can be nothing more than irritation that a property did not appraise as high as they think it should have.  We live in an incredibly litigious society, with high unemployment and low wages rampant.  Why should appraisers be forced to put their E&O out there like a present under the Christmas tree?

The most frustrating part about this new trend is that AMCs are simply doing this to eliminate a step in the process of what they are responsible to do.  As agents of the lender client, they are being paid to ensure that appraisals they provide meet all USPAP and federal regulations, and that the appraisers they use have the proper license, insurance, etc that the client requires.  The AMCs already have copies of every appraiser's E&O on their panel. In almost every case, an appraiser cannot even apply for an AMC's panel without providing their E&O.  The AMCs already have this information before they send the order, so they do not need to have it embedded in the appraisal report.  They simply don't want to take the time to provide a separate copy to the client when they send the appraisal report.  The gall of this is incredible, considering that the AMC is already taking up to half of the appraisal fee.  This makes the appraiser not only pay the AMC, instead of the lender, it also makes the appraiser do the AMC's job in the process.  I submit that this policy is a direct violation of the Privacy Act, and should be strictly prohibited by our state's AMC regulation.  AMCs should not be allowed to use their virtual monopoly on the residential appraisal market to force appraisers to put themselves at needless risk because they want to save a step and improve their bottom line. 

My second concern is customary and reasonable fees.  The obvious intention of Dodd-Frank was to ensure that appraisers were paid a reasonable fee for the services they provide.  It even clearly stated that AMC fees were not to be considered in this analysis.  The Federal Reserve's Interim Final Rule threw this all out the window at the behest of the bank lobby because the largest AMCsFrank.  They provide only a framework, and then various agencies and unelected bureaucrats and political appointees get to write the "rules" that actually govern.  I urge the Commonwealth to use the proposed AMC regulation to return to the intention of Dodd-Frank. 

This is not to say that I believe a state should be in the business of setting appraisal fees.  Setting fees by regulation is a slippery slope, and I do not believe any person, organization, or government agency should be given the power to tell appraisers what they can charge for an appraisal.  Rather, the free market should determine what an appraiser is paid.  Unfortunately, the free market has been completely destroyed by first the HVCC, and then the distortion of Dodd-Frank.  Since it appears that AMCs are here to stay, and appraisers will never be truly independent again, the only reasonable course to restore some free market competition to the appraisal market is to force AMCs to compete based on their own services and merit.  It is ridiculous that AMCs are paid out of the appraiser's pocket instead of by the lender client that engages them.  This sets up the cycle of "fastest and cheapest" and contributes to the continual decline in appraisal quality, which eventually results in a high percentage of unreliable valuations and weakening of the housing market.  As we saw in 2008, the housing market is a major contributor to the health of the economy as a whole.  When it crashed, everything crashed.  The Commonwealth would be wise to consider the bigger picture of how the current AMC model negatively affects the entire economy of the state. 

The common-sense and cost-effective way for Virginia to begin to correct the serious problem of low fees is to prohibit AMCs from taking their fee out of the appraisal fee at all.  The AMC service and the appraisal report are two distinct and very different products with two different clients.  The fees for each should also be distinct and separate.  The appraiser is not the AMC's client, so why does the appraiser pay the AMC's fee?  The lender is the AMC's client.  Therefore, the lender should pay the AMC's fee.  AMCs should compete based on the value of the service they provide to the lender.  The cost-plus model is the way to encourage competition based on merit and quality... the actual market cost of an appraisal by an independent appraiser PLUS the AMC's fee for the services they provide the lender.  If the appraisal is not part of the determination, then the AMC can only charge for the actual services they provide.  The lender then can make a free-market decision about how much the AMC's services are worth to them.  Is it really worth $200 to have an AMC involved, or would it be more cost effective to develop their own panel of appraisers in compliance with the law?  If an AMC wants to gain client share, then they can make the decision to lower their charge to the lender.  The current system does not work because neither the lender nor the AMC is negotiating with their own money.  They are negotiating with the appraiser's money.  It is beyond me that this has been allowed to continue for so long.  This seems to violate all kinds of anti-trust laws, and would never be allowed in any other type of business. 

I urge that the Commonwealth include in its AMC legislation strict prohibition of AMC fees taken out of appraisal fees.  Customary and reasonable fees cannot be based on the fees currently paid to appraisers by AMCs.  The fee that the borrower actually paid for the "appraisal" is the fee that should be considered in customary and reasonable.  The borrower is told that this is the appraisal fee, and there is no transparency whatsoever that up to half of what they paid went to an AMC and never reached the appraiser at all.  The borrower pays $400 to $500 for the appraisal, but the appraiser typically gets $250 to $275 for doing all the work, putting their private E&O on the line, and signing a certification taking responsibility for just about everything the AMC was supposed to do.  The VREAB will have a complete list of the appraisals ordered and the fees paid by each AMC as part of the new regulation.  Once AMC fees are forced to be separated from the appraisal fee, appraisers will be more able to compete based on their quality and service instead of based on how much of the appraisal fee they can afford to hand over to the AMC.  Once the two fees are separated, the argument about what is customary and reasonable can actually take place.  Currently, it is not even possible to debate the value of apples versus oranges because we are conflating two very different services.