Appraisal Fee - Markup or Kickback? - Part 3

Appraiser Question: "I received an order from an Appraisal Management Company (AMC) that requested I bill the client $75 more than my standard fee and return $75 to them. I've never heard of this before, but I haven't worked with many management companies. Is this common?" "Do I need to make a statement in the appraisal report that I have paid $75 to the AMC?" "Are there any other USPAP or legal concerns that I should consider to cover myself?" Appraisal Fee - Markup or Kickback? Part 1 Appraisal Fee - Markup or Kickback? Part 2 Part 2 of this series answered the our appraiser's question from the perspective of USPAP - The Uniform Standards of Professional Appraisal Practice - but left us with a question about whether a RESPA violation may come into play. Why? Because it "appears" the appraiser is involved with collecting or paying additional fees for which "appraisal services" have not been provided. Just What IS a "Markup"? Markups involve the practice of ordering services for a customer from a third-party vendor and then, without providing an additional service, adding an additional fee to the vendor's charge.

Money Magazine recently published a multi-part story about the "The Bunk Behind Junk Closing Fees" by Stephen Gandel where he says, "RESPA was also meant to stop realtors from taking kickbacks for steering customers to favored lenders, title companies, appraisers or home inspectors."

The Closing Cost Scams section asks "Ever bought a house? Then you know what it's like to be confronted, while making the biggest financial transaction of your life, with a bundle of fees you don't quite understand. They're enumerated on what's called your HUD-1 document, the mortgage settlement statement you get the day you close, as required by the Department of Housing and Urban Development."

"The charges listed include mysterious things like title insurance, settlement fees, appraisal fees, processing fees, document-preparation fees and others, as well as charges paid by the seller, like your broker's commission."

"Home buyers now pay eight times as much in closing costs as they did 40 years ago."

There is an excellent paper Pricing of Settlement-Related Services in Residential Mortage Transactions: Second Circuit Decision Threatens to Upset Widespread Industry Practices by James L. Thompson and Hanna L. Stotland. Click here for the full paper.

In their conclusion they recognize the confusion both by the mortgage industry and the conflicting court decisions with regards to RESPA. The Conclusion says:

"Where does this patchwork of rulings leave the mortgage professional, especially one with a nationwide customer base? First, lenders, brokers and anyone making assessments at a closing should play it safe. Given the current split, it will be impossible to predict how any new court will interpret Section 8(b) of RESPA."

"Second, mortgage professionals and their attorneys and compliance offers must keep a close watch on developments in RESPA interpretation.The Supreme Court may grant certiorari to resolve the obvious circuit split, and its decision will inevitably upset the standards in some part of the country. It is certainly possible that, if the split persists, Congress will intercede with clarifying legislation."

I agree. There does appear to be much confusion regarding regarding what constitutes a RESPA violation and how appraisers fit into the whole picture.

I personally feel that it's easy for appraisers to innocently get caught up in the "markup" game. Some appraisers feel that we're just collecting a fee on behalf of the client but would the borrower understand that? At what point does a minor $50-$75 per assignment become considered a "kickback" by a potential borrower?

The bottom line for me is at a minimum . . .comply with USPAP.

Management (ETHICS RULE)

The payment of undisclosed fees, commissions, or things of value in connection with the procurement of an assignment is unethical.

Comment: Disclosure of fees, commissions, or things of value connected to the procurement of an assignment must appear in the certification and in any transmittal letter in which conclusions are stated. .