Fee Simplistic is a regular post by Martin Tessler, whom after 30 years of commercial fee appraiser-related experience, gets to the bottom of real issues by seeing the both the trees and the forest. He has never been accused of being a man of few words and his commentary can’t be inspired on a specific day of the week. In this post, he faults fee spreads to the commoditization of appraisals and emphasizes he is not tipping his hat on his car preference. …Jonathan Miller
This being the dog days of summer I was carefully mulling over in my mind my next Fee Simplistic blog when my plans were altered by fellow Commercial Grade blogger John Cicero’s commentary about spreads in appraisal fees commensurate with the scope of work involved. As a retired bank appraiser who was responsible for not only hiring but, more importantly, understanding the collateral and scoping the assignment before retaining an appraiser my curiosity got the best of me and I inquired as to how a 300% spread in fees could occur. Was it possible that the various appraisers misunderstood the assignment, was the lender giving each appraiser the same report requirements or was I or John missing something? I found out that the winning “bid” or fee (for those who are indeed professionals) was awarded to an appraiser -now get this-who did it twice before over a 2 year period and hence the spread. As John would lament losing the assignment because of the ridiculous spread in fees my take on this (not that I do not agree with him) is that the lending side should be the designated culprit.
Why so? My previous role with the bank on the credit side would have caused me to inquire as to why 2 appraisals over 2 years by the same appraiser did not assuage the lending side. Was the problem with the borrower, the terms offered or with the appraisal itself? Looking at this from the credit side of appraising I would have been interested in the history as to why this borrower was still hunting for a loan. I most particularly would have been interested in the history of the 2 values by the same appraiser: did he get it right the first time, the second time and is it likely he will get right this time or was the problem in the borrower’s credit history or the terms of the loan?
Finally, I would have been also been interested in talking to the appraiser about how he saw the appraisal issues, assuming there were some, over the 2 year period. We know that falling cap rates would have produced a higher value (all other things being equal) but what was the appraiser’s thinking? Was this going to be a fast turn around because he appraised it twice before or were there new factors that had arisen in the market that he was not paying attention to because he knew the building and the resultant value range from his two previous assignments and was only interested in a quick turn around and his fee?
Unfortunately, the appraisal world today has become too commoditized where FIRREA and USPAP have fostered a lowest common denominator mentality. “Get it done, get it done fast, and get it done as cheap as possible” is the credo that has been created by the so-called “authorities”. I have always liked to think that professional fees whether for appraisers, dentists, physicians or accountants should be based on the value they bring for their service. Would you entrust your health or your tax return to a doctor or accountant who will do it for the lowest fee or are you willing to pay somewhat more for better or more competent service? Certainly, the shareholders of XYZ lending institution deserve the same consideration or has securitization of collateralized mortgages removed this concern? Of course someone will say, “what’s the difference if you drive a Honda Civic or a BMW-they’ll both get you to where you want to go”. Yes they will just as a store front drop -in-clinic will take care of your pain until it comes back again
Semper Fee Simplistic