The Dodd-Frank bill brought cheer to at least one sector of the real estate industry, mandating “customary and reasonable” fees for appraisers. Or at least, it should have.

But instead, the Federal Reserve’s current interpretation of the rule has allowed appraisal management companies (AMCs) to keep lowballing appraisers.

Now appraisers are gearing up to fight back against the Fed, and they’ve got one heavyweight on their side – the very man the bill is named after, Barney Frank.

Frank met with representatives of the Massachusetts Board of Real Estate Appraisers (MBREA) recently and leant them a sympathetic ear, saying he, too, is displeased with how the fee rule has been interpreted, sources told Banker & Tradesman. The MBREA is now reaching out to its members for concrete examples of situations where AMCs haven’t been following the fee rules, particularly with regard to adjusting fees for tougher assignments, in order to help change the final rule.

Frank spokesman Harry Gural confirmed the Massachusetts Democrat is looking into the issue.

Appraisal management companies act as middlemen between appraisers and lenders; many are bank-owned. Their prominence – and market share – rose in 2008 when New York State Attorney General Andrew Cuomo brokered a settlement with Fannie Mae and Freddie Mac in which the institutions agreed to adhere to a code of conduct which discouraged direct interaction between loan officers and appraisers. The intent was to prevent lenders from pressuring appraisers to arrive at a particular valuation.

But one of the biggest effects was to put pressure on the fees paid to appraisers, with AMCs often offering about half of the fee independent appraisers had previously changed. Many Realtors and mortgage brokers complain that this has driven experienced, knowledgeable appraisers out of the profession, resulting in oft-flawed appraisals which blow up deals.

Not Playing Fair

The language in the Dodd-Frank bill was meant to address such complaints. But the bill left specific enforcement and interpretation issues regarding appraisal fees to the Fed. It also said determining “customary and reasonable” fees should involve looking at third-party sources which did not include AMCs.

“I was very excited when Dodd-Frank passed, because I read the rules and I thought, ‘Oh this is going to be great, because number one it’s going to allow us to pay the appraisers fairly, and number two it’s going to allow up to bring in trainees,’” said Jonathan Asker, CEO of North Atlantic Appraisal in West Bridgewater.

But when the Fed came out with its interim rule last fall, it made a different interpretation. The regulator suggested that while examining third-party fees was one way to determine a fair rate, another way would be to presume that a fee was customary and reasonable if it was “reasonably related to recent rates paid for appraisal services in the relevant geographic market,” and reflected the scope of the work involved. The Fed’s method, then, implicitly included fees paid by AMCs.

Since the bill’s passage and the ruling, “the local banks and credit unions are playing fair, and for the most part have raised their fees,” said Asker. “But the big banks and AMCs, which control more than 50 percent of the market [have not].”

Even the Fed itself has become concerned that AMCs aren’t adjusting fees to reflect the fact that some assignments are more complicated and take more time to research and evaluate than others.

“So, for example, appraisers are basically being offered the same fee to do a three-bedroom, one-and-a-half [bathroom] ranch in Randolph as they are to do a waterfront property in Duxbury,” even though it’s more complicated to figure out land values and find comparables for waterfront locations, said Steve Sousa, executive vice president of the MBREA. “They should be saying, ‘okay, our standard fee is x, and for this it would be x-plus,’ and they’re not doing that.”

Fight For Your Right

If the fee issue is not addressed, some appraisers fear it could permanently shrink the profession. Current woes have inspired some appraisers to attempt to organize to better conduct lobbying efforts on their own behalf.

“The guild has been having high-level meetings in Washington with congressional officials, with the new staff of the new consumer financial regulatory bureau, to try to stop a hemorrhage that is taking place in the appraisal industry,” says Peter Vidi, president of the American Guild of Appraisers. An affiliate of the AFL-CIO, the guild has been around for eight years. Renewed interest in unionization sparked a merger between it and the Maryland Appraiser Union earlier this year.

But getting all appraisers on board is still a tough task, said Vidi.

“There’s a funny problem with real estate appraisers. Appraisers are notoriously independent. They operate in their own little world,” he said. He still finds resistance to joining any form of union among many. “[For many appraisers,] when it’s really good, you don’t need it. When it’s slow, you don’t have the money.”