From the Appraiser's Perspective: Appraisal fees all over the boardCharlie W. Elliott Jr., MAI, SRAgood faith estimate, appraisal as a commodity, variables in appraisals, the form, property location
Let's do a bit of role playing. Visualize yourself as a loan
officer, which, chances are, will not be hard, since many (if not
most) of the readers of The Mortgage Press are. Consider
that you are located in Texas, that some time ago you ordered an
appraisal in Oklahoma and that the fee was $300. You did not give
much thought to the fee, as it seemed to be within the realm of
normalcy. Furthermore, consider that you ordered another appraisal
in Oklahoma today for a different transaction and that you were
quoted a fee of $550.
Now, this gets your imagination to wonder why this could be so
different, given that both products are for house appraisals and
that the property is located in the same state. Your client was
given a good faith estimate of $300, and now you must break the
news that your estimate was too low and that he must come up with
another $250 for closing. Chances are, he is trying to take the
excess fee out of your commission.
You did your homework in ordering the appraisal by contacting
three different appraisers in the vicinity of the property. One of
them did not want to do the appraisal at all, one was too busy and
could only provide a two-week turn time at $600 and the appraiser
whom you ended up using promised a one-week turn time at a price of
$550. To add insult to injury, the appraiser, whom you contracted
with, was not all that enthusiastic and made inferences that what
he was offering was a good deal.
As are so many things in our lives, the devil is in the details.
On the surface, it would appear that an appraisal is an appraisal.
An appraisal is a commodity, or that is the way many see it.
Appraisals are mostly on the same or similar forms, they all seem
to contain three comparable sales that sometimes are not very
comparable and all require a property inspection and a few
photographs. That's it, so why the large disparity in price?
Perhaps much of the problem is in not having a better
understanding as to how appraisers make their living, what
challenges they are confronted with and what their cost of doing
business is. Since I am an appraiser, having been there and done
what the appraisers do, it is not hard for me to understand what
they go through and why their fees are what they are. To the
contrary, I recently became anxious over the pricing offered me by
a physician. It was not until I learned that the cost of his
professional liability insurance amounts to approximately 30
percent of his billable fees that I began to understand the need
for what I thought was a very high fee.
Let's examine some of the variables involved in appraisals that
can cause the fee to double from one to another:
The form
There are a number of appraisal forms that may be required,
depending upon the lender, the type loan, the type property and
other factors. The two most common are the FNMA 1004 (Uniform
Residential Appraisal Report) and the FNMA 2055 (Quantitative
Analysis Appraisal ReportDrive-By). The former is a full appraisal
form and requires an interior inspection. The latter is a limited
form and is prepared from an exterior-only inspection or a
drive-by. The drive-by is the less expensive of the two.
Property location
This is one of the most critical issues in appraisal pricing. If
the property is located in the city, the location usually does not
contribute significantly to higher fees. If the property is in a
remote area, contrary to popular belief among some, this can be a
significant factor in raising the appraisal fee. There are a number
of reasons for the higher fees, the cost of traveling being only
one of the factors. Another primary reason that appraisal fees are
higher on remote properties has to do with the availability of
comparable data. Sometimes, there is no multiple listing service or
limited multiple listing services. Also, there tends to be fewer
sales in sparsely populated areas, which requires more searching
and digging for data, even if there is a good data service
available.
Type of home
The size of the home can be a major factor in the price of the
appraisal, particularly if the home is very large, has many offsets
and corners, or if it is of an unusual design.
Size of site
Anything over the typical half-acre to one-acre lot will
contribute to an increase in the appraisal fee. For example, if we
have a home on 20 acres of land, finding comparable data is more
difficult and would take more of the appraisers time than for a
one-acre lot, which is more typical.
After seeing the many factors that can cause the appraisal fee
to escalate, it is understandable, in our example, how the fees can
be so far apart for appraisals in the same state. In short,
practically all of the cost of performing an appraisal is that of
the time of the appraiser. If a standard property can be appraised
in four hours, it will cost perhaps half that of the appraisal on a
specialty property, requiring an entire day to appraise. In the
case of our Oklahoma properties, it is easy to understand that
there could be good reason that the price of a FNMA 2005 on an
in-town standard property could be half that of a FNMA 1004 on a
log home, containing 6,000 square feet and sitting on 30 acres out
in the country.
Some lenders are successful in overcoming appraisal
sticker-shock by preparing the client in advance after educating
themselves about the wide range of issues affecting appraisal fees.
If this has been a problem for you, perhaps this article will help.
Where there is doubt, asking for a quotation on a specific property
may just be the best way to keep your client happy and to put all
of your commission in your pocket.
Charlie W. Elliott Jr., MAI, SRA is president of Elliott & Company
Appraisers, a national real estate appraisal company. He can be
reached at (800) 854-5889,
[email protected] or
through the company's Web site. Previous columns he has written
for The Mortgage Press can be seen on the Elliott &
Company Web site.
