5 Best Practices to a Successful Customary & Reasonable Fee Program

Customary & Reasonable Fees may be the single most difficult compliance topic to tackle in appraisal management.  Regulations require fees that are paid to appraiser be customary and reasonable however, there is little to no data provided on how to achieve the right balance.  Always a hot topic, the industry has been buzzing for years over the best way to ensure fees are customary and reasonable.

As an appraisal management company who is constantly working to maintain full compliance with this requirement, we decided to put together 5 best practices that make our Customary and Reasonable Fee program successful:

1. Do Your Homework – Review the industry surveys that have been recently published, run internal reports to show trends, and look at the state requirements for the states you work in.  Combining these three data sources along with appraiser feedback will provide a solid foundation for creating a Customary and Reasonable Fee program.  At Nationwide Appraisal Network, our appraiser vendors dictate what the C&R fees are in their geographic areas.  We run reports every quarter to review fees and ensure they are in line with what is considered to be Customary and Reasonable.  If we find areas that are requiring adjusted fees, we adjust accordingly.

2. Communicate – There are times when the Customary and Reasonable fee for a standard assignment will not fit with an atypical assignment.  This could be due to property type, turnaround time requested, scope of work, difficult area, etc.  In these cases, it is crucial to communicate between the appraiser, AMC and lender to ensure the appraiser receives a fee reflective of the scope of work.  We also recommend making it a policy to verify the appraiser’s competency in completing the assignment.  We rely on our appraiser vendors to communicate these situations as soon as they become aware that the property is not a standard assignment.  There are many times that we, as the appraisal management company, are not aware of any special circumstances that may warrant a higher than normal fee.    When we discover an assignment is not standard, we obtain detailed information from multiple appraisers regarding the subject property, appraiser experience, fee requirement and time necessary to complete the assignment.  We communicate fee changes with lenders and appraisers along with details as to the reason for the change.

3. Train – What is a Customary & Reasonable fee?  What does this mean to me?  These are questions your staff needs to be able to answer.  Train your internal team to understand what a Customary and Reasonable fee means and why the regulatory requirement exists.  They need to know the requirements, industry expectations, how to recognize an assignment is not standard, how to respond to lender and appraiser questions regarding fees, etc.  Our staff at Nationwide Appraisal Network is trained to ensure that each appraiser is compensated within regulatory guidelines and our policies.

4. Be Transparent – Be clear about your fees to lenders and appraiser vendors alike-no hidden fees.  Encourage appraisers to disclose their fee in the Appraisal Report.  While this is a requirement in some states, it’s not in most others.  When this information is made available to both appraisers and lenders, it creates trust amongst all.  This transparency of information ensures for all parties that the program is working and compliance is in place.    It also opens the door for communication!

5. Pay on time – The appraiser is expected to deliver the appraisal report on the agreed upon due date, right?  It’s important to keep in mind this goes both ways.  Let’s face it-there’s no worse turn off to a vendor then untimely payment for a service they’ve provided on time.  Customer service issues often arise in any business where a customer doesn’t receive a product when they were told they would.  Same goes for appraisals.  That’s why we have such requests for turnaround times.  The industry is extremely time sensitive.  The same expectation goes for the appraiser vendors.  They want to be paid when we say we are going to pay them.  Our process ensures the appraiser is paid within the allowable timeframe once they submit a completed report.

Maybe one day in the near future, regulators will provide a fee schedule that dictates customary and reasonable fees for every loan type, every appraisal product in every zip code of every state that ebbs and flows with economic changes (right, good luck!).  Until that time, we hope that these best practices will help your program!