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RISMEDIA, March 12, 2010—Close to a year after the launch of the Home Valuation Code of Conduct (HVCC), more agents are seeing value in increased appraisal transparency and consistent processes for ordering, tracking, delivery and quality-monitoring. But some appraisal-industry misperceptions persist—including in the area of pricing.

A typical story an agent might hear goes like this: “The HUD-1 said the appraiser was paid $450, but the appraiser only received $325. So where did the rest of the money go?”

While this pricing structure has been in place in the industry for 20+ years, it has only recently been identified as a source of confusion and frustration. The $325 paid to the appraiser (i.e., employee, either staff or contractor) is only a component of the total cost of creating the appraisal.

As with all products, the full cost includes the expenses of licensing, training, compliance, technology, customer service, quality assurance and legal liabilities.

There are parallels between the appraisal industry and the book-publishing business that can help clarify pricing misperceptions. For example, the price you pay for a book is not typically what the author receives. (Appraisers generally receive 60% to 75% of the fee appraisal management companies bill to lenders). A book purchase price incorporates all the expenses of bringing that particular title to the marketplace: author advance, editing, design, legal, print supplies and production, and marketing and distribution. It also reflects bookseller expenses and profit margin.

Profit margins for online booksellers are relatively small, but they win on the volume front—high volume, low margin. In comparison, independent bookstores typically have lower volume and more expenses, so they require a higher profit margin. Some authors, though, choose to self-publish, which requires them to cover all costs associated with the book—in addition to writing it!

In this book-publishing example, appraisers are the authors. The payment appraisers receive for their work depends on whether they are completely self-employed contractors, work as contractors for an appraisal firm or are employees of appraisal firms.

Deconstructing appraisal pricing is further complicated by these factors:
-Some companies are both appraisal management companies and appraisal firms. This means they have staff appraisers, and also contract work to outside appraisers.
-Some independent appraisers produce their own work and bring it directly to market, but they also accept contract assignments from appraisal management companies and appraisal firms.

While these variables make it difficult to uniformly deconstruct the price of an appraisal, it’s important that the work of the appraiser and the work of the “support system” be considered as two parts of a whole. If not for the appraiser, there would be no “book.” The same holds true for the production and delivery aspects.

Appreciating the impacts of evolving regulatory change in a challenging environment, the Title Appraisal Vendor Management Association (TAVMA) remains committed to helping educate real estate professionals about settlement services. A key part of this effort has been the creation of the Standards of Good Practice in Appraisal Management.

We welcome your review of these “rules of the road” for appraisal, as well as your feedback.

Jeff Schurman is executive director of TAVMA. For the complete text of the Standards of Good Practice in Appraisal Management, please visit www.tavma.org.

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