contingent fees
296) Contingent Fees
04/09/08
Dear Henry,
In eminent domain practice I often see very large appraisal fees for work on a parcel yet it is billed based on an hourly rate. However, if the parcel is settled for considerably less than the amount in the appraisal, the fee is oftened reduced accordingly. This seems to me to be a violation of USPAP as the fee appears to be contingent upon a future circumstance. The appraiser does not do any less work, yet accepts a lower fee. What is your opinion?
Name and Address withheld by request
Dear Friend,
Sounds like a violation to me.
H2
In eminent domain practice I often see very large appraisal fees for work on a parcel yet it is billed based on an hourly rate. However, if the parcel is settled for considerably less than the amount in the appraisal, the fee is oftened reduced accordingly. This seems to me to be a violation of USPAP as the fee appears to be contingent upon a future circumstance. The appraiser does not do any less work, yet accepts a lower fee. What is your opinion?
Name and Address withheld by request
Dear Friend,
Sounds like a violation to me.
H2
154) More Contingent Fees
11/15/07
Dear Henry,
I was reading your question about quoting fees based on "a range of values". It is a violation of USPAP to quote fees based on value. As stated in Question #27, FAQs: "It is unethical for an appraiser to accept an assignment, or to have a compensation arrangement for an assignment, that is contingent on any of the following: #3. The amount of a value opinion."
Why isn't a fee schedule in violation of this guideline?
Darrell K. Hignite Appraiserman49@yahoo.com
Dear Darrell,
It is quite common for appraisers to use a range of value as a method of setting fees. "Contingent" in this case means that if they don't come in with a value in the range used for setting the fee, they won't get paid. That is specifically prohibited by USPAP.
Appraisers who use the "value range" method of quoting fees usually add words to explain that it is not a contingent fee and if the scope of work is greater than that of a typical appraisal, a different fee will have to be negotiated. Furthermore, they make it clear that they expect to be paid no matter what they estimate the value of the property to be.
H2
I was reading your question about quoting fees based on "a range of values". It is a violation of USPAP to quote fees based on value. As stated in Question #27, FAQs: "It is unethical for an appraiser to accept an assignment, or to have a compensation arrangement for an assignment, that is contingent on any of the following: #3. The amount of a value opinion."
Why isn't a fee schedule in violation of this guideline?
Darrell K. Hignite Appraiserman49@yahoo.com
Dear Darrell,
It is quite common for appraisers to use a range of value as a method of setting fees. "Contingent" in this case means that if they don't come in with a value in the range used for setting the fee, they won't get paid. That is specifically prohibited by USPAP.
Appraisers who use the "value range" method of quoting fees usually add words to explain that it is not a contingent fee and if the scope of work is greater than that of a typical appraisal, a different fee will have to be negotiated. Furthermore, they make it clear that they expect to be paid no matter what they estimate the value of the property to be.
H2
153) Contingent Fees
11/14/07
Hi Henry,
As a true mentor to my business I have my first question for you. I have a lender who says they have other appraisers in my area that do not charge if the loan does not close and if I want more work I will have to "eat a few reports". Aren't these other appraisers in violation of USPAP?
Eric Dean Morse, RAA eric@alliedappraisers.com
Dear Eric,
I do believe those appraisers are in violation of the USPAP because in effect they are accepting assignments with contingent fees.
H2
As a true mentor to my business I have my first question for you. I have a lender who says they have other appraisers in my area that do not charge if the loan does not close and if I want more work I will have to "eat a few reports". Aren't these other appraisers in violation of USPAP?
Eric Dean Morse, RAA eric@alliedappraisers.com
Dear Eric,
I do believe those appraisers are in violation of the USPAP because in effect they are accepting assignments with contingent fees.
H2
148) Fee Schedule
11/09/07
Dear Henry,
I still have a problem with setting fees based on value ranges. If it is a large house that is complex, why not charge based on size? Many houses in the "expensive" price range are just tiny little townhouses sitting on high priced lots or with access to special amenities, like a golf course.
I can see complaints brewing when the fee is based on a range of values between say $300,000 and $500,000 and the appraisal comes back at $300,000. The client may think that the value was pushed up to get the higher fee or if the value came in at $550,000, the client may again think that the value was pushed to get a higher fee from the next higher value range.
I see this as dangerous territory. What is your opinion?
RD(name withheld by request)
Dear RD,
For the reasons you explain many appraisers do not set fees based on the range of value. However, it is quite common in some market areas.
I don't think it is permitted by USPAP to have the value range for the fee be the appraised value. It should be based on what the client thinks the house is worth before the appraisal is made. You are certainly right that the fee cannot be contingent upon the appraised value.
There is nothing wrong setting the fee based on the size of the house, but it is not as common as using a value range.
H2
I still have a problem with setting fees based on value ranges. If it is a large house that is complex, why not charge based on size? Many houses in the "expensive" price range are just tiny little townhouses sitting on high priced lots or with access to special amenities, like a golf course.
I can see complaints brewing when the fee is based on a range of values between say $300,000 and $500,000 and the appraisal comes back at $300,000. The client may think that the value was pushed up to get the higher fee or if the value came in at $550,000, the client may again think that the value was pushed to get a higher fee from the next higher value range.
I see this as dangerous territory. What is your opinion?
RD(name withheld by request)
Dear RD,
For the reasons you explain many appraisers do not set fees based on the range of value. However, it is quite common in some market areas.
I don't think it is permitted by USPAP to have the value range for the fee be the appraised value. It should be based on what the client thinks the house is worth before the appraisal is made. You are certainly right that the fee cannot be contingent upon the appraised value.
There is nothing wrong setting the fee based on the size of the house, but it is not as common as using a value range.
H2