For the second time in the last two months, the Federal Trade Commission is accusing a state of pursuing appraisal fee laws that could restrict price competition and violate federal antitrust laws.
At the end of May, the FTC filed a complaint against the Louisiana Real Estate Appraisal Board, the regulatory body that oversees property appraisals in the state, accusing the group of “unreasonably restraining price competition for appraisal services in Louisiana” by stipulating that appraisal management companies must follow the state’s established policies for the fees that AMCs pay to appraisers.
Now, North Carolina is in the FTC’s crosshairs.
The North Carolina General Assembly is currently considering a bill that would establish a single method for determining how the state’s appraisers are paid based on “academic studies, government fee surveys, and independent private sector surveys,” rather than allowing the fees to be set by market competition.
In response to a request from North Carolina Assistant Attorney General Roberta Ouellette, the FTC’s Office of Policy Planning, Bureau of Competition and Bureau of Economics issued a comment on the North Carolina bill.
According to the FTC, North Carolina’s proposed legislation carries many of the same issues as the laws in Louisiana.
In its comment, the FTC states that the bill’s method for establishing appraisal fees “is not mandated by – and, in fact, may be inconsistent with – federal law.”
The FTC also suggests that the bill “may have the effect of displacing competition for the setting of appraisal fees and ultimately harming consumers in the form of higher prices.”
As with Louisiana’s rules, the FTC claims that North Carolina’s proposed legislation goes well beyond the rules established in the Dodd-Frank Wall Street Reform and Consumer Protection Act, which require appraisal management companies to pay “a rate that is customary and reasonable for appraisal services performed in the market area of the property being appraised.”
The FTC states in its comment that it believes federal law does not require states to impose standards for customary and reasonable fees beyond what federal law provides, or to set customary and reasonable fees at any particular level.
But the FTC states that the North Carolina legislation (like the Louisiana law) establishes a specific price schedule for appraisal fees that is not reflective of the market.
According to the FTC, the North Carolina legislation establishes the following rules for paying appraisers (from the FTC comment):
The bill states that “[c]ompensation and offers of compensation provided to an appraiser shall be presumed reasonable” if the amounts are “reasonably related to recent rates paid by the consumer for comparable appraisal services performed in the geographic market of the property being appraised.”
The bill then states that “[r]ecent rates paid shall not include those amounts paid by appraisal management companies.”
The bill further states that “[c]ustomary and reasonable rates shall be based on objective third-party information, such as academic studies, government fee surveys, and independent private sector surveys.”
Finally, the bill requires the Board to “adopt rules necessary to enforce this subsection.”
Those rules carry a number of issues, the FTC said in its comment.
The bill, as structured, could “effectively preclude AMCs from negotiating market-based fees with appraisers,” the FTC said.
“We are concerned that this approach restricts free-market determination of appraisal fees and therefore may ultimately result in higher prices for consumers,” the FTC continues.
Additionally, one piece of the North Carolina legislation’s language could lead to appraisers being paid the full amount that buyers are charged for the appraisal, rather than AMCs taking a portion for their services.
“The bill also expands this definition to include ‘recent rates paid by the consumer.’ We question whether it is appropriate for appraisers to receive the full rate that the consumer pays,” the FTC said.
“Typically, the consumer pays for additional services beyond the appraisal (e.g., other services provided by the AMC), the costs of which might be recovered by the lender as a lump-sum fee for the loan,” the FTC continues. “Thus, this provision also might have the effect of inflating the prices paid by AMCs for appraisal services, above the levels that would otherwise exist in a competitive market.”
The FTC also states that if North Carolina begins dictating that AMCs use a fee survey as the basis for how they pay appraisers, the free market will be removed from any role in determining the price of appraisal services, and might inflate appraisal fees above competitive levels.
“In other states that have commissioned fee surveys, methodology issues have resulted in a report of appraisal fees that may not accurately reflect market rates, and may have been significantly higher than market rates,” the FTC states.
“These fees, when paid by AMCs, are then passed on to consumers,” the FTC continues. “Where surveys report only median or average fees, rather than a range, the surveys fail to account for the variability of appraisal circumstances and fluctuations in the real estate market.”
The FTC concludes its comment with a bit of a warning for North Carolina.
“We urge the North Carolina General Assembly to consider whether HB-829 will promote competition and benefit consumers,” the FTC states.
“We are concerned that, if HB-829 were enacted, real estate appraisal fees in North Carolina might not be based on competitively set market rates, and that AMCs – and, ultimately, consumers – might face higher prices for real estate appraisal services,” the FTC concludes. “As evidenced by the recent filing of the FTC Board Louisiana Complaint, we will continue to investigate and, where appropriate, recommend that the Commission challenge potentially anticompetitive actions by real estate appraisal boards.”
To read the FTC’s full comment, click here.
And to read to the North Carolina legislation, click here.