“Customary and Reasonable Fees?” Ha ha ha ha ha ha ha ha ha ha ha!

Interesting comment made at the office today.  One of my employees said, “I hear that the new Frank-Dodd Act will require that our clients start paying us ‘customary and reasonable’ fees for our services.  Thank goodness.  I am sick and tired of doing full appraisals for crappy pay!”  I just smiled and decided to write an article rather than spend precious work time on a response.

First of all, I looked it up and, sure enough, that is what the Frank-Dodd act does indeed require.  So, our clients are now going to pay us fees that are ‘customary and reasonable’ to the marketplace.  Well, I have just a few questions?

First of all, who gets to decide what is ‘customary’ and who gets to decide what is ‘reasonable?’  In typical Washington-eese, the politicians have tried to solve a problem by only making it more complex.  You gotta love those fuzzy words that have such open interpretations.

Second of all, what happens to a lender who does not pay a ‘customary and reasonable’ fee?  Are the secret police going to sweep in and take them off to the ‘customary and reasonable fee violators’ prison?’ “Vee have vays of making you pay!”

Thirdly and most importantly, since when is it the State’s business to make sure two parties (who have mutually agreed upon a service and a fee) are charging and paying the ‘correct’ amount?  I know, their justification is ‘saving the country from the great housing crisis,’ but I am not buying it.  Can you imagine if the government tried this in any other industry?  “Excuse me miss, I do not believe your Big Mac prices are ‘customary and reasonable.’  I am afraid you will need to raise them by 52 cents!”  The American people would cry foul and the Founders would collectively roll over in their graves.

Finally, it is my prediction that (though I am sure Mr. Barney Frank and Mr. Christopher Dodd have good intentions), this will never work.  Why?  Because it is nothing short of price controls and price controls simply don’t work.  They create black markets. They cause people to skirt the law.  They get ignored ,and ALWAYS loopholes are found.  Here is my prophecy.  As soon as this ridiculous law goes into effect, the majority of lenders and AMCs will continue to charge what they have always charged.  In order to comply with the law, they will put the following statement (or something similar) on their engagement letter, “By accepting this assignment, the appraiser agrees that the fee being paid is both ‘customary and reasonable.’”  Mark my words.  It will happen and nothing will change.

Before I sign off, let it be known that, though my employee was very excited about this new change, I am not.  Could it possibly affect our fees in an upward direction for a few clients?  Sure, but that does not mean it is right.  The government has no more right to dictate what we are paid than it does to order what a willing buyer and a willing seller is to pay/accept for a piece of real estate!

Want to see your fees rise?  Then demand it!  You have the right to work for whatever fee you wish to work for.  No one is forcing you to accept that assignment.  We still live in a free society where BUYER and SELLER decide what is ‘customary and reasonable.’  Or do we?

Now, go create some value!


Dustin Harris is a multi-business owner, but he made his fortune as a self-employed, residential real estate appraiser. He has been appraising for nearly two decades. He is the owner and President of Appraisal Precision and Consulting Group, Inc., and is a popular author, speaker and mentor. He owns and operates The Appraiser Coach (www.theappraisercoach.com) where he personally consults and mentors other appraisers helping them to also run successful appraisal companies and increase their net worth.  He is also the Founder and President of Your Appraisal Office (www.yourappraisaloffice.com) which implements some of the systems he has developed to help lower costs and free up time for real estate business owners.   He and his wife reside in Idaho with their four children. This article may be reproduced and distributed only in its entirety without permission from the author.

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