|The suit calls the licensing process a “sham” and makes repeated references to the Board’s “bias,” accusing it of “conspiring” and “plotting” to harm Coester.|
Facing License Denial, Coester Sues Virginia Board
by Isaac Peck, Editor
|Facing denial of its license to operate an appraisal management company (AMC) in the state of Virginia, the AMC Coester VMS has filed a lawsuit against the Virginia Real Estate Appraiser Board alleging that the Board is engaged in “a conspiracy to restrain and monopolize trade” and is operating in violation of federal antitrust laws.
The suit follows Virginia’s recently passed AMC licensing laws, which set an August 18 deadline for applicants to obtain AMC licensure or cease operations in the state. The Board has issued dozens of AMC licenses but selected Coester for closer examination. On July 15, Coester attended an informal fact-finding conference and addressed several of the Board’s concerns, including Coester’s history of consent orders and settlement agreements in five other states, for alleged violations of state laws: Maryland, North Carolina, Tennessee, Louisiana, and Minnesota. The allegations against Coester in these states include: unlicensed AMC activity, false advertising, failure to pay appraisers on time, failure to pay customary and reasonable fees, failure to respond to requests within the time period specified, failure to submit biannual certification, as well as USPAP violations committed by Brian Coester himself. (Click here to read the consent orders and settlement agreements in their entirety.)
Coester defended its actions by saying it has taken “remedial efforts” to address the issues raised in the consent orders and that it has recently implemented a new compliance management system that is designed by “expert business consultants,” many of whom are CPAs.
However, on July 28 the reviewing officer of the informal fact finding conference issued a recommendation to deny Coester’s AMC license in Virginia, citing “serious oversights in the planned compliance management system.”
|Rather than arguing the Board’s power to deny it a license, the core of Coester’s suit alleges that the Board is engaged in anti-competitive behavior- by trying to restrict Coester from conducting business in the state. Coester alleges that the denial of its license constitutes an “unreasonable restraint of trade because it prevents a large AMC entity from entering the marketplace.”
Coester states that Virginia accounted for 10 percent of its national business and that it has completed 10,113 appraisal assignments in the state since 2013, making Virginia its second largest state by volume. If denied a license, Coester says it will “permanently lose its customer base in Virginia if the Board’s anticompetitive and pre-textual denial of CVMS’s license occurs on August 18, 2015.”
The suit calls the licensing process a “sham” and makes repeated references to the Board’s “bias,” accusing it of “conspiring” and “plotting” to harm Coester.
Coester claims that the very structure of the Board is anticompetitive because, by statute, six of the 10 Board Members are required to be fee appraisers. The statute allows for one AMC representative to sit on the Board, but Coester alleges the individual serving as the AMC representative is actually an appraiser, not an AMC, and, consequently, seven of the 10 Board Members are fee appraisers. Coester alleges that this gives fee appraisers a “super-majority” on the Board and refers to them as “direct competitors” who ensure that all decisions made by the Board are in the interests of fee appraisers.
Coester further claims that several of the Board Members are also officers in the Virginia Coalition of Appraiser Professionals (VCAP), a trade association of independent fee appraisers that Coester says has “conducted an active campaign against AMCs” and whose members have repeatedly complained about the low fees paid by AMCs. The suit cites many internal emails between Board Members to support its claim that the Board is biased against Coester.
While each of the Board’s ten individual members is named in the suit, it is unlikely that they can be held liable as individuals for the particular actions of the Board.
AMCs Save Consumers Money- What?
|Coester cites a 2014 Customary and Reasonable Fee report by Virginia Tech which states that the average fee for an appraisal ordered directly through a non-AMC client is $401, while the average fee for an appraisal ordered through an AMC is $328. Coester uses the Virginia Tech study to suggest that it helps keep fees low for the borrower because the appraiser is paid less when working through an AMC. Coester says if it is banned from doing business in the state, the result will be “raising the transaction costs of residential sales for purchasers and borrowers,” and will “substantially effect interstate commerce.”
Most appraisers understand the disingenuous nature of this argument because the lower fees paid to AMC appraisers, cited in the study, are not the fees actually paid by borrowers. As most appraisers know, AMCs frequently take 30-50% of the “appraisal fee,” so the amount paid to an AMC appraiser is actually much less than what the borrower often pays. Most appraisers will tell you that the fees borrowers pay have actually gone up since AMCs have been shoehorned into the process. As the Network of State Appraiser Organizations (NSAO) put it in its letter to the Consumer Financial Protection Bureau (CFPB): “a consumer might see an appraisal fee for $600 or more with no awareness that the appraiser they met at their home, and who completed their report, is only being paid $300 or less” by the AMC.
Coester also cites the Virginia Tech report as evidence that, by excluding Coester, the Virginia Appraiser Board members are enriching themselves and other Virginia appraisers because the fees actually paid to appraisers in the state may go up because non-AMC clients appear to pay more than AMCs.
Who is Behind the Lawsuit
In a possible sign of things to come, the very first goal and agenda item NHVA listson its website is, “to leverage collective resources to affect helpful (rather than harmful) change through multiple targeted initiatives, including litigation.”
Information on NHVA’s website echoes certain of Coester’s arguments, including the concern that state appraisal boards are violating antitrust laws. NHVA’s stated goal is to “vigorously represent the interests of its Members in the home valuation arena before the federal government and state agencies.”
In the PowerPoint presentation from NHVA’s Initial Meeting, found on the group’s website, one slide lists “Key Issues/Opportunities” for the organization, which include:
Note that four of the seven items seem to relate to fees, suggesting that the NHVA is deeply concerned about appraiser fees. It looks like appraisers will have a fight on their hands going forward.
NHVA is representing itself as the advocacy organization for smaller to mid-size AMCs. REVAA charges $75,000 annually for membership and representation. NHVA dues are a more modest $995 a month. NHVA’s stated goal is 30 charter members and says that it sees the over 350 AMCs operating nationwide as potential prospects.
While the Dodd-Frank Act tasked state appraisal boards with passing AMC regulations, the Final Rule removes any doubt that state appraisal boards have the authority to directly enforce the law and discipline AMCs for violations of the law. Specifically, the Final Rule requires that states have a program in place “within the State appraiser certifying and licensing agency that has the authority to… conduct investigations of AMCs…and discipline, suspend, terminate, and refuse to renew the registration of an AMC that violates applicable appraisal-related laws, regulations, or orders.”
While Coester’s suit may usher in a new wave of AMC-led litigation against appraiser boards, the clear language of the AMC Final Rule leaves little question that the Fed’s intention is for appraiser boards to regulate AMCs.
Working RE is following this story closely and will issue a timely report on the outcome of the special meeting.