A controversial Louisiana law that governed how much appraisal management companies pay real estate appraisers for their work is now set to be repealed after the state’s governor took action in response to the Federal Trade Commission accusing the state of price-fixing.
Back in May, the FTC filed a complaint against the Louisiana Real Estate Appraisers Board, accusing the regulatory body that oversees property appraisals in the state of violating federal antitrust laws and stifling price competition by requiring appraisal management companies to follow the state’s established polices for the fees that AMCs pay to appraisers.
The FTC claimed that Louisiana’s rules exceed the rules established in the Dodd-Frank Wall Street Reform and Consumer Protection Act, which require AMCs to pay “a rate that is customary and reasonable for appraisal services performed in the market area of the property being appraised.”
The FTC alleged that the Louisiana Real Estate Appraisal Board required appraisal fees to be equal to or greater than the median fees identified in survey reports commissioned and published by the board.
According to the FTC, the state’s rules and the board’s insistence on enforcing them limited the freedom of appraisers and their customers to engage in “bona fide negotiations” to set the fees for real estate appraisals in the state.
Initially, Bruce Unangst, the executive director of the Louisiana Real Estate Appraisers Board, called the FTC’s allegations “ludicrous” and indicated that the board planned to fight the FTC’s charges.
But despite Unangst’s bold statements and the board “categorically and vociferously” denying the FTC’s “factually false and politically wrong-headed” allegations, Louisiana Gov. John Bel Edwards issued an executive order last week that effectively repeals the law that dictated how AMCs pay appraisers and increases the state’s supervision of the appraisal board.
Edwards signed the executive order, titled “Supervision of the Louisiana Real Estate Appraisers Board Regulation of Appraisal Management Companies,” on July 11, 2017. Click here to read the order in full.
The executive order stipulates that the state’s Division of Administrative Law will have increased supervision over the LREAB related to its issuance of regulations and its enforcement of those regulations.
Edwards’ executive order requires the board to submit any proposed regulation relating to AMC compliance with the reasonable and customary fee requirement to the state’s Division of Administrative Law, which will review the regulation to ensure that it “serves Louisiana public policy of protecting the integrity of the residential mortgage appraisals by requiring that the fees paid by AMCs for an appraisal are to be customary and reasonable.”
The FTC also accused the Louisiana board of exceeding its authority by investigating and sanctioning companies that paid fees below those specified levels.
Edwards’ executive order also requires the LREAB to notify the Division of Administrative Law of an administrative complaint against an AMC over appraisal fees to “ensure fundamental fairness and that the proposed action serves Louisiana’s policy of protecting the integrity of residential mortgage appraisals by requiring that fees paid by AMCs for such an appraisal are to customary and reasonable.”
In response to Edwards’ action, the LREAB issued a board resolution that states that it intends to cooperate with the conditions laid out in the executive order.
HousingWire obtained a copy of the board’s resolution, which was signed on Monday, July 17, 2017.
Most significantly, the LREAB’s resolution stipulates that the state’s rule dictating how AMCs pay appraisers will be repealed and replaced.
The rule in question is the state’s AMC Law, which is also called Rule 31101.
Rule 31101 stipulated that AMCs must compensate appraisers at a rate determined by one of three methods:
- An AMC may use a survey of fees recently paid by lenders in the relevant geographic area
- An AMC may use a fee schedule established by the Board
- An AMC may identify recently paid fees and adjust this base rate using six specified factors: the type of property; the scope of work; the time in which the appraisal must be performed; the appraiser’s qualifications; the appraiser’s experience and professional record; and the appraiser’s work quality
According to the FTC, the rule “unlawfully restrains competition on its face by prohibiting AMCs from arriving at an appraisal fee through the operation of the free market.”
The FTC’s complaint called for Rule 31101 to be rescinded, and that’s exactly what the LREAB is going to do.
The LREAB resolution states that on or before July 31, 2017, Unangst will present the board with a new rule regarding customary and reasonable appraisal fees. The board will then review that rule before the board sends it to the state’s Division of Administrative Law, as required by Edwards’ executive order.
According to the board’s resolution, this action will result in the “repeal and replacement” of Rule 31101.
It is not currently known if the state’s actions will be sufficient to satisfy the issues raised by the FTC. HousingWire attempted to contact the FTC for further clarification on its pending matter, but as of publication, the FTC has not yet responded.
HousingWire also attempted to contact the LREAB for additional comment on its resolution, but the board also has not responded as of yet.
This article will be updated should either the FTC or the LREAB respond.