For a transaction covered by Regulation Z’s fee provisions, an offered appraisal fee is below reported fees for comparable local services. What should be examined?
Correct Answer
A) Customary-and-reasonable compensation under the applicable factors and compliance framework
Examine the customary-and-reasonable compensation duty for covered creditors and agents using comparable appraisal services in the geographic market and the applicable regulatory framework. Scope, timing, property type, qualifications and other relevant service factors matter. The rule does not create a universal 20 percent trigger or one nationally fixed appraisal fee, and a low offered amount alone does not establish every element of a violation.
Why This Is the Correct Answer
Option A is correct because 12 CFR 1026.42 requires creditors and their agents to compensate fee appraisers at a customary and reasonable rate for comparable appraisal services in the property's geographic market. Examining a low fee means applying that standard and its factors, such as scope, timing, property type and qualifications. A low offer alone does not establish every element of a violation.
Why the Other Options Are Wrong
Option B: Whether any 20 percent difference from local fees proves a USPAP violation by the appraiser
Option B, whether any 20 percent difference from local fees proves a USPAP violation by the appraiser, is wrong because the rule has no 20 percent trigger, and the fee duty falls on creditors and their agents under Regulation Z rather than creating a USPAP violation by the appraiser.
Option C: The appraiser’s personal fee schedule, as the legal benchmark
Option C, the appraiser's personal fee schedule as the legal benchmark, is wrong because the benchmark is rates for comparable appraisal services in the geographic market, not one appraiser's own schedule.
Option D: Whether FIRREA sets one national dollar fee for appraisals
Option D, whether FIRREA sets one national dollar fee, is wrong because no law fixes a single national appraisal fee; customary and reasonable rates depend on the geographic market and service factors.
Market rate, not magic number
Customary and reasonable means what comparable appraisal work pays in that local market, not a fixed percentage or national price.
How to use: Use this to reject options citing a fixed percentage trigger or one national fee.
Exam Tip
Look for the option tied to comparable services in the geographic market; numeric triggers and national fees are distractors.
Common Mistakes to Avoid
- -Believing a specific percentage gap automatically proves a violation
- -Treating the fee rule as a USPAP requirement on the appraiser
- -Assuming federal law sets a national appraisal fee
Concept Deep Dive
Analysis
This question tests the Regulation Z customary-and-reasonable fee requirement. For covered transactions, creditors and their agents must pay fee appraisers at a rate customary and reasonable for comparable services in the geographic market. A low offer prompts examination of that framework and the relevant factors, not a fixed percentage or national fee.
Background Knowledge
The customary-and-reasonable fee rule came from the appraisal independence provisions added to Regulation Z. Compliance can be presumed when fees are reasonably related to recent rates for comparable services in the market, adjusted for relevant factors, or based on objective third-party information.
Real-World Application
An AMC offers appraisers in a rural county a fee well below recent local fees for similar assignments. The lender's compliance team reviews recent rates for comparable services in that market and factors like complexity and turn time to judge whether the fee is customary and reasonable.
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