For an assignment covered by Regulation Z’s customary-and-reasonable fee provisions, which proposed compensation term is inappropriate?
Correct Answer
D) Raising the fee as a percentage of the value the appraiser reports
Regulation Z, 12 CFR 1026.42(f), addresses customary and reasonable compensation for covered fee-appraiser services and provides specified compliance presumptions and factors. Actual services, property type, scope, timing, qualifications and work quality can matter under the applicable framework. A fee contingent on the amount of the appraiser’s value opinion conflicts with USPAP independence requirements.
Why This Is the Correct Answer
Option D is correct because USPAP prohibits accepting an assignment where compensation is contingent on the amount of a value opinion. Raising the fee as a percentage of the value reported ties pay directly to the value conclusion, which compromises independence no matter how small the percentage.
Why the Other Options Are Wrong
Option A: Considering the geographic market in which the assignment is located
Option A, considering the geographic market where the assignment is located, is an appropriate factor in setting customary and reasonable compensation, so it is not the inappropriate term.
Option B: Taking into account the complexity of the particular assignment
Option B, taking into account the complexity of the particular assignment, is an appropriate consideration in setting a reasonable fee, so it is not the inappropriate term.
Option C: Weighing the appraiser’s qualifications and relevant experience
Option C, weighing the appraiser's qualifications and relevant experience, is a legitimate factor in determining reasonable compensation, so it is not the inappropriate term.
Pay the work, not the number
Fees can reflect the market, the job and the appraiser, but not the size of the value reported.
How to use: Use this to spot an improper fee arrangement among otherwise reasonable factors.
Exam Tip
Compensation linked to the value reported is a contingency problem under USPAP, even if the other fee factors are reasonable.
Common Mistakes to Avoid
- -Thinking a percentage-of-value fee is acceptable if the rate is small
- -Treating complexity or qualifications as improper fee factors
- -Assuming customary and reasonable fee rules permit contingent compensation
Concept Deep Dive
Analysis
This question tests which compensation term is inappropriate under Regulation Z's customary and reasonable fee provisions. Market, complexity and qualifications are legitimate considerations, while a fee tied to the amount of the reported value conflicts with USPAP independence requirements.
Background Knowledge
Regulation Z, 12 CFR 1026.42, requires creditors and their agents in covered transactions to pay fee appraisers at a customary and reasonable rate. Separately, USPAP's ETHICS RULE bars compensation contingent on a predetermined result, a direction that favors the client, or the amount of a value opinion.
Real-World Application
An AMC proposes paying an appraiser a set percentage of the appraised value on each loan. The appraiser declines that structure and instead negotiates a flat fee based on the property's complexity and local market rates.
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