The Performance Bonus and the Free Comp Checks
The subject is a 1,950 sf ranch in a stable subdivision. A mortgage broker offers a certified residential appraiser a steady stream of 12 assignments per month at $450 each, plus a $200 "performance bonus" for every report in which the appraised value equals or exceeds the contract price. The broker also wants free "comp checks" on 20 addresses before deciding which deals to order, and asks the appraiser to use the broker's AVM as a benchmark. The broker adds: "Don't mention the bonus in the report - it's just between us." The appraiser's unlicensed trainee has been doing the inspections alone. The first contract price is $389,000; the appraiser's preliminary indication is $372,000.
1. May the appraiser accept the 12-per-month arrangement with the $200 bonus? Analyze under the Ethics Rule and state what the appraiser should do.
Read the worked answer
No - not with the bonus condition attached. The Management section of the Ethics Rule prohibits accepting compensation that is contingent on the amount of value, the direction of value, or the attainment of a stipulated result. A $200 payment triggered only when the value reaches the contract price is contingent on both direction and amount. Volume alone is not prohibited, but the condition is.
- The appraiser can accept the volume only with a written fee schedule that is not tied to value outcomes, and should confirm in writing that no bonus or performance payment will be accepted.
- The broker's secrecy request is a separate problem: helping conceal the arrangement from the report or the lender would be a misrepresentation, and it conflicts with the appraiser's certification that compensation is not contingent.
- If the broker insists on the bonus, the appraiser should decline the engagement stream.
- The fact that the preliminary indication ($372,000) is below the contract price ($389,000) makes the pressure concrete: the appraiser must not let the $200 prospect affect the analysis or the final reconciliation.
2. The broker sends 20 addresses and asks for free "comp checks" before choosing which to order. What are the appraiser's obligations?
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It depends on what a "comp check" actually contains. If it includes an opinion of value - even an oral or rough one - it is an appraisal and must comply with Standards 1 and 2: identify the client and intended use, use a credible scope of work, be competent, and retain a workfile for at least five years. A free fee does not create an exemption.
- If the product is only raw data (sales, listing history, assessor records) with no value conclusion, it is not an appraisal, but the appraiser must avoid implying a value or a "yes/no" financing answer.
- The appraiser should not participate in a process in which the broker screens addresses and orders appraisals only where the preliminary indication supports the deal. That is the same contingent-fee problem in another form.
- Each accepted appraisal assignment still requires an engagement that identifies the client and intended use; a request for "20 comp checks" does not supply that.
3. Six months later the broker says the report "came in low" and offers $500 to "reconsider" using a comparable the broker supplies. The appraiser's value is $372,000 against a $389,000 contract. What should the appraiser do?
Read the worked answer
Reconsideration is permissible; selling a value is not. The appraiser may review new data if it is relevant, verifiable, and would have been considered in the original assignment. But the $500 offer is prohibited if it is conditioned on changing the value or reaching the contract price - that is compensation contingent on direction or amount of value.
- Decline the contingent fee. If the client wants a reconsideration, charge a normal fee that is not tied to the outcome.
- Analyze the supplied comparable independently. If it is not comparable (different submarket, condition, concessions, or date), explain why and keep the original conclusion.
- If the value does change, issue a revised report, retain both the original and revised versions plus the new data in the workfile, and confirm the certification remains true.
- The appraiser is not an advocate for the broker's loan. A request to "reconsider" is not a request to reach a number.