Federal Trade Commission Staff Comment To North Carolina Assistant Attorney General Ouellette Regarding the Competitive Impact of N.C. House Bill 829, An Act Addressing Compensation For Real Estate Appraisers

UNITED STATES OF AMERICA
Federal Trade Commission
WASHINGTON, D.C. 20580
Office of Policy Planning
Bureau of Competition
Bureau of Economics
June 30, 2017
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The Honorable Roberta A. Ouellette
Assistant Attorney General
Services to State Agencies Section
5830 Six Forks Road
Raleigh, NC 27609
Re: North Carolina House Bill 829, An Act to Clarify the Definition of
Reasonable and Customary Compensation for Real Estate Appraisers
Dear Assistant Attorney General Ouellette:
The Directors of the Federal Trade Commission’s (“FTC” or “Commission”)
Office 	of 	Policy 	Planning, 	Bureau 	of 	Competition, 	and 	Bureau 	of 	Economics1
respectfully submit this comment in response to your request for our views regarding the
competitive impact of North Carolina House Bill 829 (“HB-829” or “the bill”). The
proposed bill would prescribe a single method for determining customary and reasonable
appraisal 	fees 	paid 	to 	real 	estate 	appraisers 	by appraisal 	management 	companies
(“AMCs”), which would preclude the negotiation of market-based rates. The bill also
would direct the North Carolina Appraisal Board (“Board”) to adopt rules necessary to
enforce the new law.
For the reasons described below, we urge the North Carolina General Assembly
to consider whether the proposed bill is consistent with federal legislation regarding
compensation for real estate appraisal services, as well as with U.S. Supreme Court
precedents that set forth the requirements to qualify for “state action” immunity from the
federal antitrust laws.
I. 	Interest and Experience of the Federal Trade Commission
Congress has charged the FTC with enforcing the Federal Trade Commission Act,
which prohibits unfair methods of competition and unfair or deceptive acts or practices in
or 	affecting 	commerce.2 Free-market 	competition 	is 	a 	core 	driver 	of 	America’s
economy.3 Vigorous competition gives consumers the benefits of lower prices, higher
quality goods and services, greater access to goods and services, and innovation,

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consistent with providing competitive returns to efficient suppliers.4 Pursuant to its
statutory mandate, the FTC seeks to identify business practices, laws, and regulations that
may impede competition without providing countervailing benefits to consumers.
In addition, the FTC has a long history as the nation’s consumer protection
agency, particularly in the real estate services industry. The Commission has used law
enforcement, rulemaking, research, conferences and workshops, and educational efforts
to protect consumers of mortgage loans from deceptive, unfair, and other unlawful
conduct. The FTC has engaged in rigorous empirical research on mortgage disclosures
and has long been an advocate for comprehensive reforms to improve consumer
understanding of these disclosures.5
On May 30, 2017, the FTC filed an administrative complaint against the
Louisiana Real Estate Appraisers Board (“FTC Louisiana Board Complaint”), alleging
that the board is unreasonably restraining price competition for appraisal services in
Louisiana, in violation of federal antitrust law.6 North Carolina HB-829 appears to raise
several issues similar to those described in the FTC Louisiana Board Complaint.
II. 	Background on Federal Laws Governing Real Estate Appraisal Fees
In response to the financial crisis of 2007-08, Congress passed the Dodd-Frank
Wall Street Reform and Consumer Protection Act of 2010 (“Dodd-Frank”). This act
amended the federal Truth in Lending Act (“TILA”) to include provisions intended to
ensure that real estate appraisers would operate independently from lenders or other
parties with a financial interest in mortgage transactions.7 For covered transactions,
Dodd-Frank requires lenders and their agents to compensate appraisers “at a rate that is
customary and reasonable for appraisal services performed in the market area of the
property being appraised.”8
In October 2010, the Board of Governors of the Federal Reserve System (the
“Federal Reserve”) issued an Interim Final Rule (“IFR”) implementing Dodd-Frank’s
appraisal independence requirements.9 In its commentary to the IFR, the Federal Reserve
interpreted the statutory requirements that lenders pay “customary and reasonable”
appraisal fees to mean “that the marketplace should be the primary determiner of the
value of appraisal services, and hence the customary and reasonable rate of
compensation” for appraisers.10
The IFR specifies that lenders and their agents presumptively comply with the
statutory customary and reasonable appraisal fee requirement if they use one of two
optional methods to determine fees. Under the first method (“six-factor method”), a
lender or its agent is presumed to comply with the customary and reasonable fee
requirement if it pays a fee “reasonably related to recent rates paid for comparable
appraisal services performed in the geographic market of the property,” as informed by
six identified factors: (1) the type of property; (2) the scope of work; (3) the time in
which the appraisal must be performed; (4) the appraiser’s qualifications; (5) the
appraiser’s experience and professional record; and (6) the appraiser’s work quality.11

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Under the second method (“survey method”), a lender or its agent is presumed to comply
with the requirement if it pays a fee based on “objective third-party information,”
including fee schedules, studies, and independent surveys of recent appraisal fees
(excluding fees paid by AMCs).12
In its commentary to the IFR, the Federal Reserve clarified that the two identified
presumptions of compliance are not the only permissible ways to comply with the
customary and reasonable fee requirement under Dodd-Frank, leaving AMCs the option
to pay fees determined by free-market competition. The commentary explains that if a
lender or its agent arrives at an appraisal fee in another way (separate from the two
presumptions), whether the fee is customary and reasonable shall depend on all relevant
facts and circumstances, without a presumption of either compliance or violation.13
In 2015, the federal banking agencies promulgated the Minimum Requirements
for Appraisal Management Companies Final Rule (“Final Rule”), implementing a Dodd-
Frank provision intended to establish minimum requirements for states that choose to
regulate AMCs.14 The Final Rule provides that any state that chooses to regulate AMCs
must require any AMC that is not regulated by a federal banking agency to “[e]stablish
and comply with processes and controls reasonably designed to ensure that the AMC
conducts its appraisal management services in accordance with [Dodd-Frank’s appraisal
independence requirements].”15 This would include the requirement to pay customary
and reasonable fees.
As alleged in the FTC Louisiana Board Complaint, we believe that the Final Rule
does not require states to impose upon AMCs standards for customary and reasonable
fees beyond what federal law provides, or to set customary and reasonable fees at any
particular level.16
III. 	North Carolina House Bill 829
HB-829 	purports 	to 	clarify 	the 	definition 	of 	customary 	and 	reasonable
compensation for real estate appraisers paid by AMCs.17 Four elements of the bill are
relevant to our analysis.
• 	The bill states that “[c]ompensation and offers of compensation provided
to 	an 	appraiser 	shall 	be 	presumed 	reasonable” 	if 	the 	amounts 	are
“reasonably related to recent rates paid by the consumer for comparable
appraisal services performed in the geographic market of the property
being appraised.”
• 	The bill then states that “[r]ecent rates paid shall not include those
amounts paid by appraisal management companies.”
• 	The bill further states that “[c]ustomary and reasonable rates shall be
based on objective third-party information, such as academic studies,
government fee surveys, and independent private sector surveys.”

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• 	Finally, the bill requires the Board to “adopt rules necessary to enforce
this subsection.”18
IV. 	North Carolina House Bill 829 Contains Restrictions Beyond Federal Legal
Requirements and Which Do Not Promote Competition
The method proposed by HB-829 for determining customary and reasonable fees
for appraisal services is not mandated by – and, in fact, may be inconsistent with –
federal law. Contrary to the Federal Reserve’s commentary to the IFR, HB-829 would
require AMCs to pay fees set pursuant to a single prescribed method. The method
described in the bill most closely resembles the federal survey method. Although the bill
also includes some language from the six-factor method, as currently drafted, it is unclear
whether that method would be permissible in actual practice. To the extent that HB-829
mandates the survey method and/or the six-factor method as the exclusive way(s) for
setting customary and reasonable fees, it would effectively preclude AMCs from
negotiating market-based fees with appraisers. We are concerned that this approach
restricts free-market determination of appraisal fees and therefore may ultimately result
in higher prices for consumers.
Furthermore, the bill expands the definition of customary and reasonable
appraisal fees beyond the definition in federal law to include “offers of compensation,”
which could unnecessarily constrain negotiations for market-based appraisal fees. The
bill also expands this definition to include “recent rates paid by the consumer.”19 We
question whether it is appropriate for appraisers to receive the full rate that the consumer
pays. Typically, the consumer pays for additional services beyond the appraisal (e.g.,
other services provided by the AMC), the costs of which might be recovered by the
lender as a lump-sum fee for the loan. Thus, this provision also might have the effect of
inflating the prices paid by AMCs for appraisal services, above the levels that would
otherwise exist in a competitive market.
To the extent that the legislative intent behind HB-829 is for the Board to require
AMCs to pay appraisal fees based on a survey, this approach also removes the free
market from any role in determining the price of appraisal services, and might inflate
appraisal fees above competitive levels. In other states that have commissioned fee
surveys, methodology issues have resulted in a report of appraisal fees that may not
accurately reflect market rates, and may have been significantly higher than market
rates.20 These fees, when paid by AMCs, are then passed on to consumers. Where
surveys report only median or average fees, rather than a range, the surveys fail to
account for the variability of appraisal circumstances and fluctuations in the real estate
market.
V. 	The Antitrust Laws Apply to the North Carolina Board
State professional boards controlled by active market participants can violate the
antitrust laws if they promulgate and enforce regulations that restrain price competition in

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the industry in which they participate. Under certain circumstances, the antitrust laws
may not apply to conduct by state boards. Under the state action doctrine, non-sovereign
actors – such as state boards controlled by market participants – are afforded an
exemption from antitrust laws only if “‘the challenged restraint . . . [is] clearly articulated
and affirmatively expressed as state policy,’ and . . . ‘the policy . . . [is] actively
supervised by the State.’”21
We are concerned that HB-829 may have the effect of displacing competition for
the setting of appraisal fees and ultimately harming consumers in the form of higher
prices. Although the legislative intent is unclear, as currently drafted, HB-829 may be
deemed to express an intent to displace competition in the appraisal services market
(which is not required by federal law), and without substituting for free-market
competition any state regulatory regime to protect consumers. To the extent that HB-829
is intended as an application of Dodd-Frank requirements, we note that Dodd-Frank
includes a provision known as an “antitrust savings clause,” which states that “[n]othing
in this Act . . . shall be construed to modify, impair, or supersede the operation of any of
the antitrust laws.”22 Thus, as the FTC Louisiana Board Complaint alleges, Congress
specifically directed that Dodd-Frank was not intended to displace generally applicable
antitrust principles, including the prohibition on unreasonable agreements in restraint of
trade.23
In addition, we note that the Board appears to be controlled by active market
participants. Thus, as currently constituted, the Board’s regulatory and enforcement
activities mandated by HB-829 would be subject to federal antitrust law unless
independent state officials actively supervise the Board’s activities, assuming the bill
satisfies the clear articulation requirement. As the U.S. Supreme Court explained in NC
Dental, in order to invoke the state action defense, active supervision by independent
state officials is required in these situations because competitor-controlled licensing
boards present the “structural risk of market participants confusing their own interest with
the State’s policy goals.”24 We urge the North Carolina General Assembly to consider
whether the Board’s actions should be supervised by independent state officials who are
not participants in the North Carolina appraisal industry. Under NC Dental, “a state board
on which a controlling number of decisionmakers are active market participants in the
occupation the board regulates must satisfy . . . [the] active supervision requirement in
order to invoke state-action antitrust immunity.”25
The 2015 Final Rule requires states to ensure that “appraisals are conducted
independently and free from inappropriate influence and coercion pursuant to the
appraisal independent standards” set forth in Dodd-Frank.26 As we alleged in the FTC
Louisiana Board Complaint, however, neither the Final Rule nor Dodd-Frank requires
states to delegate enforcement of customary and reasonable fee requirements to active
market participants.27 States may comply with Dodd-Frank requirements in ways that
promote the goals of competition law.

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VI. 	Conclusion
We urge the North Carolina General Assembly to consider whether HB-829 will
promote competition and benefit consumers. We are concerned that, if HB-829 were
enacted, real estate appraisal fees in North Carolina might not be based on competitively-
set market rates, and that AMCs – and, ultimately, consumers – might face higher prices
for real estate appraisal services.
As evidenced by the recent filing of the FTC Board Louisiana Complaint, we will
continue 	to 	investigate 	and, 	where 	appropriate, 	recommend 	that 	the 	Commission
challenge potentially anticompetitive actions by real estate appraisal boards.
Respectfully submitted,
Tara Isa Koslov, Acting Director
Office of Policy Planning
Abbott Lipsky, Acting Director
Bureau of Competition
Ginger Jin, Director
Bureau of Economics
1 This letter expresses the views of the Directors of the Office of Policy Planning, Bureau of
Competition, and Bureau of Economics. It does not necessarily represent the views of the
Commission or of any individual Commissioner. The Commission has not reviewed this letter
and did not vote to authorize the submission of these comments.
2 Federal Trade Commission Act, 15 U.S.C. § 45.
3 Standard Oil Co. v. FTC, 340 U.S. 231, 248 (1951) (“The heart of our national economic
policy long has been faith in the value of competition.”).
4 See Nat’l Soc. of Prof. Eng’rs v. United States, 435 U.S. 679, 695 (1978) (The antitrust laws
reflect “a legislative judgment that ultimately competition will produce not only lower prices,
but also better goods and services. . . . The assumption that competition is the best method of
allocating resources in a free market recognizes that all elements of a bargain – quality, service,

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safety, and durability – and not just the immediate cost, are favorably affected by the free
opportunity to select among alternative offers.”).
5 See, e.g., FTC Staff Comment Before the CFPB on Notice of Proposed Rulemaking: Integrated
Mortgage Disclosures Under the Real Estate Settlement Procedures Act (Reg X) and the Truth
In Lending Act (Reg Z), Section II. FTC Authority and Experience (Sept. 25, 2012),
https://www.ftc.gov/sites/default/files/documents/advocacy_documents/ftc-staff-comment-
cfpb-notice-proposed-rulemaking-integrated-mortgage-disclosures-under-real-
estate/1209cfpbmortgagedisclosures.pdf.
6 Federal Trade Commission, Complaint In the Matter of Louisiana Real Estate Appraisers
Board, Docket No. 9374 (May 30, 2017),
https://www.ftc.gov/system/files/documents/cases/d09374louisianareappraiserscomplaint.pdf
[hereinafter “FTC Louisiana Board Complaint”].
7 Truth in Lending Act, 15 U.S.C. § 1601 et seq., § 129E (2010). Appraisal independence
requirements.
8 Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, Section 1472(a).
Covered transactions are loans that extend consumer credit secured by the consumer’s principal
dwelling, such as mortgages and home equity loans. The statute further states the following:
“Evidence for such fees may be established by objective third-party information, such as
government agency fee schedules, academic studies, and independent private sector surveys.
Fee studies shall exclude assignments ordered by known appraisal management companies.”
Dodd-Frank Act, Section 1472 (i)(1).
9 12 C.F.R. § 226.42 (2010).
10 Truth in Lending Interim Final Rule, Supplemental Information, 75 Fed. Reg. 66554, 66569 at
42(f) (Oct. 28, 2010) (codified at 12 C.F.R. pt. 226) (“TILA Regulation Commentary”).
11 12 C.F.R. § 226.42(f)(2) (2010).
12 12 C.F.R. § 226.42(f)(3) (2010).
13 TILA Regulation Commentary at 66572, 66586.
14 Minimum Requirements for Appraisal Management Companies, 12 C.F.R. §225.193 (2015)
(“Final Rule”). The Final Rule is not the final version of the IFR. The Appraisal Subcommittee
is composed of representatives of the banking agencies (FED, OCC, FDIC, NCUA, FHFA and
CFPB).
15 Final Rule, 12 C.F.R. §225.193(b)(5).
16 FTC Louisiana Board Complaint at ¶ 26.
17 North Carolina House Bill 829, An Act To Clarify The Definition Of Reasonable And
Customary Compensation For Real Estate Appraisers, Gen. Assembly of North Carolina
Session 2017 (Apr. 13, 2017),
http://www.ncleg.net/Sessions/2017/Bills/House/PDF/H829v1.pdf [hereinafter “HB-829”].
18 HB-829, Section 1., G.S. § 93E-2-4(i).
19 HB-829, Section 1., G.S. § 93E-2-4(i). (emphasis added). “Consumer” is defined as “The
borrower or owner of the property interest for which an appraiser’s services are utilized.” HB-
829, Section 2. G.S. § 93E-2-2. (a)(5a).
20 Other states that have commissioned fee surveys include Louisiana, Texas, Kentucky, Georgia,
Utah, and Virginia.
21 FTC v. Phoebe Putney Health System, Inc. 133 S.Ct. 1003, 1010 (2013) (quoting California
Retail Liquor Dealers Assn. v. Midcal Aluminum, Inc., 445 U.S. 97, 105).
22 Dodd-Frank §6, Antitrust Savings Clause, codified at 12 U.S.C. 5303.
23 FTC Louisiana Board Complaint at ¶ 20.
24 N.C. State Bd. of Dental Exam’rs v. FTC, 135 S. Ct. at 1106, 1114 (2015).

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25 N.C. State Bd. of Dental Exam’rs v. FTC, 135 S. Ct. at 1106, 1114 (2015). See also FTC Staff
Guidance on Active Supervision of State Regulatory Boards Controlled by Market Participants
(Oct. 2015), https://www.ftc.gov/system/files/attachments/competition-policy-
guidance/active_supervision_of_state_boards.pdf.
26 Dodd-Frank § 1473, codified at 12 U.S.C. 3353(a)(4).
27 FTC Louisiana Board Complaint at ¶¶ 25-26.