[Exclusive] KB Kookmin Bank Withheld 3.5 Billion Won in Fees from Appraisal Firms for Over Four Years

Unpaid Fees for 2,347 Cases Across 14 Contracted Appraisal Firms
290 Instances Where Even Actual Expenses Were Not Paid
Fees Should Be Paid Regardless of Loan Outcome
But Payment Made Only When Loan Is Executed Under Agreement
Banks Of

Unfair practices by banks toward appraisal firms continue to persist. In particular, it was revealed that KB Kookmin Bank failed to pay 3.5 billion won in fees to contracted firms over a period of four years and six months. The rate at which banks receive preliminary desk appraisals (desk consultations) but do not proceed with formal appraisals was also found to be high.

According to data submitted by the office of Lee Jungmoon, a member of the National Assembly's Political Affairs Committee from the Democratic Party of Korea, to the Korea Association of Property Appraisers on September 26, KB Kookmin Bank did not pay a total of 3,476,759,000 won in fees to 14 contracted appraisal firms from 2021 to June of this year. This amounts to 2,347 individual cases. The appraisal fee is known to be 300,000 won per 100 million won of collateral value. When converted, the unpaid amount corresponds to fees for appraising collateral worth approximately 1.1589 trillion won.

The largest portion of this is 'unpaid fees.' Over the past four years and six months, fees and expenses were not paid in 2,084 cases, resulting in a total of 3,447,501,000 won remaining unpaid. Next, there were 172 cases (17,810,000 won) of 'expenses after dispatch' not being paid, and 118 cases (11,448,000 won) of 'expenses before dispatch' not being paid.

There are three main types of fees that banks do not pay to appraisal firms. During the loan process, banks request collateral appraisals from external appraisal firms. Even before the formal appraisal, on-site inspections are conducted, and it is at this stage that payment issues arise. If the loan is canceled after the on-site inspection, the firm should receive reimbursement for expenses, but if it does not, this is classified as 'expenses before dispatch.' If the appraisal report is sent to the bank but the fee is not paid regardless of whether the loan is executed, or if payment is withheld due to lack of notification from the bank, this is classified as 'unpaid fees.' This category includes both the basic fee and expenses. If the bank notifies the firm of loan cancellation after the appraisal report has been sent, but the firm does not even receive reimbursement for expenses, this is classified as 'expenses after dispatch.'

The contract between banks and appraisal firms is a 'mandate contract.' Once the appraisal firm submits the report to the bank, the mandated task is considered complete, and the bank is obliged to pay the fee. This is different from a 'service contract,' where payment is made only upon completion of the final deliverable. Therefore, regardless of the loan outcome, if the work has been performed, the bank must pay the costs. However, banks only pay fees when the loan is executed as stipulated in their agreements, and if execution is delayed, payment is also delayed. If the bank does not notify the firm about the execution status, the appraisal firm cannot know, resulting in prolonged delays in fee payments.

In many cases, banks receive free consultations but do not proceed with formal appraisals. From 2021 to this year, KB Kookmin Bank requested an average of 124,813 desk consultations per year, but only 34,077 of these led to formal appraisals. This means that, on average, only 26.8% of desk consultations resulted in formal appraisals.

Desk consultations are a process in which banks check the approximate appraisal value with an appraiser or firm before a formal appraisal. However, banks often obtain the necessary information through this process but do not request a formal appraisal, thereby continuing the practice of not paying fees. The Ministry of Land, Infrastructure and Transport announced improvement measures in 2020 to enhance the competitiveness of the appraisal industry, but cases where banks pay desk consultation fees to appraisers or firms remain extremely rare.

A representative from KB Kookmin Bank stated, "To ensure that we do not omit payment of fees to contracted appraisal firms, we complete settlements by receiving claims for unpaid cases from the firms and reconciling them through both ongoing payments for individual cases and semiannual lump-sum payments by headquarters," adding, "The 3.5 billion won in unpaid fees is a simple error that occurred during electronic processing, and we are currently communicating with the Korea Association of Property Appraisers to resolve the issue."