New Appraisal Law Benefiting the Consumer
August 22, 2019 |
New York state’s law regulating appraisal management companies recently became active and its contents are big news in the appraisal world. This is mainly due to it requiring transparency regarding the fees paid to appraisers, a big step in advocating for consumer interests.
The New York State AMC law was proposed in 2015, introduced as Senate Bill S9080 during the 2017-2018 legislative session, was signed into law on December 27, 2018, and became effective on April 27, 2019. It unanimously passed by the rules committee of both houses and then the body of both houses.
What is of note in the AMC bill is its requirement that an appraiser’s invoice be included with each appraisal submitted. It is now illegal for an AMC to:
Knowingly prohibit an appraiser from recording the fee that such appraiser was paid by the appraisal management company for the performance of the appraisal within the appraisal report that is submitted by such appraiser to the appraisal management company;
Knowingly fail to state the fees paid to an appraiser for appraisal services and the fees charged by the appraisal management company for services associated with the management of the appraisal process to the client, borrower and any other payer. Appraisal management companies shall provide a copy of the appraiser’s invoice with a copy of any appraisal report submitted to a client or a client’s representative.
Some AMC’s are requiring appraisers to disclose the appraisal fee in the certification body of the appraisal report along with the total compensation retained by the AMC. This way, the process will be transparent for the consumer to be made aware of not only the appraisal fee, but also the AMC fee, which often is more than half of the total fee.
Other items of interest contained in the New York state’s AMC bill is a prohibition that they cannot:
“…require a real estate appraiser to indemnify an appraisal management company or hold an appraisal management company harmless for any liability, damage, losses, or claims arising out of the services performed by such appraisal management company, and not the services performed by the appraiser.”
It also requires prompt payment to an appraiser, as follows:
“Each appraisal management company operating in this state shall make payment to an appraiser for the completion of an appraisal or valuation assignment within thirty days of the date on which such appraiser transmits or otherwise provides the completed appraisal or valuation services to the appraisal management company or its assignee.”
It also states that it is illegal for an appraisal management company to not pay “customary and reasonable fees”, as it is prohibited to:
“Knowingly fail to compensate an appraiser at a rate that is reasonable and customary for appraisal or other valuation services being performed in the market area of the property being appraised without the services of an appraisal management company in a manner that is either inconsistent with, or would violate Section 1639(E) of the Federal Truth-In-Lending Act.”
Interesting still, New York is a voluntary state; that is, there is no mandatory licensing in the state. Real estate agents, brokers and others can prepare “appraisals”, “broker price opinions”, or comparable market analyses” at will.
The new law only applies to appraisals ordered through Appraisal Management Companies for properties in the state of New York. The risk to AMC’s who do not comply with the new law will be a loss of ability to operate in the state. Further, this law does NOT apply to direct lenders, who do not use an appraisal management company; nor does it apply to any other appraisal ordered.
This effort towards transparency is a welcome step, as many appraisers have felt that the appraisal management fees are excessive and are not clearly disclosed to borrowers. For sales transactions, the “appraisal fee” is listed as one amount on a settlement statement given to the borrower, and is not broken down into two fees: the one paid to the appraiser and the one paid to the appraisal management company.
Other states and the appraisal community will be carefully watching this legislation and its effects, and may consider imposing similar guidelines for the benefit of transparency to the consumer.