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AMC appraisal fees to be regulated in NJ.

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This will cause a HUGE change in the way AMC's operate.

The entire article may be viewed at http://www.appraisalintelligence.com/pub/h...ines/740-1.html

Landmark New Jersey appraisal fee regulation adopted

January 2, 2003

The New Jersey Department of Banking and Insurance has implemented amendments to a state rule that regulate appraisal fees charged by parties other than the appraiser – lenders, AMCs and the like – in the state.

The amended regulation, N.J.A.C. 3:1-16.2, requires fees charged by a lender to a consumer for an appraisal performed by an in-house appraiser to approximate the "usual, customary and reasonable" fee for comparable appraisal by third party appraisers. In addition, it requires the fee charged for an appraisal performed by a third party appraiser and delivered by an appraisal management company to approximate the usual, customary and reasonable fee charged for comparable appraisal by third party appraisers."

The regulation was proposed February 19, 2002 and went into effect Dec. 16, 2002. The Department will conduct an annual survey to determine what constitutes a “usual, customary and reasonable fee.”

The regulation amendments were fought fiercely by, among others, the National Real Estate Information Services, First American Appraisal Services, Landsafe Appraisal Services, Atlantic Assurance Group and the Title/Appraisal Vendor Management Association (TAVMA).

Many of the written comments received by the Department stated that consumers, lenders, the public and appraisal management companies would be negatively affected by the amendment.

The Department responded that it “believes that all of these groups will benefit from the amendment regarding appraisal fees charged to homeowners who obtain mortgages. The amendment does not prohibit the use of appraisal management companies by mortgage lenders and provides for a fee that is consistent with other comparable appraisals based on the survey of fees to be conducted annually by the Department of Banking and Insurance.”

Another commenter stated that the amendments disregard the additional value that appraisal management companies deliver to lenders and consumers and limit compensation for these services.

The Department disagreed and stated, “The amendment contemplates that an appraisal may be performed by a third party appraiser and delivered by an appraisal management company and permits payment for those services. The amendment does not permit excessive charges for appraisals delivered by appraisal management companies.”

Yet another commenter told the Department that in addition to increasing efficiency, appraisal management companies improve the quality of appraisals with a quality review process in which appraisal fraud and abuses are more likely to be discovered or not attempted; and that these additional services that benefit customers, lenders and the public, should be compensated.

The Department agreed and stated that the amendment does not prevent appraisal management companies from being compensated for their work as long as the total appraisal fee approximates the usual, customary and reasonable fee for comparable appraisals based on the Department’s annual survey of fees.

To read a summary of the comments submitted to the Department, go to: http://www.state.nj.us/dobi/proposed/ad111202.pdf

Copyright © 2003 October Research, Inc. All Rights Reserved.
 

George Hatch

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California
Looks like N.J. wants to limit fee gouging, which is not necessarily a bad idea. However, I think the wording of the regulation is less than optimal.

First, it doesn't appear to recognize that some assignments are more complex and require more work, thereby justifyng a bigger fee to the appraiser. Although aimed at curbing abuses at the corporate level, trying to standardize fees can backfire all the way back to the fee appraiser level. I fear that the fee appraiser will end up having to eat the difference.

Secondly, it lumps in all of the services connected to the appraisal into one fee, which isn't exactly fair to the AMCs, either. I am no advocate for the AMCs, but I do believe they have a right to be fairly compensated for the services they add. IMO, the fee for the appraisal should be segregated out from these value-added services, if any, that the AMCs provide. That way, the appraiser gets their fee and the AMC can collect whatever the market will bear for their added services. The way it's written now, I'm guessing that the AMCs will take a hit, but their fee appraisers will also have to shoulder some of the loss, too, because the total fee cannot exceed the 'average' fee as determined in the state's survey.

Gotta look at the long range on this. What happens if this kind of legislation passes on a wider scale? Sure, some of the AMCs might lose their profit margin and that segment of the system might devolve back to the appraiser-client relationship, with no middleman (hooray for us!). But is also might evolve into a regulated fee structure that limits what an appraiser can charge, particularly for the tough assignments (sucks to be us!!). The bottom line here is that because their non-appraisal 'value-added' services appear to have higher costs than returns, the AMC's will have an even tougher time competing with the independents in fee structure. Consequently, the AMC appraisers will probably be working for an even smaller split. It's like salary caps for professional sports teams.

I like the initial concept, but IMO the execution left some holes that should be filled. Maybe an ammedment is in order.


George Hatch
 

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Elite Member
Joined
Jan 15, 2002
Professional Status
Certified Residential Appraiser
State
North Carolina
I agree George.

Perhaps it is understood that typical and normal will vary according to complexity etc.
 
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