Whether you are the borrower, appraiser, lender, or the AMC, it pays to know who is responsible for appraisal fees in real estate transactions. Considering the multitude of parties involved, it’s not always intuitive, and often, not every party involved in the transaction is on the same page when it comes to payment arrangements. Why? Because there is no single, absolute rule that applies to every scenario. Nevertheless, there are a few general principles in place that can help guide you through the grey areas.
What Borrowers Need to Know
Paying for the Appraisal vs. Paying the Appraiser
It’s essential to make a distinction between who bears the burden for paying the appraisal fees and who makes payment to the appraiser. Typically in a real estate transaction, the appraisal fee is charged by the lender to the borrower as a service or closing cost. The borrowers pay the lender for the appraisal and do not make payment directly to the appraiser. If you’re a borrower reading this, you should know that you are responsible for paying for the appraisal (whether or not your loan closes), but you should not be responsible for paying the appraiser directly.
What Appraisers Need to Know
Get it in Writing.
We know who is responsible for paying for the appraisal, but getting that payment to the appraiser is another issue entirely.
In general, responsibility for paying the appraiser is determined in the engagement or agreement letter between the appraiser and the client. The engagement letter should, at a minimum, clearly state the payment terms and include the amount to be paid and who is responsible for payment. Timeliness and form of payment are other terms that may also be included in the engagement letter. The party responsible for paying could be the lender or an agent of the lender, including an AMC.
As an appraiser, an engagement letter is imperative to know what you’ve agreed to do for payment and who you’ve agreed to be paid by because if you run into non-payment issues, you need to know who to contact. You should also know that if you fail to fulfill your obligations per the engagement letter, you may not be entitled to payment. This is why it is always necessary to have a written agreement with a client whether they are a lender, AMC, or other business.
We often hear this question, “But the lender uses an AMC, isn’t the AMC automatically responsible for payment?”
The answer is NO. While it is not uncommon for AMCs to provide order placement and management services that include payment of appraisers, this does not automatically mean they are the designated payer. Furthermore, because the lender uses an AMC does not mean the AMC is required to pay the appraiser. In accepting any assignment, appraisers should make sure they know what they’ve agreed to in terms of payment. That way, they know to whom and where to go if there are payment issues.
What Lenders and AMCs Need to Know
Lenders and AMCs must fulfill their terms of payment. For this reason, they should create clear and consistent payment terms, conditions, and policies to include any caveats for non-payment due to failure of the appraiser to fulfill the terms of the engagement. Otherwise, lenders and AMCs that have agreements to pay appraisers could be subject to prosecution under state and federal laws, as well as subject to private litigation.
If you still have questions about who’s responsible for paying your appraisal fees, get in touch with MountainSeed today. We’re happy to talk through it with you.
Originally published on April 26th, 2018, updated on October 17th, 2019.