Who is responsible for appraisal fees? — it pays to know

Whether you are the borrower, appraiser, lender, or the AMC—it pays to know just who is responsible for appraisal fees in real estate transactions. Because there are so many parties involved, it’s not always intuitive and many times not all of the parties involved in the transaction are on the same page regarding payment arrangements because there is no single, absolute rule here. Hopefully, we can clarify this a little with a few general principles.

WHAT BORROWERS NEED TO KNOW

Paying for the Appraisal vs. Paying the Appraiser

It’s important to make a distinction between who bears the burden for paying the appraisal fee 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 (closing) cost. Then 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.

So we know who is responsible for paying for the appraisal. How that payment gets to the appraiser (i.e. who is responsible for paying the appraiser) is another issue altogether…

In general, responsibility for paying the appraiser is determined in the engagement (agreement) letter between the appraiser and the client. The engagement letter should, at a minimum, clearly state the payment terms including the amount to be paid and who is responsible for payment. Timeliness and form of payment are other terms that may 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 (or agreement) is imperative in order 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 exactly 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 your client is 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 and 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 regarding payment so they know to whom and where to go if there are payment issues.

WHAT LENDERS AND AMCS NEED TO KNOW

Upholding Responsibility.

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.

Do you have other questions on who’s responsible for paying your appraisal fees? Get in touch. We’d be happy to talk through it with you.