Appraiser Bonds
The prevalence of appraiser bonds continues to increase as multiple government agencies look for ways to hold appraisers accountable for their performance. The purpose behind these bonds is to guarantee an appraiser's compliance with state code and other regulations set by a state's appraisal association, or possibly another government agency.
Appraiser Bonds: Surety Bond Basics
Surety bond regulations for businesses that work within the finance industry have recently been on the rise, and the appraisal market is no exception.
The fundamental job of appraisers is to estimate the cost of a house or property for a number of reasons. Appraiser bond regulations have primarily been established to monitor an appraiser's performance when a homeowner is looking to get a mortgage or home loan. Basically, the appraiser works to make sure the homeowner doesn't receive a loan for more than the house or property's value. Without bonding regulations, some appraisers have been known to ask the homeowner in what amount they need a loan and then just appraise the house at that value.
Emerging surety bond regulations help limit such unethical practices. When it comes to appraisers and appraisal management companies, surety bonds hold the bonded entity financially accountable for any monetary disciplines it might potentially incur as a result of inappropriate business behavior–e.g. fraudulent appraisal practices or failing to follow other stipulations set forth in licensing regulations.
Appraiser Bond History
Such instances of mortgage fraud were believed to be a significant contributing factor in the recent collapse of the housing market. Generally speaking, the fewer regulations enforced on an industry, the more opportunities for fraud and other unethical business practices. Government agencies recognized this problem within the appraisal market and hoped to rectify it by enforcing new regulations, including the addition of appraiser bonds.
In early 2009, Utah and Arkansas became the first states to mandate the use of surety bonds to help regulate appraisal management companies. Through the process, regulatory power was given to each state's real estate appraiser board. Four more states enacted similar legislation later that year, and industry experts predicted as many as 20 more states to consider AMC legislation in 2010. Currently, about half of the states in the U.S. have some sort of bonding regulations in place for appraisers.
Regulations
Regulations and their associated bonding amounts and fees will vary by jurisdiction. For example, in Georgia the Real Estate Appraisers Board manages bonds for appraisers, and the board requires the bond to be in the amount of $20,000. Recent legislation in Tennessee established requirements for real estate appraisal management bonds in the amount of $50,000 effective July 2011.
These new regulations have emerged as governments continue to develop measures that provide consumers with more protection against unreliable appraisers. The use of surety bonds in the appraisal market will increase transparency within the home-purchasing process.
