Update: Appraisal management bond is $25,000.
Back in July, Governor Steven L. Beshear signed Kentucky Administrative Regulations 201 30:320, an emergency administrative regulation that required the state’s appraisal management companies to file a $500,000 surety bond with the Kentucky Real Estate Appraisers Board. The regulation applies to all appraisal management companies, which had until October 1 to meet the state’s registration deadline.
However, the regulation is still subject to change as the Legislative Research Commission is scheduled to review it later this month. Although it was enacted on July 15, the commission must officially approve the emergency administration regulation at a hearing before it can become legally binding. The review will be conducted at the commission’s board meeting on October 27.
What do appraisal management companies do?
Appraisal management companies act as intermediaries between appraisers and lenders. Their core function is to manage groups of appraisers that handle orders from various lending clients. The collaboration done by appraisal management companies eliminates a significant amount of both work and skepticism for appraisers, brokers and lenders alike. However, appraisal management companies charge fees for doing so.
As such, surety bond requirements provide a financial guarantee that they fulfill their duties according to state laws that regulate the industry. Appraisal management bonds are used to reimburse any person who is damaged by companies that fail to operate according to state law.
Is the $500,000 surety bond requirement reasonable?
Nine other states currently enforce surety bond regulations for appraisal management companies, but the next highest bond amount required to-date is $25,000. Kentucky’s $500,000 surety bond amount appears excessive when juxtaposed with the bond amounts required by other states.
Appraisal management companies were required to be fully licensed, registered and bonded by October 1 if they wanted to continue working in Kentucky. The board’s upcoming review might be too late for companies that weren’t able to afford the premium for a $500,000 surety bond.