On May 11, 2017, Assembly Bill 1973—also known as the Appraisal Management Company Registration and Regulation Act—was passed into law, adding New Jersey to the list of more than 20 states that currently regulate and monitor appraisal management companies. Part of the newly enacted licensing requirements is the need for New Jersey appraisal management companies to provide the New Jersey Division of Consumer Affairs with a surety bond in an amount of $25,000.
Why do New Jersey appraisal management companies need to be bonded?
As is the case with other surety bonds, appraisal management company bonds are in place to protect others from any harm as a result of the company’s failure to abide by all applicable rules established by the new legislation. The bond allows any individuals harmed by the appraisal management company to make a claim and collect reimbursement—up to $25,000—for financial loss. However, if multiple parties file claims against the bond, each party will only receive a portion of the total bond amount.
How is this different than insurance?
Surety bonds are often confused with traditional insurance, but the two serve very different purposes. As stated previously, surety bonds protect those who suffer loss due to the actions of the company. However, unlike insurance where the company writing the policy collects a premium to pay out up to the policy limit to cover damages, the surety company writing the bond assumes there will be no financial loss on their part. Therefore, the surety company will require the appraisal management company getting the bond to sign an indemnity agreement guaranteeing the principal (appraisal management company) will reimburse the surety for any money paid out to cover the cost of a claim. So, a New Jersey appraisal management company who causes financial harm to others may find themselves having to pay up to $25,000 if they fail to adhere to the terms of AB 1973.
How much does an appraisal management company bond cost?
The cost of an appraisal management company bond varies between applicants and is subject to review by an underwriter. The premium to be paid by the company will be based on the financial qualifications of each individual with at least 10% ownership in the business. Applicants deemed to be highly qualified are often approved for the minimum 1% rate, meaning they will pay just $250 for a full twelve months of coverage. Applicants who are seen as less qualified may be quoted at a higher rate, but because the bond is renewed annually, they may qualify for the minimum rate when their bond comes up for renewal, assuming they have taken steps to improve their credit and avoided any claims.
Are there any other licensing requirements for appraisal management companies?
Aside from obtaining a surety bond, there are several other licensing requirements to be met by applicants for an appraisal management company license:
- Pay the application fee
- $75 for licensed residential companies
- $100 for certified residential companies
- $125 for certified general companies
- Provide the New Jersey Real Estate Appraisers Board with a passport-style photograph of the company owner(s)
- Provide original board log sheets
- Complete the required education
- Complete the Certification and Authorization Form for a Criminal History Background Check
- Complete the Non-Resident Consent Form (required for out-of-state applicants)
Additional information regarding the licensing requirements for New Jersey appraisal management companies may be found by visiting the Applications and Forms page of the Division of Consumer Affairs website.
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