New Jersey Adopts Provisions Regarding Appraisal Fees

The state of New Jersey has recently lessened the state’s restrictions on appraisal fees, effective immediately.

The New Jersey Department of Banking and Insurance has recently eliminated certain borrower protections regarding appraisal fees. Since 2002, lenders in New Jersey have been subject to N.J.A.C. 3:1-16.2(a)3, which sought to protect borrowers from being over-charged for appraisal fees.  The concern was that, at this time, appraisals were commonly performed by in-house affiliates or appraisal management companies that were affiliated with lenders, rather than by independent third-party appraisers.  The Department enacted certain restrictions in response to a concern that borrowers were being charged for the cost of appraisals, plus the added cost of in-house or AMC services.

The Department’s 2002 regulations sought to protect consumers by establishing a “usual, customary and reasonable fee” standard for the cost of an appraisal. In order to establish this value, the Department was permitted to conduct an annual survey of third party appraisal fees charged by lenders to determine the current “usual, customary and reasonable” fees.  These fees would then become the benchmark for permissible fee amounts published in the New Jersey Register.  The Department specified that even if the appraisal was performed and delivered in-house, the fee must still approximate the usual, customary, and reasonable fee for comparable appraisals by third party appraisers, established pursuant to the survey.

The Department has now determined that the 2002 concerns about in-house and appraisal management company charges are outdated. The Department has further determined that the survey benchmark could be an unnecessary restraint on the free market for appraisal fees, may have a negative impact on the business community, and may constitute an unneeded and burdensome regulatory requirement imposed upon lenders.  Because the survey imposed a cap on appraisal fees without significantly protecting borrowers, the Department has decided to eliminate the survey and the “usual, customary and reasonable” fee pricing concept.  The Department has adopted a simple requirement that an appraisal fee charged to a consumer must total no more than the amount charged by a third-party appraiser.

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Zachary Pearlstein, JD, is a senior regulatory compliance consultant with Bankers Advisory. He is a graduate of Brandeis University and earned his juris doctor at Suffolk University Law School. He is admitted to the Massachusetts Bar.

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