July 22, 2011
The appraisal process is one of the most important steps toward buying a home with an FHA-insured mortgage. Borrowers cannot be approved for an FHA loan without the FHA appraiser doing his or her work to establish fair market value of the property and make sure the home meets FHA requirements.
Like almost everything else in the FHA insured loan process, there are rules and regulations that guide appraisers, the lender who hires them, and how the work is to be done. One area the FHA is quite clear about in the rules is the appraisal fee.
FHA does not have a fee structure or table for appraisers–there are no fixed dollar amounts for appraisal services. But that does not mean the FHA doesn’t have rules covering how high these fees can go.
According to the FHA official site, “Lenders must ensure that appraisers are compensated at rates that are reasonable and customary, and fees charged are commensurate with the respective level of service provided.”
The phrase “reasonable and customary” sounds nebulous, but FHA guidelines say an individual FHA appraiser’s fees must be on par with similar service providers. “Reasonable and customary appraisal fees reflect those fees established and negotiated by an FHA approved, self employed independent fee appraiser; or appraisal firm that may directly employ FHA approved appraisers or retain them as independent contractors, regardless of whether a lender, AMC or 3rd party vendor orders the appraisal.”
How is a fee appraiser expected to set his or her rates? As with other FHA fees, the cost must reflect actual services rendered and must not include charges for work not actually performed. “The fee should reflect the amount of research, level of difficulty and due diligence required to produce a credible, reliable and accurate appraisal report.”
Also, “…for FHA purposes, appraisers are permitted to record the appraisal fee received for performing the appraisal within the appraisal report (but must not include any AMC, other third party fees, or management or review fees charged by lenders in the fee recorded within the report).”
The appraisal fee must be in compliance with the Real Estate Settlement Procedures Act, meaning the entire fee must be disclosed to the borrower in typical documentation like the HUD-1 Settlement Statement and other required paperwork.