Appraisal Institute warns against appraiser indemnification agreements

(5/26/2011)

The Appraisal Institute cautioned real estate appraisers about signing agreements imposed by some appraisal management companies (AMCs) that seek to hold residential appraisers responsible for AMCs’ actions. In a press release, the institute’s president warned that consumers could be the ultimate losers. “Appraisers should be very careful about signing any agreement, especially one that makes them responsible for another party’s actions,” said Appraisal Institute President Joseph Magdziarz, MAI, SRA. “While there are some fine AMCs doing business today, many AMCs shift liability onto appraisers. For many professional appraisers, it’s simply not worth the risk.” Magdziarz noted that the most qualified, competent appraisers often refuse to sign such indemnification agreements. While lenders can manage appraisal operations with internal staff, some choose to outsource these functions to third-party management companies — AMCs. “The Appraisal Institute’s best advice for consumers is to ensure their lender hires a qualified, competent appraiser,” Magdziarz said. “For appraisers, the Appraisal Institute advises that they know and understand any agreement they sign and that they not sign any agreement they feel is unreasonable or not in their best interests. For most AMCs, providing a certificate of insurance may be a good alternative to signing an indemnification agreement.” “To get an idea of how potentially dangerous this situation is for appraisers, one need only look to the FDIC’s recent action,” Magdziarz said in reference to the Federal Deposit Insurance Corp. (FDIC) complaint filed May 9 against Lender Processing Services and CoreLogic that seeks to recover roughly $283 million in losses allegedly tied to appraisals. Regardless of the merit of the FDIC’s charges, there are potential consequences that come with signing indemnification agreements and expose appraisers to unnecessary liability. Magdziarz also noted the potential effect on consumers, who often have to rely on valuation services from some of the least qualified and least competent appraisers hired by some AMCs. He warned that such agreements drive professional appraisers further from consumer mortgage lending valuation services.