Lenders hire appraisers to ensure impartiality and reduce outside influence on appraisal results. Lenders rely heavily on appraisal reports to make decisions on purchase and refinance loans. Pressure on appraisers to reach a certain value often leads to inflated property values, hurting mortgage borrowers and lenders alike. The rules surrounding the hiring of appraisers changed after the mortgage crisis. As a result, borrowers cannot contract their own appraisers and employ the report to get a loan.
The primary purpose of a home appraisal is to protect the lender's financial interest in a property. Lenders need appraisals to help determine whether the home meets minimum standards for financing; provide a basis for a loan amount, and ensure marketability, should the lender have to sell the home at a foreclosure auction. Borrowers typically pay the appraisal fee, either up front or as part of their loan closing costs. The price varies by location, market conditions and property type, but an appraisal generally costs $350 or more.
"Many appraisers consider appraiser pressure to be the biggest problem facing appraisers," reports the Appraisal Institute. The undue pressure placed on appraisers by mortgage lenders, brokers, real estate agents or real estate brokers to reach a certain value is prohibited by law and appraiser codes of conduct. Reforms have tightened rules about communicating with appraisers, prohibiting loan brokers from hiring them. Lenders order appraisals directly from the appraisers — most of whom are independent contractors — or through appraisal management companies, reports Bankrate.com.
Home appraisals differ from home inspections. Unlike an appraisal, which culminates with a fair market value, a home inspection analyzes overall property condition and denotes defects or areas of concern for the buyer's personal use. Appraisals for government-backed programs, such as Federal Housing Administration and Veterans Affairs loans, involve an interior and exterior inspection much like a home inspection. FHA and VA loans have a government guarantee that promises to reimburse lender losses if homeowners default. FHA and VA lenders select qualified appraisers who are pre-approved to work with the government programs.
A borrower or interested third party to a transaction may ask an appraiser to perform further due diligence. For example, they may ask the appraiser to: consider additional, appropriate property information; provide more detail, substantiation or explanation of value conclusion; or correct errors in the appraisal report. In general, changes to the report or value conclusion are discretionary. A borrower may not hire another appraiser to replace a previous appraisal report, but may supply relevant information for lender and appraiser consideration.
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