Kelly Koehler of The Housechick Blog asked the following questions, in her original blog post, after reading an article authored by an appraisal organization:
Okay, remind me again, who typically pays for the appraisal? Oh yeah - the BUYER. And who gets a copy of it? Oh yeah - the lender. And who has to make a request to receive a copy? After they paid for it? Is there a disconnect here or is it just me?
- Who does that appraisal really protect? The buyer or the lender?
- What percentage of appraisals come back at exactly the sales price? 80%? 90%?
- You know the appraiser usually has a copy of the contract in hand when they do the appraisal, right? Is that appropriate?
- Are we looking for an actual value or are we just mitigating risk for the lender at the Buyer's expense?
My Response:
Kelly - I recall the article that you're talking about and thought much the same as you on the "self-serving" aspect. That said, I think what they were getting at is that most of the other parties to the transaction either have a vested interest in the "deal" (buyer/seller) or they are on "commission" and won't be compensated UNLESS the deal is consummated. Appraisers on the other hand are paid for their service and will be paid regardless of whether the loan goes through or not. (Just like the home inspector, the termite inspector, etc. etc.)
"Who does the appraiser work for" depends on the type of assignment. The Uniform Standards of Professional Appraisal Practice (USPAP) govern all State licensed and certified real estate appraisers. http://tinyurl.com/n4s5h
Each appraisal will identify the "Intended User" and the "Intended Use". In the typical lending transaction the lender is the intended user (client) and the intended use is to underwrite the risk associated with making the loan.
So the basic answer to your question (in a lending situation) is that the appraiser works for the LENDER. Just because the buyer pays the appraisal fee does NOT make them an "Intended User" of that report. These relationships must clearly be stated on all appraisals.
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USPAP also dictates that appraisers MUST review all current contracts. This is a requirement so that the appraiser can analyze the transaction and consider any non-arms-length considerations, seller paid concessions, or rebates that might effect the price. (and report those to their client).
As to who gets a copy of the appraisal? Confidentiality sections of USPAP restrict the appraisers delivery options to their "client" (Intended User). The Fair Credit Act includes the provisions that require their lender to provide them with a copy of the appraisal if requested in writing. As you note, some lenders "Just Do It!" as a matter of policy.
Who does the appraisal protect? Hmmmm? The appraisal is for the client's use in underwriting the loan. It's a risk assessment tool. So in the basic sense, it's for their information and protection. However, in the case where a buyer is paying too much, it can alert them to that fact when the loan officer discusses the issues with the appraisal.
Appraiser Pressure? Hitting the Value? - In most cases 80% of a residential appraiser's income comes from "Lending" transactions. They're hired by "commissioned" loan officers and mortgage brokers. They're recommended by "commissioned" sales agents. How many deals can an appraiser report "accurately" - but below the sales price - and still retain those folks as clients and referrals?
On the http://www.appraisalscoop.com/ blog there's a "Black Listing" category that discusses in detail what can happen to appraisers when they "Don't Play Ball". Fannie Mae just recently had to re-issue a statement regarding accurate reporting of the current "declining markets" in many parts of the US. This reinforces the position of the appraiser between a rock and a hard place.
Protection for the Buyer? Simple . . .They should order their OWN appraisal (making them the client and intended user) prior to making an offer on a home. The appraiser then works for THEM. There is no "deal" to be broken . . .the appraisal is for their information only. They can decide if they want to pay more or negotiate the price down.
I hope this helps you understand the situation from an "Appraiser's Perspective"
Additional blog posts on this topic: Active Rain
Author: Brian J. Davis, RAA - Brian Davis & Associates - Brian has over 23 years of appraisal experience in Central, IL and hosts the Appraisal Scoop blog and the WinTOTAL Users Group an email forum for appraisers.
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