Federal regulations dictate how lenders and appraisers must act throughout the appraisal process. After the housing crisis, the government wanted to increase appraiser independence to prevent the possibility of lending based on inflated home values. The Dodd-Frank and Truth in Lending Acts now require appraisals to be “conducted independently and free from inappropriate influence and coercion.”
An appraisal is a licensed or certified professional’s opinion of a home’s value provided by a disinterested third party. The appraiser gets paid for providing the service of valuing your home, but can’t have any personal interest when it comes to whether you’re able to refinance as a result of the value he or she arrives at. In a refinance transaction, the appraisal protects the bank by ensuring that it doesn’t lend the borrower more than a certain percentage of what the property is worth. If the property later goes into foreclosure for any reason, the lender wants to be able to resell the property and cover its losses.
Generally the appraiser visits your home for around a half hour to measure its dimensions and evaluate its overall condition both inside and out, taking photos of the exterior and every interior room. He or she then examines the records of properties similar to yours—ideally properties in your neighborhood that have sold recently. Based on the home visit and these records, the appraiser arrives at a professional opinion of how much your property would sell for if you put it on the market. The bank uses this value—along with your income, assets and credit history—to determine if you will be approved for the loan you are requesting.
Because federal appraiser-independence requirements define a narrow scope of acceptable interactions between appraiser and loan officers, lenders are afraid that having any contact with appraisers could be construed as violating the law by attempting to influence the appraiser’s opinion before the appraisal is completed. Lenders should err on the side of caution to avoid the possibility of severe disciplinary action. Loan officers and brokers cannot select the appraiser, nor can the borrower. Borrowers also can’t submit an appraisal that was performed for a different lender, though they “may tell the bank that another appraisal exists, and the bank can request the appraisal report directly from the other institution.”
The lender often will order the appraisal through a third party called an appraisal management company (AMC). Using an AMC is not a requirement, but this is common in many areas. Many lenders—especially small, local ones—have direct referral relationships with a small panel of appraisers and don’t use an AMC or the lender may have an in-house independent appraisal department. The appraiser should have local knowledge of the area and is expected to follow the Uniform Standards of Professional Appraisal Practice issued by the Appraisal Foundation.
Since lenders cannot discuss a home’s value or anticipated “target value” with an appraiser at the time of assignment, homeowners really cannot get an appraiser’s ballpark estimate of whether their home is likely to appraise high enough for them to refinance before they pay for the service as they could before the new regulations. But what you can do is search for recent comparable sales on websites such as Zillow or Trulia, though their records may be incomplete.
Eli Garfinkel of Funding Resources Mortgage Company is an experienced and reputable loan officer. With a list of extremely satisfied clients, Eli specializes in great customer service and dealing with complex cases. Eli is available to answer any mortgage questions, without any obligation. Eli can be reached by phone or text at 732.278.6526 or via email [email protected] or in the office at 732.364.7373 ext 22.
By Eli Garfinkel
