There is NO legal mandate which stipulates that the lender must make the decision for you who you hire either as a home appraiser, home inspector - termite inspection company, title or escrow company, settlement attorney, homeowner's insurance company, or any other service provider involved in connection with the sales contract and closing on the purchase or re-finance of a property. Where the borrower or purchaser is paying for all those services themselves they have an inherent right to choose or select who they want.
Typically your average home purchaser would not know all those service providers and the lender or real estate agents end up making the referrals or recommendations for their client as part of their "concierge" services in closing the deal; but there is no mandate that you have to use "their people" -- especially when you are paying for it all. The laws governing all this are referred to as "RESPA" or the Real Estate Settlement Procedures Act which prohibits, bans or enjoins a lender or mortgage broker from telling you there is a "required use" of their affiliated real estate settlement service providers or "controlled business arrangements".
If you are concerned about the quality of a home valuation appraisal you will be paying for, and you want to legally circumvent the convoluted HVCC lender appraiser assignment process; order it and procure it yourself! If a lender or mortgage broker tries to tell you that the "underwriter" wont accept or allow it, ask them to show you where it says that in "RESPA" under Title 24 of the Code of Federal Regulations (CFR) which governs how mortgage brokers or lenders operate. If they want to choose the appraiser, then insist THEY PAY FOR IT !
The assignment of the appraiser through Freddie Mac & Fannie Mae's Home Valuation Code of Conduct or "HVCC" guidelines applies only where the lender orders the appraisal. HVCC was designed to eliminate collusion or influence between the lender and the actual appraiser by cutting off communication and the process of direct referrals or "steering" to one particular appraiser by the lender. This was at the heart of the whole sub-prime lending debacle where appraisers were in "cahoots" with lenders in over valuing property or "rubber-stamping" appraisals so the loan could go through.HVCC's legal mandates DO NOT apply, however, where a borrower (in a purchase or re-finance) or homeowner who is selling his property orders or requests the appraisal themselves. As stated above, if you're paying for it, you have a right to choose who YOU hire to conduct the valuation of your property or the property you are contemplating buying. And remember, even if the lender orders or requests the appraisal (and you are paying for it), the appraiser is working for YOU, not for the lender; so they owe you (not the lender) the duty of professional responsibility -- the appraiser is accountable to YOU not the lender.
If you do end up going with an HVCC controlled appraisal where the lender orders or requests it, here are some other things and factors to consider (in addition to what I just said above):
Unless you've got beaucoup, or at a minimum 5 recent (within past 6 moths) sales comparables or "comps" in a cookie-cutter condominium, townhouse or homogeneous single family home neighborhood; an appraisal is still an OPINION of value - and a rebuttable one at that.
Now throw in all the foreclosures, short-sales, REO (bank owned), trustee or other "distress" sales; and you could have a real quagmire on your hands (pun intended).
And to make matters regarding your appraisal even more murky is the new Home Valuation Code of Conduct (or "HVCC") where lenders are required to farm your appraisal out to an Appraisal Management Company (or an "AMC") who then re-assigns your home valuation to one of their appraisers. Often times the appraiser is not from your local area nor familiar with homes or properties where the subject property is located. Additionally, because the Appraisal Management Company (or the new middle man in this process) is going to take a cut from the appraiser of the total amount of the appraisal fee that the borrow or homeowner is paying for the appraisal, this lowers or reduces his/her net gain from the assignment from what they otherwise might have made if they were getting the assignment directly from the lender and acting in the capacity of a sole proprietor, rather than now as a sub-contractor of the "AMC".
And to make matters regarding your appraisal even more murky is the new Home Valuation Code of Conduct (or "HVCC") where lenders are required to farm your appraisal out to an Appraisal Management Company (or an "AMC") who then re-assigns your home valuation to one of their appraisers. Often times the appraiser is not from your local area nor familiar with homes or properties where the subject property is located. Additionally, because the Appraisal Management Company (or the new middle man in this process) is going to take a cut from the appraiser of the total amount of the appraisal fee that the borrow or homeowner is paying for the appraisal, this lowers or reduces his/her net gain from the assignment from what they otherwise might have made if they were getting the assignment directly from the lender and acting in the capacity of a sole proprietor, rather than now as a sub-contractor of the "AMC".
What is the result of all this, and why should you care or be concerned ? Because if the appraiser is: 1) not familiar with your market area by having regularly conducted appraisals there for some time or have acquired some "institutional knowledge" of the subject property's unique neighborhood and market dynamics, 2) is being paid less because they are now forced to work through or get assignments from an "AMC", and 3) is often rushed in their turnaround time frame to complete their full appraisal report (which entails an inspection of the subject property, review of recent sales comparables through MLS, completing their review and analysis of your property's salient features or characteristics as they compare to recent sales comparables, and analyzing the overall area and conditions in the vicinity of the subject property that could affect or impact value; i.e. "the big picture") -- chances are very high that the QUALITY of the final analysis and opinion of value rendered by the appraiser is going to be diminished and the appraisal or final opinion of value could come back significantly lower than actual or true fair market value of your property, or the property which you are contemplating purchasing and have put a contract on. That could work to your benefit if you are the buyer in negotiating a lower contract sales price with the seller, but what if you are the seller or you are re-financing ? Then this is most definitely disconcerting.
Caveat Emptor -- let the buyer beware. If you are purchasing a property or re-financing, your lender will more than likely order the appraisal for you (assuming you do not know one or could not simply look in the Yellow Pages directory and request one yourself) and will charge you for this either up front, or as part of closing costs "POC" (paid out of closing). Chances are also very likely that the lender will also tack on a little "processing fee" on top of what the Appraisal Management Company actually charges, and pass that on to you. BOTTOM LINE IS however, that YOU ARE PAYING FOR IT ! And.... if you are paying for it, shouldn't you also have the right to choose which appraiser or company you want ?
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