When talking to appraisers and other real estate professionals, I often hear that it is the job of an appraiser to protect the bank. In my judgment, this is not true. An appraiser’s job is to develop and report opinions of value and to protect the public’s trust by complying with the strict Uniform Standards of Professional Appraisal Practice (USPAP).
Bank Underwriters are required on most loans to use an appraiser’s opinion of value as a way to determine if there is sufficient collateral for the loan. An appraisal is only one factor in many that helps a lender determine the overall risk of a loan. Banks themselves (and bank regulators) protect the bank’s and the public’s interest.
This begs the question, “If an appraiser’s job is not to protect the bank, then why do appraisers ask for repairs or inspections when performing an appraisal on a home for the mortgage?” Appraisers “call out” repairs because lenders have internal and regulatory guidelines that require minimum property condition standards prior to funding most loans. When a property has a condition that fails the minimum requirements set out by the guidelines, then the appraiser typically conditions the appraisal report for a repair.
Appraisers can value a property both “subject to” or “as is”. A “subject to” appraisal is based on a hypothetical condition that a repair has been made. Most lenders do not want to loan on a home with defects that may cause harm to the occupants or to the structure if left unattended. This is because a home that needs no repair makes a less risky loan in terms of both liability and repayment. Therefore, with appraisals for loans, the appraiser will typically make note of these issues and make the appraisal report “subject to” repair or further inspection. Typically, the loan cannot fund until the “subject to” repairs are made or when further inspection finds that repairs are not necessary.
Did I leave anything out or do you want to join in the conversation? Let me know in the comments below.
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