By John Dudley
Generally, the lender, not the borrower, is in charge of arranging an appraisal for a new home purchase. This poses problems for the borrower, as the lender won’t lock a mortgage value until the property has received an appraisal, and even then, the appraisal is only of value to that particular lender.
DOES THE RULE NEED TO CHANGE?
A portable appraisal, held by the borrower, would allow the mortgage process to move faster, thereby allowing the borrower to apply with several lenders and find the best rate.
This is already the norm in commercial property investments. Why not home purchases?
PUTTING APPRAISALS BACK IN BORROWER HANDS WOULD GIVE THEM MORTGAGE SHOPPING OPTIONS
If a borrower had a portable appraisal, he could visit several lenders, ask for a firm loan offer, and then choose the one he wanted based on the value that works best for him. Of course, there would then be a risk that the borrower could walk away from all the proposed loan offers, which then means the banks could be out a few dollars for forming the quotes. This could be remedied with a nominal application fee, so borrowers would likely stick with 2-3 banks. Online mortgage markets also exist, just like those for insurance, and those fees are often part of the marketing budget for lenders.
LENDERS NEED FAIRNESS TOO
One way around this issue could be something called a lock fee, where borrows agree to pay the fee by their chosen lender. The lock fee would prevent the borrower from walking away should interest rates worsen and starting from scratch.
YOU ALMOST NEED TWO APPRAISALS
The issue is that right now, it's almost better to get the same home appraised twice. If a homeowner in a refinance situation, for instance, gets an appraisal before even consulting the bank, the minor cost may result in a much clearer lens when shopping for a refinance package. If, for instance, the bank's opinion of the home's value is significant different than what an independent appraisal might produce, the overall cost to the homeowner in interest rate or lost equity could be enormous.
If a borrower gets a home appraisal on his own, to determine market value, it isn't usually acceptable to the lender. Lenders require that home appraisals are done in the institution’s name, so an appraisal done by the homeowner wouldn’t work under the current rules.
However, there’s no guarantee that the appraisals being paid for by lenders are a true reflection of the value of the home; many times, the home appraisal is done by a company in which the lender may have a degree of financial interest, or by an appraisal management company with inexperienced appraisers doing these things in assembly line fashion. This, of course, means that the appraisal is not necessarily done from an unbiased view, and the homeowner is on the hook for any ultimate cost in terms of equity or credit.
Lenders are consumers too. Protecting the consumer should be the first order of business for any lending company, and there are current issues in the current home appraisal system that could be remedied in order to offer greater consumer protection to the borrower.
By changing the rules to allow the borrower to find a qualified appraiser of his choice to do the appraisal, the borrower then has greater consumer control and protection. Having a portable appraisal would only result in two new disclosures, a uniform offer sheet so borrowers can easily compare lenders, and a lock confirmation. Both of these forms would allow for greater appraisal security and greater choice for the borrower, and in reality, the borrower should be protected throughout any purchase agreement.