If a buyer pays for the appraisal during a loan, does the buyer own the appraisal? That’s a good question, and the quick and often frustrating answer is NO. The buyer does not own the appraisal because the buyer isn’t actually the appraiser’s client. I know that’s not always easy to digest, but let’s look at an appraisal report and consider some thoughts. Anything to add?
Three things to remember about the client in an appraisal:
1) The appraisal clearly defines the client: When we look at an appraisal report, the lender is always listed as the client during a typical loan. As you can see below, the buyer is not identified as the client. The buyer may have paid for the appraisal, but that does not change who the client is. Of course the buyer is intended as a user of the report, and is even legally entitled to a copy of the appraisal from the lender, but there is a difference between a user of the report and the actual client who engaged the appraiser to do a job. Keep in mind during a private appraisal a buyer could actually be the client, but that’s not the case with a typical loan.
2) The purpose of the appraisal: When looking at a different portion of the Fannie Mae appraisal form, the client is again identified as the lender. But we also see the purpose of the report is for the lender to evaluate the property and make a decision about the loan. Granted, the buyer might rely on the report when making a personal financial decision, but the end-goal of the appraisal isn’t really about the buyer. It’s about the lender (the client) figuring out if a loan is doable or not. So despite the buyer paying for the appraisal, we have to remember the appraisal is really a tool for the lender more than anything.
3) Buyer cannot take it to another lender: If you don’t believe the lender is the client, try getting an appraisal done and then switching lenders. See if the new lender will accept the appraisal from the original lender. It is very unlikely to see that happen, which reminds us that even lenders recognize the appraisal belongs to the other lender. This is why lenders typically will order a new appraisal or in some cases ask the original appraiser to do a new report in the name of the new lender. Keep in mind during a FHA transaction the appraisal sticks with the property instead of the lender, so that is an exception to this rule.
Why this matters: It’s common to hear things like, “I paid for the appraisal, so it’s mine,” or “The buyer paid for the appraisal, so I think it belongs to the buyer.” Let’s step back though and remember the appraiser is actually hired by the lender and is working for the lender – not the buyer. It’s easy to think appraisers exist to help buyers or even enable deals, but that’s not the role the appraiser was hired to perform. Also, appraisers aren’t trying to be rude by refusing to talk about value during a transaction. It’s just the appraiser’s client is the lender – not the agent, loan officer, home owner, or buyer. It wouldn’t be prudent for an appraiser to talk about value with someone who is not the client, so appraisers often tend to say, “I can talk with you more, but you’ll need to direct your communication to the lender / AMC, and I’ll respond through them.”
I hope this was helpful or interesting.
Questions: Does it make sense that the buyer is not the client during a loan? Is there a good metaphor for explaining this better? Anything else to add?
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No the buyer/mortgagor is not the client. The lender engages the appraiser directly or through an agent (AMC), the lender pays the appraiser directly or through an agent (AMC). The lender has a client relationship with the appraiser and is the intended user of the appraisal not the buyer/mortgagor. As a condition of considering to offer to make a loan the lender requires the buyer/mortgagor to REIMBURSE the lender for the cost of the appraisal. The cost of the appraisal the lender gets reimbursed for includes the administrative cost of obtaining the appraisal and the actual cost of the appraisal. Most if not all lending applications have a “Appraisal Report Delivery Disclosure” from the lender that the buyer/mortgagor must acknowledge. The disclosure says in part “Any written appraisal report(s) obtained in connection with your loan application was prepared solely for our use in evaluating a request for an extension of credit. The written appraisal report(s) should not be relied upon by you or any other person or entity”.
In the case of a purchase the meeting of the minds between the buyer and seller has occurred before the lender engaged the appraiser to produce an appraisal and the buyer and seller have already negotiated a purchase price and put it in writing. The buyer has already chosen to contract at a purchase price without engaging an appraiser to provide an opinion of market value.
Reimbursing the lender for the cost of the appraisal is not the same as paying the appraiser; nor is it the same as engaging the appraiser.
Unfortunately the misconception that the Buyer owns the appraisal often comes from uninformed and misguided Realtors. If we appraisers would take the time to teach Realtors the truth perhaps this myth would go away.
Bryan, this is great. Thank you so much for taking the time to write out a thoughtful response. My goal here is right in line with what you are getting at. I want to help clarify the truth. This post was actually spurred on by a conversation in one of my favorite local real estate Facebook groups this week. The conversation was a slightly different angle, but it definitely encouraged me to help shed light on the reality of who really owns the appraisal.
There is also a published legal decision showing that a borrower did not have any standing to sue an appraiser because the borrower was clearly not named as the client or intended user of the appraisal report. The decision is from a California court in 2014: Willemsen v. Mitrosilis Fourth District Court of Appeal, Case No. G050075
Thank you Bryan. I will check that out. Good to know.
Great response Bryan. You’ve brought up some very good talking points for appraisers to help explain to both buyers and agents.
Great post, Ryan. I believe this is the most misunderstood aspect of a purchase appraisal. Hopefully, by using Bryan’s excellent explanation we can help dispell this long-held myth.
Thanks Tom. I agree with you. This is very much misunderstood, though I can understand why Borrowers get angry too about this. I think one of the first things anyone who is angry can do is open up the appraisal and look at two things: 1) Who is listed as the client in the appraisal?; and 2) What is the listed intended purpose of the appraisal? (in other words, what is the reason for the appraisal and who is it for?). Understanding the nature of what the appraiser is hired to do is so key for this whole issue. I think for many years we forgot the role of appraisers in housing and viewed appraisers as an entity to simply enable the deal or “hit the number” so to speak. This is therefore a good opportunity to recognize the independent role of the appraiser. The appraiser is fundamentally not doing his/her job to help the buyer. The appraiser is hired by the lender. Bottom line.
Good morning, Ryan
This is an excellent blog post today.
Thank you for clarifying that the lender is the owner of the appraisal report and the client of the AMC/appraiser.
I enjoyed reading your blog post today.
You do a GREAT job.
Thank you
Sincerely,
Del Barbray
Broker Associate
HomeSmart ICARE Realty
Cal BRE #01049232
(916) 521-9229
Thank you Del. I always appreciate your encouragement. I’m grateful to know you.
Fantastic article Ryan! I appreciate you clear and logical approach when explaing these things. I also appreciate the words you choose that always shows respect for all parties involved. A sign of a true professional! Your approach sets a fine example for all in our profession.
Thank you Jamie. Your words are very kind. Thank you sincerely. Let’s reek of professionalism as we talk through issues and topics. That’s my hope. 🙂
Hi Ryan,
So if the seller wishes to request a copy of the appraisal report, then technically the request would need to be submitted to the lender?
Hi Bill. That’s a good question. The lender is legally obligated to provide a copy of the appraisal to the buyer, so I think the buyer is going to be the best bet. As loan officers could very likely attest to, the lender will not be giving a copy of the report to someone who is not their client (the seller). Thus it is a best practice to simply ask the buyer. Some agents state the seller is entitled to a copy of the report, but I’d be curious to hear what CAR has to say about that (or lawyers) since the report really belongs to the lender.
In the RPA there is a clause that requires that the buyer supply any report or inspection of the property to the seller. Page 5 12. B. Seller shall make the Property available for all Buyer Investigations. Buyer shall (i) as specified in paragraph 14B, complete Buyer Investigations and either remove the contingency or cancel this Agreement, and (ii) give Seller, at no cost, complete Copies of all such Investigation reports obtained by Buyer, which obligation shall survive the termination of this Agreement.
Thank you Mark. I appreciate you pasting the text of the RPA. I have always wondered if CAR thinks this means the buyer owns the appraisal or not. The thing that distinguishes the appraisal from other reports is that the buyer does not actually own the report, nor does the buyer initiate the appraisal process. The appraisal is “investigation” being done and initiated by the lender. Though I think the wording “obtained by buyer” might be the answer here. Here’s the thing. Even if CAR thinks the buyer owns the report, that does not change ownership as I’ve explained in this post. I would love to hear a response from CAR and to know if they think the lender owns the appraisal or if the buyer does.
Thanks again Mark.
Hi Ryan, I’m sorry I wasn’t clear in my reply. I had simply stated that the buyer is obligated to supply any inspection or report he obtains to the seller. I made no observation about ownership of the appraisal. The lender is required to supply a copy of the appraisal to the buyer so I believe there could be an argument made that the seller would be within his rights to ask the buyer for the copy of the appraisal. Let’s say for instance the original deal fell thru and the seller then has a duty to supply any inspections/ reports to the potential buyers in the future. Just as a FHA appraisal follows the property for any buyer even though they didn’t order or pay for the appraisal. The appraisal would probably be ranked as one of the most important material disclosure that could be offered to prospective buyers. BTW…….I agree with your position on “ownership” of the appraisal, I’m just trying to supply another tangential aspect to the discussion.
Thank you Mark. I completely understand where you are coming from. I think ownership of the appraisal is very clear, though to some it may seem less clear in light of CAR language in the RPA. But even with clarity on who owns the appraisal, I think you are correct about the practical nature of appraisals being shared. My question to CAR is whether the appraisal belonging to someone else can rightly be included in buyer documents? I would very much like to hear from a CAR lawyer on that one. Being that CAR is in the business of property rights I would think the rights to who owns the appraisal would matter. But that’s just me…. 🙂 Thank you again. I appreciate you enhancing this post.
Very interesting, and something I’d never even considered – I thought it was common knowledge that the lender owns the appraisal! I can see how someone could easily make that mistake, though.
Thanks Sarah. I appreciate your comment. I think it’s commonly not understood. I can’t blame anyone either because when we pay for something we expect it to be ours. I get that. It’s just there is more to the story that we have to understand when it comes to the ownership of appraisals. It’s not just like walking into the store, paying for something, and then instantly owning it.
Hi Ryan,
Thank you for the post I just had a fight with my client I showed him the post and showed him that buyer cannot take it to another lender. He was shocked to learn this. Thank you again 🙂
Sure thing. I had someone email me this morning about this. I wonder if it was the same person. It can be shocking to some buyers, but this is how it works. Granted, FHA is basically portable to another lender, but not conventional at this time anyway.
Although an FHA appraisal is technically portable to another lender (mortgagee) or even a different borrower, FHA understands the client relationship and altering the appraisal being transferred is not possible without the appraiser violating USPAP. Just because you can do something does not mean it is prudent to do it.
Per FAQ from HUD:
Question
Can the new Mortgagee require corrections/inspections from the appraiser on a transferred case?
Answer
In cases where a Borrower has switched Mortgagees, the first Mortgagee must, at the Borrower’s request, transfer the appraisal to the second Mortgagee within five business days. The Appraiser is not required to provide the appraisal to the new Mortgagee.
The client name on the appraisal does not need to reflect the new Mortgagee.
If the original Mortgagee has not been reimbursed for the cost of the appraisal, the Mortgagee is not required to transfer the appraisal until it is reimbursed.
The second Mortgagee may not request the Appraiser to re-address the appraisal. If the second Mortgagee finds deficiencies in the appraisal, the Mortgagee must order a new appraisal.
For additional information see Handbook 4000.1 II.A.1.a.iii(B)(8) at https://www.hud.gov/program_offices/administration/hudclips/handbooks/hsgh
Thanks Bryan. Yeah, it’s a good thing appraisers don’t have to answer to the new client. Though the appraisal can clearly transfer. That’s what I was trying to communicate in my response here.