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?