Compiled below are the most common myths from lenders, borrowers, real estate brokers, and home builders. Whether you’re a first-time homebuyer or a real estate professional with years of experience, you could be surprised.
An appraiser and lender cannot communicate before, during, or after an appraisal is complete.
Not only are lenders permitted to communicate with appraisers, but its a must in some situations. It is essential to communicate and exchange appropriate information.
Nothing can be done if a lender has concerns or questions regarding a completed appraisal.
If there are questions or concerns with an appraisal, there are concrete steps lenders can take, such as submitting additional comparables for the appraiser to consider or requesting the appraiser to correct any errors in the appraisal report. The lender can also ask the appraiser to provide further details to explain their conclusion.
Lenders must use an Appraisal Management Company or (AMC), an independent real estate appraisal company hired by a lender to perform valuations on potentially mortgaged properties to order an appraisal.
Lenders can engage an appraiser directly. To avoid any potential influence on the appraiser, the lender usually has certain required safeguards in place. Such as, the person at the lending institution selecting the appraiser cannot be the same person that will approve the loan.
Appraisal Management Company (AMC) is necessary to ensure that appraisers are not influenced by the lender.
Regardless of whether an AMC is ordered or not, the lender is not permitted to influence the value of a home. All licensed, certified appraisers are required by law to follow strict guidelines to guarantee an unbiased and meaningful analysis of value.
The appraiser is hired by the borrower.
Appraisers are hired by lenders, but the borrower will be responsible for the cost of an appraisal.
The money placed into home improvements will translate dollar-for-dollar into a higher appraisal.
The value of any improvements is based on what the market is willing to pay for them at the time of sale. The investment into a home improvement project may add value to a home but may not necessarily correlate to the cost. Some renovation projects may not positively impact property value.
Appraisers set the value of a home.
An appraiser’s role is to create an opinion of value that reflects the current market and comparable homes in the area.
Appraisers and home inspectors perform the same function.
An appraiser provides an objective, unbiased analysis so the lender can better understand the value of a property. The inspector is usually hired by the borrower to perform a visual examination of the physical structure and systems of a home to ensure the structural integrity of the property. Both provide crucial information on the home, but their roles are very different.
Real estate brokers are prohibited from communicating with appraisers.
Brokers are permitted to communicate with an appraiser and provide them with additional information as long as the communication is not intended to influence the outcome of the appraisal. The exchange of relevant information, including terms of the sale, comparables, and any home improvements that could help an appraiser develop a more accurate opinion of the value.
Nothing can be done if a broker has questions or concerns regarding an appraisal.
If there are questions or concerns with an appraisal, brokers can submit additional comparables for the appraiser to consider, request the appraiser correct errors in the report, and ask the appraiser to provide further details to explain their conclusion.
Appraisers request copies of the purchase agreement so they will know how much to appraise the home.
Appraisers are required to review the purchase agreement to fully understand all of the agreements and terms in the contract. Appraisers don’t simply look at a pending sale price and try to justify the transaction. They perform research and analysis to provide their own opinion of value.
Home builders are prohibited from communicating with appraisers.
Builders are also permitted to communicate with an appraiser and provide them with any additional relevant information as long as the communication is not intended to influence the outcome of the appraisal. Relevant information such as the construction features, details, and any upgrades that can help an appraiser.