SAN FRANCISCO – Ordering an appraisal? You can limit your liability if you know exactly what to ask for and you explain clearly who will see it.
That was an important lesson 130 mortgage brokers and lenders learned Thursday from a session on appraisals at the California Mortgage Association’s spring seminar, which continues today.
During “Appraisals: What you know vs. what you need to know,” Paul Chandler, founder of Property Sciences Appraisal Group, and Mitchell Feinstein, chairman of the board of Budget National Finance, focused primarily on commercial property appraisals, but the ideas they presented applied to residential real estate lending as well.
Chandler and Feinstein urged attendees to know the different types of appraisals that are available and to make sure they order the correct one. They also should state clearly in an appraiser’s retention letter how the appraisal will be used and everyone who may see it. For example, if the lender plans to fund the loan initially, then sell it later, the appraisal letter should state that others may see the appraisal later on.
Those steps could help to limit the lender’s liability by making it clear the appraiser knew exactly how the appraisal would be used and by whom, they said.
The audience laughed when Chandler told them what they knew already about appraisers: They like to use acronyms, they need a license and they have opinions. Some nodded in agreement when s he said appraisals should be only one tool used in deciding whether to underwrite a loan.
And, he said, it’s important to keep in mind that an appraisal is a tool that tends to come in with high estimates.
“You have an industry bias to be high,” Chandler said. “That’s the way this industry works.”
Chandler drew some criticism when he said appraisers like to know what the broker or lender wants to do with the loan and how risky it is. Chandler said he personally wants to know as much as possible, including what type of loan program will be used.
“I sort of feel that as a lender, I don’t want an appraiser to be concerned so much with what I’m doing, with the loan-to-value or the credit of the borrower,” Ron Wachter with Wachter Investments said after the session. “That’s sort of my decision. I want the appraiser to appraise.”
Wachter said he rarely uses an appraisal to determine whether he should underwrite a loan and instead runs his own comparable sales report on each property. Still, he said, it’s helpful to know what to be aware of when an appraisal is necessary.
George Eckert, VP of The Money Brokers, said although some of the report types between commercial and residential appraisals can differ and licensing requirements can vary, the basic principle is the same: “An appraisal is an appraisal regardless of what you’re appraising.”
Eckert said he’d take away several thoughts from the session: Be aware of an appraiser’s experience level, the types of reports available and the limits on an appraiser’s liability and understand what he’s actually paying for when he obtains an appraisal.
“Know the limitations on the appraisal and shop around,” Eckert said.
The California Mortgage Association represents mortgage brokers/lenders through legislative review and reform and on-going education.
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