Window to the Law: Working with Appraisers

Window to the Law: Working with Appraisers: Transcript

Like many children, I believed you should never be in the dark and say Bloody Mary three times to a bathroom mirror. When my friend told me the story, she pointed to a classmate who had a large scratch on his face and said, “Look at what happened to him.” Years later, I learned that the kid had actually gotten the scratch from falling off his bike.

Some real estate agents and appraisers can feel like they’re in the dark in front of a bathroom mirror when faced with communicating with each other. This comes from the misconception that real estate agents and appraisers cannot speak to each other during the appraisal process. A real estate agent or an appraiser may have heard horror stories about bad behavior or misdeeds leading them to think they’ll get into trouble or that it’s just safer to not do it. But in reality, real estate agents and appraisers should be having proper and professional communication with one another. This communication ensures that the appraiser can receive helpful and relevant information about the property from the real estate agent which helps lead to a good appraisal.

In this Window the Law, I will discuss the regulatory background of appraiser independence rules, the different roles of appraisers and real estate agents, and then cover some best practices.

The appraiser independence rules came about after the housing crash in 2008 when many complaints were raised about the need for greater appraiser independence. Appraisers expressed concern about being pressured by parties with interests in the real estate transaction and that new rules were necessary. In 2010, Congress enacted the Dodd-Frank Wall Street Reform and Consumer Protection Act which contains provisions that require appraisers to be free from influence or pressure from parties with interests in the transaction and to use their independent professional judgment in the home valuation. Some examples of a party with an interest in the transaction are the mortgage lender, mortgage broker, real estate broker, and an appraisal management company.

Next, it’s important to know that appraisers do not represent any party. A real estate agent has the duty of loyalty which requires the agent to serve in the role of representing and acting in the bests interests of the client. In contrast, the appraiser’s role, in spite of who pays for the appraisal, is to be an independent third party and to only come up with the best appraisal of the property. The appraiser does not represent or serve any party’s interest.

what is proper communication between a real estate agent and an appraiser? It is completely appropriate for a real estate agent to provide helpful and relevant information for the appraiser’s consideration such as the terms of the sale like a copy of the sales contract, applicable comparable sales, evidence of notable renovations or the house maintenance records. Information should be presented only for the appraiser’s consideration. Conversely, the appraiser shouldn’t be told how to use information or how to do the appraisal. An appraiser shouldn’t be told what weight to give comparables or what adjustments to make. Also the appraiser shouldn’t be told a desired value for the property or the amount of the loan. And a real estate agent should never try to intimidate or bribe an appraiser by promising work or threatening to take it away.

Here are some best practices. The real estate agent should be the one who lets the appraiser into the property. This provides an opportunity to answer any questions or to provide any helpful information. Real estate agents should be clear about their intent in all communications to avoid any risk of the appraiser misinterpreting the actions as an attempt to improperly influence the appraisal. Remember good information helps ensure good appraisals to aim to be a resource for the appraiser. Never boycott or publicly disparage an appraiser. This raises legal issues including possible defamation. When your client is selecting a lender, advise your client about any potential issues and your experiences. Not all lenders are the same and it can be an issue when there needs to be communication about any issues about the appraisal. And lastly, always be professional and courteous. This will prevent many issues and is better for you and your client.

Thank you for watching this episode of Window to the Law.