As parties to a mortgage transaction contingent upon an appraisal, borrowers, and lenders often struggle with a dilemma when they are unhappy with the results of appraisal: “Should I get a second opinion?” A quick internet search delivers thousands of results for advice and strategies on how to battle “low” appraisals, however few of them adequately convey practical “rules of engagement” for why, when, and how one should go about getting a second appraisal, within state and federal regulatory parameters. Let this be your guide.
Why should you get a second appraisal?
When considering second appraisals for mortgage transactions, there are generally only four acceptable reasons why you can get a second appraisal:
- There is a reasonable basis to believe the original appraisal is flawed or tainted
- The original appraisal is dated/too old
- The lender’s client requires a second appraisal per a bona fide policy or process
- A second appraisal is required by law.
1.) There is a reasonable basis to believe the original appraisal is flawed.
This means that if there is verifiable evidence that demonstrates material errors in the original appraisal affected the assignment results, and a second appraisal may be warranted. Also, if there were any verifiable circumstances that may have tainted the appraisal process, for instance, conflicts of interest or undue influence, a second appraisal may be needed. This does not mean that a second appraisal is automatically needed because the appraiser made a few minor errors or omissions that had no material effect on the opinion of value, nor does it mean that because the appraiser did not “meet” the contract price that the appraisal is necessarily flawed. It must be demonstrated using verifiable, substantial evidence that there is a reasonable basis to believe the original appraisal was flawed or tainted to the extent that the assignment results were affected.
2.) The original appraisal is dated/too old.
Often an appraisal is completed for a mortgage transaction that, for some reason or another, was delayed in the process. Because value opinions are based on the buying and selling of real estate in the market area and neighborhood, the effective date can be a factor. Most lenders/loan programs have established policies that dictate the maximum age of appraisal reports, which typically ranges anywhere from 120 days to 12 months. If the appraisal is “dated,” you might need to order a second appraisal.
3.) The lender/client requires a second appraisal per a bona fide policy or process.
Lenders are required to order a second appraisal for a pre-established bona fide pre- or post-funding appraisal review or quality control processes and/or underwriting guidelines that dictates it’s acceptable and/or required. This often includes policies regarding “flawed” appraisals, discussed in the first reason stated above, but often risk-based policies that require second appraisals (for higher risk properties, loan amounts, borrowers, etc.).
Important Note: In most instances where a second appraisal is required, the lender adheres to a policy of selecting the most credible and reliable appraisal, not the one with the highest value.
4.) A second appraisal is required by law.
This is rather cut and dry. Although not the norm, there are instances where a second appraisal is required by law. Again, in these instances, the lender adheres to a policy of selecting the most credible and reliable appraisal, not the one with the highest value.
So, how do you get a second appraisal?
Because the lender is the client of the appraiser, any appraisal disputes must be dealt with directly through the lender (appraisal, credit, or collateral risk department) who will then deal directly with the appraiser or the appraisal management company (AMC) who, as an agent of the lender, contracted the appraiser. Lenders and AMCs typically have established reassessment/reconsideration processes to address appraisal concerns. Borrowers should never reach out directly to the appraiser. The borrower is NOT the client of the appraiser, so the appraiser is not permitted to discuss assignment results directly with anyone but the client or parties legally authorized by the client. And, while you might reach out to your agent for assistance in gathering data/information to support your case, the agent should not contact the appraiser directly to dispute the appraisal. All communication should be directed through the lender’s reassessment/reconsideration process.
Important Note: If there are flaws in the appraisal, they will likely try to cure them first—and will likely procure a second appraisal only after the original appraisal is considered incurable or unacceptable.
When to get a second appraisal?
Quite simply, as soon as possible. Not only is the mortgage loan process time-sensitive, but you may also have purchase contract obligations and there may be legal limits on how long you have to request additional information from the original appraiser through a lender (or AMC’s) reassessment/reconsideration process. Typically, you should start the process as soon as you have concerns and resolve the dispute within 30 days.
Have more questions on second appraisals or your appraisal process? Get in touch with our team. We’d be happy to help.