Portland Area Real Estate Appraisal Discussion

The Job of an Appraiser is NOT to Protect the Bank
August 14th, 2015 2:02 PM

Appraisers Do Not Protect Banks

When talking to appraisers and other real estate professionals, I often hear that it is the job of an appraiser to protect the bank.  In my judgment, this is not true.  An appraiser’s job is to develop and report opinions of value and to protect the public’s trust by complying with the strict Uniform Standards of Professional Appraisal Practice (USPAP). 

Bank Underwriters are required on most loans to use an appraiser’s opinion of value as a way to determine if there is sufficient collateral for the loan.  An appraisal is only one factor in many that helps a lender determine the overall risk of a loan.  Banks themselves (and bank regulators) protect the bank’s and the public’s interest.

This begs the question, “If an appraiser’s job is not to protect the bank, then why do appraisers ask for repairs or inspections when performing an appraisal on a home for the mortgage?”  Appraisers “call out” repairs because lenders have internal and regulatory guidelines that require minimum property condition standards prior to funding most loans.  When a property has a condition that fails the minimum requirements set out by the guidelines, then the appraiser typically conditions the appraisal report for a repair. 

Appraisers can value a property both “subject to” or “as is”.  A “subject to” appraisal is based on a hypothetical condition that a repair has been made.  Most lenders do not want to loan on a home with defects that may cause harm to the occupants or to the structure if left unattended.  This is because a home that needs no repair makes a less risky loan in terms of both liability and repayment.  Therefore, with appraisals for loans, the appraiser will typically make note of these issues and make the appraisal report “subject to” repair or further inspection.  Typically, the loan cannot fund until the “subject to” repairs are made or when further inspection finds that repairs are not necessary.

Did I leave anything out or do you want to join in the conversation?  Let me know in the comments below.

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Thanks for reading,

Gary F. Kristensen

Posted by Gary Kristensen on August 14th, 2015 2:02 PMPost a Comment

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Great points as usual Gary. I love the graphic! Jeff

Posted by Jeff Hamric on August 14th, 2015 2:13 PM
Nice graphic, Gary. I like "Bankbo", especially since I have a cat named Rambo. :) I agree that public trust comes before anything, though obviously the bank is using the appraisal to decide whether to loan or not, which is the personal interest of the bank.

Posted by Ryan Lundquist on August 14th, 2015 2:15 PM
To protect the bank or any client could be argued that the appraiser is biased. The appraiser is only an advocate for the quality and credibility of their work product and work file. In that sense, it's a round-a-about way of also protecting your client.

Posted by Joyce Potts, SRA, AI-RRS on August 14th, 2015 2:18 PM
Thank you for the comments Ryan, Jeff, and Joyce. Jeff, thanks for following. Ryan, how did I know you have a cat named Rambo? Very well said Joyce, I've never thought about the appraiser being bias if they feel their job is to protect the bank, but I think that is true.

Posted by Gary Kristensen on August 14th, 2015 2:52 PM
Great post and guilty as charged. I have considered my job as an appraiser is "to protect the bank". Thanks for expanding my thinking.

Posted by Casey Lyon on August 14th, 2015 3:07 PM
Thank you Casey for the comment and for following.

Posted by Gary Kristensen on August 14th, 2015 3:14 PM
Most loan originators on the front end are not familiar with the guidelines, thus perpetuating the misconception that the appraiser is the one who requirers abc or xyz to be repaired.

Posted by John Tsiaousis on August 14th, 2015 4:01 PM
Excellent post Gary. Most people see the job of the appraiser as supporting a sale price or loan amount. Not only loan officers by the way. Many Realtors and the general public see us in that light. I agree with you that the job of the appraiser is to develop and report an informed third party independent option of value. By adhering to USPAP we help protect the public interest. But it is not our job to protect the public interest. That is just a byproduct of doing our job correctly and complying with USPAP.. Unfortunately when doing lender work we are often called upon to do more than providing an opinion of value such as reporting code compliance issues (water heaters,smoke detectors, CO detectors etc) and whether a property meets HUD minimum standards. Those sorts of duties help to confuse the public as too our actual job which is, as you said, "to develop and report third party independent opinions of value." Thanks again Gary for setting the record straight.

Posted by Tom Molinari on August 15th, 2015 9:04 AM
I guess the better way to phrase it is that banks use appraisers to protect their banks interest. I have used the phrase you mentioned before but you do make a great point that it's really the bank that is protecting their own interests.

Posted by Tom Horn on August 15th, 2015 4:39 PM
Great points John, Tom M, and Tom H.

Posted by Gary Kristensen on August 16th, 2015 10:55 PM
Another great post Gary. Once again, it's no wonder why AQuality Appraisals is the leading Portland Appraisal Company. Appraisers also need to keep in mind they have to protect themselves as well as it's no longer a matter of if the powers that be come calling to look at your reports and workfiles...but when.

Posted by Roy Meyer on August 17th, 2015 8:44 PM
Thank you Roy for the comment. I hope you're wrong, but I think you're right. Most appraisers know someone who has had trouble.

Posted by Gary Kristensen on August 17th, 2015 10:44 PM
Great post Gary.

Posted by Rob Meadows on August 25th, 2015 4:17 PM


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