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[TRESinc]

In your hypothetical, the car dealer is the seller.

In a real property purchase, the lender initially foots most of the bill of course. Over time though, the buyer typically repays far more than the principal amount. In my opinion, the buyer should be equally if not more interested in ensuring they get a good deal than the lender. The buyer is more invested (again imo), especially if the purchase is for the buyer's home.

Of course, you will always have unscrupulous buyers. Lenders could put safeguards in place to ensure the buyer commissions an unbiased appraisal. Then there is also USPAP.

Just my 2 cents after going through the process.

exactly, the borrower wants a good deal on the purchase price, thus they are biased and cannot be allowed to hire the appraiser. as stated the appraisal is not performed for/on behalf of the borrower, it is performed for the entity loaning the money. everyone else in the transaction is a biased party.

 

[techbiker]

exactly, the borrower wants a good deal on the purchase price, thus they are biased and cannot be allowed to hire the appraiser. as stated the appraisal is not performed for/on behalf of the borrower, it is performed for the entity loaning the money. everyone else in the transaction is a biased party.

It appears lenders also have incentives, albeit less obvious ones. They aren't just innocent bystanders in my opinion.

Since the lender's goal is to achieve the highest return on investment on their loans, they should favor the safest loans that also yield the highest margin. For sake of argument, let's assume that lenders are sufficiently large to lend any reasonable amount. Example: Given two equally "safe" loans at the same interest rate, a lender should favor the larger one. Their fixed costs are relatively equal for both.

I wouldn't be surprised if appraisals commissioned by lenders tend to be slightly more optimistic. As long as the buyer is happy paying more than market value (and is capable), wouldn't a lender tend to favor a slightly higher value?

It seems the buyer is one of the only players who has an incentive to seek a lower "value". Correct me if I'm wrong.

 

[Meandering]

I wouldn't be surprised if appraisals commissioned by lenders tend to be slightly more optimistic. As long as the buyer is happy paying more than market value (and is capable), wouldn't a lender tend to favor a slightly higher value?

Surf up e-appraisal, countrywide, appraisal scam.

 

[TRESinc]

It appears lenders also have incentives, albeit less obvious ones. They aren't just innocent bystanders in my opinion.

of course they have incentive, however they are the ones who also have the risk - it is their money you are borrowing. while they may advertise the borrower makes the decision to attempt to buy something with someone else's money. to date i have yet to hear of one instance where a bank forced someone to take out a loan to buy a property.

let's flip it. say i want to borrow $500,000 from you and i tell you i will put up my house as collateral and not to worry about the value of my house because i have a guy who will tell you it is worth more than $500,000. would you just accept what my guy says and give me half a mil or would you still want someone who you know is impartial and that you can trust to tell you the value?

 

[Tim The Enchanter]

however they are the ones who also have the risk - it is their money you are borrowing.

Usually Fannie or Freddies money. Not their own.

 

[techbiker]

of course they have incentive, however they are the ones who also have the risk - it is their money you are borrowing. while they may advertise the borrower makes the decision to attempt to buy something with someone else's money. to date i have yet to hear of one instance where a bank forced someone to take out a loan to buy a property.

let's flip it. say i want to borrow $500,000 from you and i tell you i will put up my house as collateral and not to worry about the value of my house because i have a guy who will tell you it is worth more than $500,000. would you just accept what my guy says and give me half a mil or would you still want someone who you know is impartial and that you can trust to tell you the value?

If a party has an incentive, there is a potential for bias (imo). (Thank you Mr. Rhodes- I had forgotten about the Countrywide appraisal scams.)

I respectfully disagree with your analogy. In your situation, you would have a strong incentive to secure the highest appraisal possible. In the typical purchase scenario we've been talking about, a buyer would not want to pay more than necessary (reason for their appraisal). The seller should already have their own appraisal. The buyer and seller would then haggle until a fair value is reached based upon both of their appraisals. The seller would be the counterweight to the buyer. Unless the buyer is irrational, I do not see how they would necessarily be more biased than a lender (albeit in the opposite direction).

As Lee notes lenders today are really not exposed to much risk, especially in the residential market (Fanny and Freddie). Further, the base interest rate is still almost 0%. Lenders usually front the money in exchange for reasonable interest rates and relatively little involvement in the management of the property. Most of the hardship from the Great Recession's underwater mortgages was felt by home owners it seems.

-I am only saying there is an argument for allowing buyers to commission the appraisal for a purchase. At the very least, a buyer should be able to "shop" the appraisal offer around in lieu an AMC.

 

[Randolph Kinney]

So, if you want to eliminate the bias of lenders and appraisers, pay off your loan. If buying, pay all cash. Appraisals are not required for all cash transactions.

Asset based lending requires a independent valuation.

 

[TRESinc]

If a party has an incentive, there is a potential for bias (imo). (Thank you Mr. Rhodes- I had forgotten about the Countrywide appraisal scams.)

I respectfully disagree with your analogy. In your situation, you would have a strong incentive to secure the highest appraisal possible. In the typical purchase scenario we've been talking about, a buyer would not want to pay more than necessary (reason for their appraisal). The seller should already have their own appraisal. The buyer and seller would then haggle until a fair value is reached based upon both of their appraisals. The seller would be the counterweight to the buyer. Unless the buyer is irrational, I do not see how they would necessarily be more biased than a lender (albeit in the opposite direction).

As Lee notes lenders today are really not exposed to much risk, especially in the residential market (Fanny and Freddie). Further, the base interest rate is still almost 0%. Lenders usually front the money in exchange for reasonable interest rates and relatively little involvement in the management of the property. Most of the hardship from the Great Recession's underwater mortgages was felt by home owners it seems.

-I am only saying there is an argument for allowing buyers to commission the appraisal for a purchase. At the very least, a buyer should be able to "shop" the appraisal offer around in lieu an AMC.

spoken like someone who really doesn't understand our field/the lending world. don't feel bad or offended, the majority of the general public falls into that category. when you don't work in a field or know anything about it it's easy to come in with solutions that seem logical to you. if what you think/want would be true then it would be happening that way already, but it doesn't, and there are reasons for that. you can choose to see them or not, it doesn't really matter.

as far as lenders not having much risk.... well just ask one who has been forced to buy back a loan due to the borrower defaulting. i think they may have a slightly different perception than you do. or you can ask any portfolio lender.

as randolph suggested, just pay cash and you have nothing to worry about and you can haggle with the seller all day long until you either reach a decision or walk away from the deal. if you don't have the cash then you are subject to the terms of the party who is willing to loan you the money, and none of those terms is the ability to choose your own appraiser.

 

[techbiker]

spoken like someone who really doesn't understand our field/the lending world. don't feel bad or offended, the majority of the general public falls into that category. when you don't work in a field or know anything about it it's easy to come in with solutions that seem logical to you. if what you think/want would be true then it would be happening that way already, but it doesn't, and there are reasons for that. you can choose to see them or not, it doesn't really matter.

as far as lenders not having much risk.... well just ask one who has been forced to buy back a loan due to the borrower defaulting. i think they may have a slightly different perception than you do. or you can ask any portfolio lender.

as randolph suggested, just pay cash and you have nothing to worry about and you can haggle with the seller all day long until you either reach a decision or walk away from the deal. if you don't have the cash then you are subject to the terms of the party who is willing to loan you the money, and none of those terms is the ability to choose your own appraiser.

I'm only asking legitimate questions and positing possible solutions. We're all stuck with licensed and regulated hair dressing. There is virtually no reason for licensure of hair dressers aside from it serving as a barrier to market entry. Precedent doesn't make something reasonable or logical.

Our appraisal came just 3 days before closing and served little purpose in our decision making process. It made no sense for us to double pay for our own appraisal. If we had commissioned the appraisal, it would have happened much sooner and the appraiser would have made more money.

When a buyer defaults, the lender still holds the asset (at least that is my understanding!). Additionally, lenders often hold many of the buyer's other assets as collateral. The lender shouldn't see much risk unless the original appraiser assigned too much value to the property (seemingly not likely to happen from a buyer's appraisal given his/her incentives).

If there was less regulation in the lending market, I'd bet we'd see more flexible appraisal options. I believe that government overregulation has caused many of these inefficiencies.

I appreciate all of your info!

 

[TRESinc]

I'm only asking legitimate questions and positing possible solutions. We're all stuck with licensed and regulated hair dressing. There is virtually no reason for licensure of hair dressers aside from it serving as a barrier to market entry. Precedent doesn't make something reasonable or logical.

Our appraisal came just 3 days before closing and served little purpose in our decision making process. It made no sense for us to double pay for our own appraisal. If we had commissioned the appraisal, it would have happened much sooner and the appraiser would have made more money.

If there was less regulation in the lending market, I'd bet we'd see more flexible appraisal options. I believe that government overregulation has caused many of these inefficiencies.

I appreciate all of your info!

now you are comparing hairdressers to appraisers? thanks for the insult. intended or not you just compared someone who flips burgers at mcdonalds to the chef at a 5 star restaurant - the required knowledge and training between the two are not on the same level by a long shot.

there are a multitude of factors that could have happened to cause the delay for your commercial appraisal. once again i'll say it - the appraisal was not performed for your benefit nor were you the client, so it did not, and should not have, impacted your decision. you had already agreed to the purchase price prior to making the loan application let alone the appraisal being ordered by the client (the party actually lending the cash to make the purchase). every appraisal in the world states it's purpose and i would bet a considerable sum that the appraisal you received did not state the intended use was to aide the borrower in making a decision about purchasing the property.

let me know when you achieve a decrease in regulation. it hasn't happened in the 20+ years i have been doing this. even if by some miracle you or anyone else could achieve this it still wouldn't change the fact that appraisals are order by, and on behalf of, the party who is lending the funds and not the party who is borrowing them. you may have offered a higher fee for the one-time appraisal you wanted for your transaction but the appraiser will make far more money from the client in the long run as they consistently order appraisals. you are not looking at the bigger picture.