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Appraisal Contingency

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Mike Garrett RAA

Elite Member
Gold Supporting Member
Joined
Jan 14, 2002
Professional Status
Certified Residential Appraiser
State
Colorado
It is part of the state approved real estate contract in Colorado.
 

Jeff Horton

Senior Member
Joined
Jan 15, 2002
Professional Status
Certified Residential Appraiser
State
Alabama
I have one on my desk and it is the first one I have seen here. Of course it is an out of state buyer too.

BUT, the standard contract (I think) says something to effect of making the contract contingent on getting financing. If it doesn't appraise most folks can't get financing. So that is their out.
 

Mountain Man

Elite Member
Joined
Jan 15, 2002
Professional Status
Certified General Appraiser
State
Georgia
the standard contract (I think) says something to effect of making the contract contingent on getting financing. If it doesn't appraise most folks can't get financing. So that is their out.
If I remember correctly, that was GAR's position on stipulations like this. They advised agents against using "must appraise for" stipulation because the appraisal was for the lenders purpose; and they may inadvertently render a "made for form" stipulation void. Besides, with over 200 pages of contracts and possible stipulations, I don't think GAR wants agents writing stipulations. :blink:
 

Richard Carlsen

Elite Member
Joined
Jan 15, 2002
Professional Status
Licensed Appraiser
State
Michigan
I'm working on one as we speak where the sale is subject to an acceptable appraisal.

I always put a specific disclaimer in the report that my report is for lending consideration only and is not intended for any other use and specifically not for a buying decision. I state in the FIRREA/USPAP page the following:

"This report is prepared solely for lending consideration where the subject of this report will act as security for a real estate mortgage secured loan. Any other use or use by any other person is strictly prohibited without the expressed, written consent of the appraiser. It is not to be used for a buying decision if a sale is involved. No other use of this report is contemplated nor authorized. The appraiser specifically assumes no responsibility for any other use of this report than that stated above."

If I don't disclaim any other use, then the buyer, by default has become my client also and the report cannot technically be used in the secondary market. I also have become an interested party to the sale by having one of the parties as an active client.

And I have exactly doubled my liability by having two clients, each using the same report for different purposes. And they want me to collect only one fee.
 

Phil Rice

Member
Joined
Apr 22, 2002
Professional Status
Certified Residential Appraiser
State
Colorado
When I last bought a house (about 6 years ago), I used an appraisal contingency. It did not say that the house had to appraise for the contract price, it said that I would get an appraisal done, and the appraisal had to be acceptable to me, the buyer. A subtle but important difference from the "standard" language.

If there is only one appraisal, and it is done for the lender, this is better than nothing, but not the best. We all know that if the lender chooses the appraiser, and they have a copy of the listing and the contract, all too often the appraisal "hits" the value.

I talked with an appriaser at the start of the home buying process. I asked if they would do an appraisal and tell me what they thought the home was really worth, I wanted their honest unbiased opinion.

Then I went shopping for a lender. I asked the question up front, will you be able to use my appraisal. I told them I had no problem if they wanted to do a second appraisal using their own person, as long as I did not have to pay for it. I found that most (but not all) lenders said no problem as long as the appraisal report was done with their name on it. I checked with the appraiser and he said he would be happy to put the lender name on the report, and if necessary, he could redo the report with a diffferent lender name for a $50 charge.

IMHO, every person who buys a home should have an unbiased person working to protect their interest. It does not have to cost any more money.
 

Richard Carlsen

Elite Member
Joined
Jan 15, 2002
Professional Status
Licensed Appraiser
State
Michigan
Phil

You are right. A buyer should have his own unbiased opinion as to value if he chooses. That means having a person with a fiduciary responsibility to him alone. In the case of using the Lenders appraisal, you do not have that sort of relationship.

Be honest and admit that the reason most Buyers put such a contingency in a P.A. is that they are too cheap to hire their own appraiser to work for them. They are trying to get something for free. In doing so, they may inadvertently increase the appraisers liability without any compensation.

That is why I put the disclaimer I do in my reports. I know that the Buyers are going to use it but they will have a difficult time coming back on me as "their appraiser". Remember that perception can create a fiduciary relationship. I don't want one with a Buyer unless I agree to it. And if I agree to it, it is not going to be free.
 

Dee Dee

Elite Member
Joined
Jan 16, 2002
Professional Status
Certified Residential Appraiser
State
Colorado
As Mike has said, the appraisal contingency is part of the Colorado state approved contracts, but it offers little protection for the buyer, IMO. More times than not if the first appraisal comes in lower than the purchase contract the homeowner will never see or hear about it because the lender will hustle to find another appraiser who will 'make it work'.

Unless it's made mandatory that ALL appraisals made on the subject home MUST be disclosed to the homeowner, with serious consequences to the lenders who neglects to do so, any appraisal contingencies are pretty much useless.
 

Richard Carlsen

Elite Member
Joined
Jan 15, 2002
Professional Status
Licensed Appraiser
State
Michigan
The purpose of the appraisal in a lending situation is not to protect the home buyer. It is to protect the lender from making a loan where the collateral does not have enough value to cover the loan.

The borrower is not the client and is not our concern. We owe a responsibility to our client to give him the most accurate appraisal we can in order to protect his assets.

We do not owe any duty to the buyer to protect him from paying too much or making a bad decision. As soon as we assume or are put in the position where we do have a duty to the buyer, we loose our impartiality and Independence by virtue of one of the parties of the transaction being our client.

The buyer, if he so chooses, has all of the tools and services available for him to protect himself. If he chooses not to avail himself of these services or is just too cheap to pay for them, it is not our duty to come to his rescue.
 

Dee Dee

Elite Member
Joined
Jan 16, 2002
Professional Status
Certified Residential Appraiser
State
Colorado
Richard,

Of course you are correct that the lender is the client.
My point was that it would be great if lenders had an obligation to the buyer if the lender's appraiser came in lower than the contract price, particularly if an appraisal contingency exists, but of course the chances of that happening are rare :rolleyes: , and trying to make and enforce rules that lenders do so is....ha!....highly unlikely.

I don't believe that most buyers are deliberately being cheap when they don't hire an independant appraisal. I think that most trust that the lender will be looking out for their best interests by hiring ethical appraisal services, or they don't know that they have that option.
 

Tater Salad

Member
Joined
Jan 15, 2002
Professional Status
Certified Residential Appraiser
State
Missouri
I got the funniest phone call today. L/O says that the buyer's agent just called her, and wanted to know when I was going to set the appraisal appointment because there is an "Appraisal Appointment Rider" that states that the appraisal appointment has to be set within 5 days of the contract date :lol: And, the agent also wants me to call her so that she can be a "part of the process."

I just got the request this morning, and it was to be called within 24 hours, as usual. After explaining the "Appraisal Rider" to the L/O, we both started thinking that something was fishy. Turns out the MLS listing for the property states that it is "as is". Wonder if the agent was trying to rush me along . . . :twisted:
 
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