In this blog post – which is part eight of our Promoting Public Trust series – we’ll be looking at the topic of readdressing an appraisal report. Readdressing, or transferring a report, may be one of the most often-made requests our office gets, and usually, lenders and homeowners aren’t even aware they’re asking us to violate USPAP. So, if you’re a lender – this is a must-read! And, if you’re a homeowner or Realtor, this will possibly happen to you at some point in your life, so grab some coffee and read on!
Let me set the issue up.
The home at 123 Main Street was for sale. Mr. & Mrs. Jones wanted to buy the home, and were working with their lender, ABC Mortgage Company. ABC Mortgage hired an appraiser to complete an appraisal report for the purchase of the home, and the appraisal was completed and delivered to the mortgage company a couple of weeks later. Just a few days after, Mr. & Mrs. Jones decided they wanted to switch lenders. XYZ Mortgage was offering a ¼ point lower on the interest rate, and $1,000 less in closing costs! What a deal! So they went through the process again with XYZ and the processor at the new mortgage company called up the original appraiser. The phone call went something like this, “Hi Mr. Appraiser, I’m with XYZ Mortgage Company, and we’re the new lender for Mr. & Mrs. Jones, who are purchasing the home at 123 Main Street. You just did an appraisal on it a few weeks ago for another lender, and we just need you to change the name on the appraisal report and email it right back to us. Thanks!”
The question before us then, is “does USPAP allow this type of readdressing?” Can the appraiser simply change the name of the lender on an appraisal report and send it on to the new lender?
Much to the surprise of lenders, homeowners, and Realtors alike, the answer is no. So let’s find out why!
USPAP states that once a report has been prepared for a named client(s) and any other identified intended users and for an identified intended use, the appraiser cannot “readdress” (transfer) the report to another party.
So if an appraiser can’t readdress a report, how can we still serve our client’s needs? USPAP says the answer is a new assignment. As an appraiser, I can begin a new relationship with XYZ Mortgage Company and appraise the property for them. With a new report as part of a new assignment, their name is on the report, and everything is just the way they need it.
But what about confidentiality? Is there anything that I need to be careful of when appraising the same home for a new client? Is that violating confidentiality in any way?
As we discussed in part two on Confidentiality, as an appraiser, I have to make sure I’m not disclosing any confidential information. When I complete a report for Lender B on a property I appraised earlier for Lender A, I also need to be careful not to disclose any information previously deemed confidential, unless I have the first client’s permission.
Now, you might be asking yourself, “does the appraiser need to get an ‘ok’ from the first client to accept the assignment from the second client?” According to The Appraisal institute, “The only ‘release’ required is with regard to confidential information. The first client does not need to give permission for you to proceed with another assignment for a second client unless confidential information is at stake. So confidentiality aside, I can appraise the same property for 12 different clients if I wanted to, and never have to get an ok from any of them; I don’t need any previous client’s permission or release to appraise the property for a different client.
Let’s get back to solving the problem, though, for our clients. XYZ still needs an appraisal for the property on Main Street. So, after I’ve decided if there’s anything I need to keep confidential, I need to consider who the new intended users are, what the new intended use is, the date of value, scope of work, etc etc. All the things I would do in any typical appraisal assignment would need to be done again, for my second client.
The Appraisal Institute wrote, “In many such cases there may be little additional work in performing a new assignment for another client. Perhaps when all is said and done you will be providing virtually the same data and analysis, and even the same value conclusion…”.
So let’s get really practical here. If you’re a lender, what are your options? How can you get this deal closed? It’s going to come down to a conversation between you (the lender) and the appraiser. The two of you need to talk with each other and determine the answers to those questions above. Who is the client, intended user, intended use, date of value, scope of work? etc. It may be that the home was just appraised two weeks ago. The new lender is fine with the comparable sales and analyses, and everything else in the original report. And, they are also fine with the date of value (two weeks ago). They don’t need a new inspection, so the two of you work out an agreement for a new assignment that does not involve a re-inspection of the property. The cost is usually up to the appraiser, but likely will be minimal as there is minimal work to be done. Now, not all appraisers will do this, and that’s ok. Some may argue that they need to see the property again. That’s their prerogative. Some may choose to charge a full fee. While I personally disagree with this practice (unless the appraisal is significantly dated, or the scope of work has changed so much that it would necessitate a full fee), it is up to the appraiser. Again, though, in our experience homeowners who change lenders do so very soon after the original appraisal was completed. Therefore, it’s not likely that much has changed in the market or with the property. And most of our clients are 100% ok with us simply working up a new assignment, relying on the original date of value, and naming them as the client. We do charge a fee for this, as we’re still doing all of our appraisal work and analyses we would usually do. This helps our clients get their name on the report, and gets the homeowners to the closing table with little money out of their pockets.
All of this sounds so difficult! You may be asking yourself, why can’t Lender B just take the appraisal with Lender A’s name on it?
The answer is, they can! The fact is, there’s nothing that says Lender B can’t use a report that was prepared for Lender A, even though Lender B’s name isn’t on the report anywhere. However most of the time, Lender B will want their name on the appraisal report. Again, The Appraisal Institute says… “Lender B wants the appraiser-client relationship, and all the rights and obligations thereof, to be between them and the appraiser.”
Who knew there would be so much involved in something that seems so simple? Just change the name on the report! Thankfully, there are very specific rules and guidelines we can follow to ensure that everyone involved in a real estate transaction has all of their i’s dotted and t’s crossed. It may add a few days to the closing, but done correctly and with an appraiser who understands USPAP, it doesn’t have to be a lengthy process. And, when done properly, it protects the lender, homeowner, and appraiser, as we all work together to help homeowners achieve their goals of buying and selling real estate. So if you’re a homeowner, lender, or Realtor and you’re going through a change that requires a new appraisal assignment, and you have questions about how best to handle the situation, give us a call. We’re always happy to help!
Helping homeowners navigate the appraisal process,
Ryan Bays, SRA, AI-RRS
USPAP is published and copyrighted by The Appraisal Foundation.
Appraisal Standards Board, The Appraisal Foundation, 2020-2021 Uniform Standards of Professional Appraisal Practice (USPAP), Washington, DC, 2020.
Riverfront Appraisals has been granted permission by the Appraisal Foundation to use this information.