Does a Bank Set Up a Home Appraisal?
When you are buying or refinancing a home, your lender relies on a property appraisal to determine the market value of the property being financed. Generally, banks pay third-party appraisal management firms to order appraisals. The management firm acts as an intermediary between the lender and the individual conducting the appraisal.
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Conflict Of Interest
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In 2011, federal laws came into effect that are designed to prevent any conflicts of interest arising during the appraisal process. In the past, lenders, mortgage brokers and real estate agents could order appraisals and directly liaise with the appraiser. All of these parties receive commission-based pay, and high appraisals mean more loans approved and larger commissions. To prevent lenders and other parties from influencing the outcome of home appraisals, the federal government no longer allows these parties to directly order appraisals for homes being financed by government-backed loans.
Ordering Process
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Typically, the borrower must pay for the home appraisal. You write a check to the lender to cover the appraisal cost, and the lender passes on that fee to the appraisal management company. Fees charged by appraisers vary, and you do not receive a refund if the appraiser selected charges a below market fee. Consequently, some appraisal management firms tend to hire the least expensive appraisers to maximize company profits.
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Other Appraisals
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In some instances lenders can approve a loan application without ordering a full appraisal. Home equity lenders often rely on home values found using automated-valuation models. AVMs, also known as electronic estimators, use data relating to recent home sales to determine the approximate value of a home. These reports are much less accurate than full appraisals but also much less expensive. Therefore, for small loan amounts and refinances involving a borrower taking out only a small amount of equity, lenders tend to use AVMs. The lender deals directly with the firm providing the AVM value.
Other Considerations
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You can order a home appraisal at any time even if you are neither buying a home nor attempting to refinance. Some people order appraisals to contest an increase in their property tax or to price their home for estate or insurance purposes. If you are ordering an appraisal for a reason other than taking out a loan, you can deal directly with the appraiser and conduct the entire transaction without the involvement of a third party.
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