BORROWER VERSUS LOAN OFFICER VERSUS APPRAISER

From the borrower’s perspective, the appraisal may impact them in several ways, including: potentially affirming their purchase decision; possibly serving as a negotiating instrument for contract revisions; contributing to the termination of a house purchase; contributing to increased/decreased loan or down payment costs; impacting cash-out amounts; or affirming market-driven equity changes. Although this list is certainly not all-inclusive, it illustrates reasons why borrowers may be emotionally and financially impacted by the results of a property appraisal. Furthermore, in the case of a refinance, it can be unsettling for the borrower to accommodate an appraiser wandering through the interior of the borrower’s home, taking pictures and jotting down notes.  

From the loan officer’s perspective, the appraisal is understood to be an important part of the lending process. Nevertheless, the loan officer can be impacted by the appraisal due to initial uncertainty about the appraisal results such as the amount of appraised value or previously unknown property conditions. Also, since loan officers work closely with the borrowers, appraisal delays, appraisal-related loan term changes, repair requirements and associated complications can result in challenges delivering a positive borrower experience.  

From the appraiser’s perspective, they are being hired to provide an independent, objective and supported analysis of the property, market and market value. Appraisers are prohibited from acting as an advocate for any party to the transaction, including the borrower, seller, real estate agent, loan officer, underwriter and lender. Appraisers must follow standards of practice and are accountable for supporting their opinions and conclusions. These things require the appraiser to collect relevant data, analyze the data, form opinions and conclusions based on the analysis and report the results in a manner that is credible.  

MENTALLY PREPARE THE BORROWER FOR THE APPRAISAL

To avoid confusion and enhance the borrower experience, it’s helpful for loan officers to manage expectations with the borrower regarding the appraisal.  

For a purchase transaction, the borrower won’t typically interact with the appraiser, but they may have anxiety while awaiting the appraisal and, once completed, will receive a copy of the appraisal. As such, a loan officer may have success discussing the following points with the borrower:

• The appraiser tells it like it is – Identify that the appraiser is an independent, objective, licensed professional and is not working as an advocate for the lender or anyone else.  Explain that the appraiser is going to visit the property, analyze market data and provide an appraisal report that will be a key part of the underwriting process.

• The appraiser provides an opinion of market value not price – Explain that the appraised value is the appraiser’s opinion of value and it may differ from the contract price. If lower than the contract price, there are some potential options available to the borrower, including renegotiating the contract price or having underwriting staff provide additional information to the appraiser for consideration. Assure the borrower that most appraisals confirm the reasonableness of the contract price and everything goes smoothly.

• The appraisal may uncover important information for the borrower – Explain to the borrower that the appraisal represents a second set of eyes on the property and may reveal information that is useful to the borrower prior to purchasing the home. 

For a refinance transaction, the borrower will likely have direct communication with the appraiser such as setting the inspection time and meeting the appraiser for the inspection. As such, spending time explaining the appraisal process to the borrower will help avoid confusion, anxiety and encourage a good borrower experience. The following are a few points the loan officer may want to convey to the borrower:

• The appraiser tells it like it is – As with a purchase transaction, identify that the appraiser is an independent, objective licensed professional and is not working as an advocate for the lender or anyone else. Explain that the appraiser is going to visit the property, analyze market data and provide an appraisal report that will be a key part of the underwriting process.

• The appraisal inspection is straightforward – The appraiser will walk through the house, take some interior and exterior pictures, make a sketch of the layout, take some notes about the condition, quality and features, take exterior measurements and possibly look in the attic and crawl space. Remind the borrower that the appraisal inspection is not the same as a home inspection and will often take 20 to 45 minutes. The appraiser is not the “dirt police” and will not judge them for dirty dishes in the sink or some toys left on the floor of a child’s bedroom. 

• The appraisal is more than an inspection – It’s not uncommon for borrowers to feel slighted when the appraisal fee is costly, and they only see the appraiser for 20 to 45 minutes. Remind the borrower that the appraisal inspection is typically the shortest part of the appraisal process and the inspection is followed by many hours of field work, data gathering, data analysis and report writing. 

• Prepare a list for the appraiser –  Let the borrower know that they should consider putting together a list of features, updates, renovations and other key information about their property for the appraiser. Even if the appraiser is likely to notice these items independently, it helps when the borrower knows it’s okay to provide such information to the appraiser. Also, by giving the borrower ample time to prepare the list, it may reduce the stress and potential intimidation they might feel when the appraiser is on-site.  

• The appraisal report is not the end  – Remind the borrower that the underwriter or authorized staff at the lender can go back to the appraiser with questions or supply additional relevant data in the event that there are concerns with the appraisal.     

• Get a read on the value before the appraisal – For the loan officer, there are some data sources available to you which may assist in setting expectations with the borrower regarding market value.  Accessing the following types of data sources in advance of the appraisal may help anticipate potential friction points with the borrower:

Automated valuation tools – There are numerous free automated valuation tools available on the internet. These AVMs typically rely on the use of public record data about the subject property along with home sale data to estimate the value of the property.  Often, these AVMs use regression analysis to adjust sales and emulate some of the sales comparison that an appraiser does. After inputting the property address, the model estimated value/probable sale price is shown. Keep in mind that AVMs typically operate on limited data about the subject and sales and may have limited coverage and reliability. However, they offer a quick and inexpensive way to check the borrower’s estimate of value or the contract price.

Tax assessor websites – You can often search for comparable sales using county tax assessor websites.  Look up the subject property and search for property sales in the neighborhood that are similar in size, age, and lot size to the subject.  While rudimentary, this approach can be useful.

Property listing websites – You can often search for competing listings using free property listing websites. Similar to searching for sales on the tax assessor website, current listings can help you assess the competition to the subject and assist in figuring out a possible value range.  

Commercial AVMs – There are commercial AVMs in the market today. These AVMs cost money when you run a property address, but they are typically more accurate and reliable than free AVMs.  

Put a Bow on It – After the appraisal inspection is complete, it may help to touch base with the borrower to assess their experience.  This may enable the loan officer to head off discontent and address concerns. Although most appraisers are professional and competent, unfortunately there are instances where an appraiser behaves in an unprofessional manner. The borrower may conceal this experience until their loan is negatively affected by the outcome of the appraisal. At that point, it’s difficult to recover since time has passed, an appraisal is in-house, and the appraiser will need to be paid.  By soliciting feedback from the borrower immediately after the appraisal inspection, you can assess whether things went well – and if they didn’t – address concerns before they are perceived as retribution for an appraisal report that did not meet the borrower’s expectations.