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March 9, 2009

Can a home seller see the appraisal of his own home?

We've had some homebuyers share their experiences. Now comes a seller.

Scott Frank had a contract on his Pikesville townhouse — a large model in a gated community — for $465,000. Then the appraisal came in. For $425,000.

Frank, a real estate auction specialist, said he suspected the appraiser came up with that figure by comparing to sales that weren't really comparable. Two other models in that community are much smaller, he said.

But he can't tell, because he never got to see the appraisal. And not for lack of trying.

He asked the lender and was told it doesn't usually share the document with sellers. So he asked the buyers. He says they gave permission for the bank to release a copy, but no one from the bank returned his calls before settlement at the beginning of this month. (Final sale price: about $433,000. The buyers agreed to pay more than the appraisal.)

"I was so infuriated," Frank said. "It's OK that it appraised for less, and if the comps worked out and that's the guy's findings, fine, that is what it is. But it's almost like they were hiding something from me. ... Why on God's green earth are you not entitled to see a copy of something that affects you so greatly?"

That seemed like a question other sellers might be asking right about now, so I called the state for an answer.

Kathie Connelly, executive director of the Maryland Real Estate Commission, said a buyer can see the appraisal because he paid for it. And the lender involved can see it because it's supplying the mortgage. No one else gets to without their say-so. "It's their prerogative," she said.

But she understands why sellers would want to see appraisals that come in lower than the price they negotiated with buyers. She thinks the key is what — if anything — the contract says the seller is entitled to if that happens.

Frank's contract didn't have an addendum about providing a copy of the appraisal, and he said he's never heard of anyone else having one, either. "Why can't we make future sellers aware such a clause is needed?" he asked.

For some sellers, an unexpected price drop days before settlement could be a disaster. Frank, at least, wasn't on the hook to buy another house with the money he'd expected to get from the Pikesville one. "Thank God," he added.
Posted by Jamie Smith Hopkins at 8:54 AM | | Comments (18)
Categories: Housing market experiences


There's nothing to stop any seller from getting an appraisal. All they need to do is hire a certified appraiser. The appraisal ordered by the bank is for their lending purposes and there's a regulatory issue of client confidentiality. Please don't tell me it's too expenseve for a seller to do this; when considering the price of real estate, and the costs of other services related to transferring real property, the price of an appraisal is nominal.

What is the intended use for the appraisal? To determine the value for lending purposes. Who is the intended user/client? The bank lending the money.

The seller has zero right to the report. The buyer can request a copy from the bank.

Research USPAP and advisory opinions before publishing bad advice and looking silly.

Hi, Anonymous -- I had to grin because it's amazing how often people think I'm giving advice when I'm not. I'm not a columnist -- I don't get to give advice. I just figured sellers who are told to lower their prices based on appraisals done for the buyer and bank might (like Frank) wonder why they don't get to look at the document.

So -- as you can see -- I called the state to find out if there's ever a situation where the seller can take a look. (Other than getting his or her own appraisal done, though that won't necessarily be the same as the one the bank has.)

Was that honestly a silly thing to do?

No Jamie, it was not at all a silly thing to do.

Like when a negative inspection report that the buyer is paying is used to negotiate a lower sell price, the seller should reserve the right to review the analysis done by that third party.

Malfeasance and ineptitude aside people make honest mistakes all the time. When that appraisal or report is the basis to leverage tens of thousands of dollars off a contract it is of significant importance and should be divulged.

Caveat venditor applies just as much as caveat emptor.

I fully understand the frustration on the part of the sellers in this case. I, too, have been in this situation. I offer complete sympathy and understanding to everyone involved.

As an appraiser for 20 years, maybe I can help shed light on the process.

The appraisal is ordered by a bank to help the bank on loaning money for a property. The appraisal is separate from the contract entered into by the buyer/seller. An appraisal is ordered by the bank to verify the information given to them by the buyer in order to obtain the loan. It is like getting the credit report, title insurance, and other information to secure a bank's interest in the property. Appraisers are to be independent "eyes" for the bank to ensure it is a good property for the bank to have a mortgage for the buyers.
When hired by the bank, the bank is the client. Not the buyer or the seller. It is for the mortgage lending portion of the transaction only. It stinks that buyers have to pay for it upfront so they think it is "theirs" so there is all this confusion. Banks should handle the banking fees with the appraisal fees included so as not to give the impression that it is the buyer's appraisal. Why they do it is another question without an explanation.

So, having said that the appraisal is part of the banking transaction only, let me explain more.

The buyers have to pay for the appraisal because the bank doesn't want on the hook for a $200-400 fee if the loan doesn't go through. If the loan doesn't "fund", most institutions are under no obligation to release a copy of the appraisal report to the buyers, even if they paid for it out of their pocket. It is solely ordered by the bank and the bank is the appraiser's client. Appraisers are not allowed to give the client any indication of value, a copy of the report nor are they allowed to discuss any part of the appraisal with anyone but the client, which is the bank. It is the same on the buyer ordering a house inspection, they are under no obligation to give it to the seller. Appraisers and home inspectors get hired by sellers to help establish a price of their home and to identify potential issues prior to selling. The seller is the client and the seller has NO obligation to give the information to anyone and the appraiser and home inspectors cannot reveal to anyone the nature or values of the findings of the reports completed for the seller. The guidelines are very strict about any information being released to anyone BUT the Client and the CLIENT ONLY.
So in this situation, if the loan does not fund and there is no agreement between the bank and the buyer to release the appraisal to the buyer, the buyer does not have a "right" to the appraisal. If the loan does fund for the property, then the bank is to give a copy of the appraisal to the buyer at closing. (Read the fine print.) Then the buyer can give a copy to the seller if he wants to. There is no other way for the seller to get it.
Now, in this case, if the seller were to fuss about the appraisal, he is in no position to do anything about the appraisal because the value is low. Because he is not a party or client in the appraisal, there is nothing he can do about it. The appraisal is only for the bank for its lending decision.
As a purchaser, a seller and an appraiser, I have been on all sides. As a buyer caught in the middle, ask the bank for a copy of the appraisal to be provided upon receipt of the appraisal. If they won't provide it until closing, ask to see if they will tell you the comparables sales utilized in the appraisal. If you know of any that maybe were Closed Sales, arms-length transactions (not family or friends to friends) that may be more similar to the property, provide them for the appraiser to look at them. There are times we miss comparables because they weren't listed/sold in the normal course and are missed. It is then up to the appraiser to determine if the sale may be similar enough to be used in an appraisal. Make sure the comps are close comparables or it is just a waste of everyone's time. A good appraiser most likely already knows about the comparable and has chosen not to use it for one reason or another. Now, with the time limits and fee reductions, there is tremendous pressure on appraisers to turn appraisals so more comparables are being missed. So if you think you have a comparable they missed, do provide it. HINT: Maybe even let the appraiser know about the sale at the time of the inspection.

I will ask owners if they know of sales because owners of properties are usually watching their markets and have a good idea of the values. Not always, but most of the time. :) I'll spare you the water-cooler stories for now on that one!

So, realtors, owners, buyers, provide comparable properties with the attitude of "if this will help, here is some information" to pass along. A good appraiser will not take offense, say thank you, take it to the office and at least look through it. It is up to them in their professional opinion to use it, verify it, or discard it. If you try and tell them they have to use it, that will not help your situation. When a report is completed, we have to stand by our value unless other information is provided which was missed or not available to the appraiser.
There are so many misunderstandings about the appraisals and appraisers, we really need to help the general public understand the process. To me, it is like getting a ticket from a city police without a reason for the ticket. I want to know why, how come I got stopped and what I can do, if a remedy is necessary. I feel that way about appraisals. I hope my taking the time to write this long explanation helps in some way to clear up the confusion. Buying and selling our hard-earned possessions should not be shrouded in secrecy. Once we understand why some darn appraiser won't give up the appraisal, it makes more sense.
It is sometimes one of the biggest transactions we make in our lives and many of us are first-timers with the sales so the process is time-consuming, frustrating, and totally confusing. A realtor friend of mine says this: "Once I get everyone trained in the process, the deal is over and I have to train new ones!!

I hope I was able to shed some light on the process for you and your readers. Feel free to email me and I will answer you inbetween appraisals if you have a question I can maybe answer.

That's very useful information, Laurie -- thanks for taking the time to share your expertise.

Whoh Whoh Whoh! Wait a minute here.

The buyer is trying to obtain a mortgage because the person is trying to buy a home. The mortgage company that is shoveling out several hundred thousand wants to make sure that the collateral is equal to or greater than the loan amount. For this reason, they need an appraisal ordered on the property.

This is the ONLY reason the appraisal was ordered! It was NOT ordered by the buyer OR the seller. The MORTGAGE company is actually the Appraiser's client (and yes, regardless of who paid for the appraisal). So, if the mortgage company is the client who needs the appraisal to fund the loan and who ordered it in the first place; then why does everyone else think they are entitled to the appraisal?

My point: No one besides the mortgage company is truely intitled to that appraisal (besides applicable laws that may apply)

Sometimes the buyers or sellers order appraisals outside of the mortgage process and I applaud them for that, because they are now the client and intitled and they are protecting themselves.


Aaron and Laurie...

The problem is in those instances where the appraisal comes in below the contract price and the seller (often at a very late stage in the process and often with very short notice) becomes the source of the the difference in order to complete the sale.

If the appraisal is a contingency of the sale so be it. If it is done early after signing the contract and the results are in accord with the offer price it wouldn't be problematic. The concern here is when it isn't.

But if the appraisal is appreciably below the buyers offer then the seller also has a significant and vested interest in knowing the particulars of the analysis and should have a mechanism available to contest the appraisers work.

Maybe they just have incompetent agents working the deal with a too high ask price and a too high offer price... but when tens of thousands of dollars and ALL of it representing the sellers equity in their property is at stake... the mortgage provider and the buyer better be prepared to objectively justify their case.

Sellers, seller agents, and seller attorneys be advised here and now to review your offer contracts on this point. CYA!

Residential Borrowers May Receive Copy of AppraisalDecember, 1991 amendments to the federal Equal Credit Opportunity Act, known as 12 USCA Section 1691(e), require a lender to provide, on written request, a copy of the appraisal report to any person who applies for a residential mortgage.

The text of the section reads: "(e) Each creditor shall promptly furnish an applicant, upon written request by the applicant made within a reasonable period of time of the application, a copy of the appraisal report used in connection with the applicant's application for a loan that is or would have been secured by a lien on residential property. The creditor may require the applicant to reimburse the creditor for the cost of the appraisal".

This law applies to all real estate secured residential mortgage lenders, including banks, S&Ls, credit unions, mortgage bankers, mortgage brokers, mortgage originators, etc.

Important NotesThe following is mandated under the Federal Uniform Standards of Professional Appraisal Standards (USPAP) by which all Real Estate appraisers are governed.
•Rules promulgated by the Federal Financial Institutions Regulatory Agencies allow borrowers a 90 day period during which to file the written request for a copy of the appraisal.
•The lender must supply a copy, not the original appraisal report. The residential borrower, or potential borrower, must obtain the appraisal copy from the lender, not the appraiser. The appraiser can only deliver a copy of the appraisal report to the lender.
•Only the residential borrower, or potential borrower, has a right to receive a copy of the appraisal from the lender. Sellers, brokers, and other parties who are not the borrower have no right to obtain a copy of the appraisal.
•The lender who ordered, accepted delivery, and based a business decision on the appraisal is the
appraiser's client, regardless of who paid for the appraisal, or when, or how. The appraiser must comply with the client confidentiality provisions of the Uniform Standards of Professional Appraisal Practice.

These discussions overlook an important legal obligation. In some real estate contracts, the Seller is charged for the appraisal (e.g., pays certain closing fees or subsidies). Under those circumstances, he would be paying for a service that he did not receive, if the lender or buyer refuses to obtain a copy of the appraisal for him. This is fraud. So yes, the Seller is entitled to a copy of the appraisal if he ends up paying for it.

What if the buyer is asking the seller to pay half of the appraisal cost then shouldn't the seller be entitled to see what they're paying for? In this case there is no loan. Just one owner's name coming off the deed and the second owner buying him out with cash.

Shana, this is not my area of expertise. But as you probably saw in the post, the head of the state's real estate commission thinks the key is what the contract itself says the seller is entitled to get. Perhaps a real estate attorney could clarify your legal rights.

Appraisers can make mistakes in their data collection, comparable selection and analysis so the seller should ask for a copy of the report if the buyer is asking for a price reduction due to an appraisal and review for any errors.

David Gorman/Broker

When you get a loan, there is this pesky document called, "Right To Receive Appraisal". Unfortunately, this is a right given to the borrower, not the seller. If the seller wants a copy of the appraisal, they will have to do so with permission from the buyer. The seller is not authorized to receive a copy of the appraisal without consent from the buyer. When an appraisal is done, it is paid for by the buyer, not the seller. The buyer is the "client". Also, if it is an HVCC appraisal, neither the buyer or seller is allowed to contact the appraiser besides setting up the appointment. The appraiser is not allowed to discuss comps or value with anyone involved in the transaction. If the seller gets permission from the buyer to review the appraisal and is not satisfied, they surely can order a new one. Chances are that will only delay the process further. Also, it is possible the lender will not allow another appraisal done on the property. Each lender has their own requirement for HVCC appraisals so if the buyer has to change lenders, they will need an entirely new appraisal done. Very few lenders accept or allow transfer of appraisals for HVCC.

I agree that the appraisal is between the buyer and the mortgage company. however, the purchase agreement is a contract. The contract stipulates that it is contingent upon the property appraising at no less than the PURCHASE price, not the loan amount. So when the mortgage company says appraisal is "ok", the sellers have no idea if the contract contingency is ever met...yes or no? That question deserves to be answered, particularly when a buyer is putting down so much money that the loan is not so much in question as whether the purchase agreement contingency has been met per the Purchase Price clause.

When an appraisal is ordered, it is usually "owned" by the person or entity that ordered it. This is usually the home buyer or the lending institution that is acting on their behalf.
If the seller would like to see a copy of the report, it is required that they get permission from whoever ordered it. It is against privacy laws to release the information under any other circumstances.

I am on the other side of the fence. I am a FSBO and ordered an appraisal to see where to start my selling price. Of course the appraisal came back much lower than I expected. Now I received my first offer, and it is a cash offer at that. I have excepted their offer and now they want a copy of the appraisal that I have paid for. Should I honor the buyers request? Also, this home I am refering to is part of an Estate sale.

Carole: I'd offer to provide the document at settlement but as a courtesy only and not in any contingent manner.

"for informational purposes only".

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About Jamie Smith Hopkins
Jamie Smith Hopkins, a Baltimore Sun reporter since 1999, writes about the regional economy. Her reporting on the housing market has won national and local awards. Hopkins is a Columbia native and has lived in Maryland all her life, save for 10 months spent covering schools in Ames, Iowa.
She trained to become a wonk by spending large chunks of time as a geek and an insufferable know-it-all.
Baltimore Sun articles by Jamie

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