September 23, 2014 at 12:00 am
Hiring a Commercial Real Estate Appraiser
So you find yourself needing to have a real estate appraisal performed by a certified appraiser in order to obtain a loan for a purchase transaction. Here are a few things you should know:
As defined by the Uniform Standards of Professional Appraisal Practice (USPAP), the Client is
The party or parties who engage, by employment or contract, an appraiser in a specific assignment.[1]
Federal banking regulations require that a “financial institution” actually order the appraisal and thus be the Client of the appraiser. This is an important distinction to note. Yes, you are paying (the bank) for the appraisal, however you are not the Client – the bank is. An appraisal for a federally related transaction (basically a real estate loan at/above $250,000) must be prepared directly for a financial institution. The Interagency Appraisal and Evaluation Guidelines state:
“An institution or its agent must directly select and engage appraisers. The only exception to this requirement is that the Agencies' appraisal regulations allow an institution to use an appraisal prepared for another financial services institution provided certain conditions are met….Independence is compromised when a borrower recommends an appraiser or a person to perform an evaluation. Independence is also compromised when loan production staff selects a person to perform an appraisal or evaluation for a specific transaction….An institution's selection process should ensure that a qualified, competent and independent person is selected to perform a valuation assignment…An institution's use of a borrower-ordered or borrower-provided appraisal violates the Agencies' appraisal regulations. However, a borrower can inform an institution that a current appraisal exists, and the institution may request it directly from the other financial services institution.” [2]
USPAP regulates who the appraiser can provide the results of his/her appraisal as follows:
An appraiser must not disclose: (1) confidential information; or (2) assignment results to anyone other than: the client; persons specifically authorized by the client; state appraiser regulatory agencies; third parties as may be authorized by due process of law; or a duly authorized professional peer review committee except when such disclosure to a committee would violate applicable law or regulation.[3]
So you now ask, “Does the Client of the appraiser determine the appraisal assignment results?” The answer is NO. The appraiser is bound by professional standards to provide competent, unbiased appraisal services and opinions of value, regardless of who the Client is. The appraiser is, however, required to identify the proper Scope of Work up front when asked to perform any appraisal assignment. The Scope of Work includes: Identification of the Client, Intended Use, Intended Users, the type and definition of Value, the Effective Date of the appraisers’ opinions and conclusions, the Subject of the assignment and relevant Characteristics, and any assignment Conditions. Communication with the Client is required to gather the information necessary for problem identification. Once these are known, it is the appraiser’s decision to apply the necessary work to derive and report credible results.
The Maine Consumer Credit Code, Title 9-A, §9-309 cites the following regarding copies of real estate appraisals:
A creditor that imposes a fee on a person for the cost of an appraisal of any real estate shall furnish to the person, at no cost, one copy of the appraisal upon request, if the request is made within 90 days after the creditor has provided notice of action taken on the application for credit or the date of the closing, whichever is later, or 90 days after the application is withdrawn. [1999, c. 150, §7 (AMD).] [4]
Obtaining a copy of the appraisal does not make you the Client of the appraiser. However, it seems to me that every borrower should have an opportunity to read the appraisal report, or whatever document was used for the collateral value that was utilized in the credit decision. You might find it interesting.
Mark L. Plourde, MAI is the Managing Partner of Maine Valuation Company, and a MEREDA member since 1997. Maine Valuation Company provides unbiased professional opinions of value on commercial real estate along with appraisal review services throughout Maine. www.mainevaluation.com
[1] The Uniform Standards of Professional Appraisal Practice, 2014-2015, published by the Appraisal Foundation, Page U2
[2] Interagency Appraisal and Evaluation Guidelines http://www.fdic.gov/news/news/financial/2010/fil10082a.pdf
[3] The Uniform Standards of Professional Appraisal Practice, 2014-2015, published by the Appraisal Foundation, Page U9
[4] All copyrights and other rights to statutory text are reserved by the State of Maine. The text included in this publication reflects changes made through the First Special Session of the 126th Maine Legislature and is current through October 9, 2013. The text is subject to change without notice. It is a version that has not been officially certified by the Secretary of State. Refer to the Maine Revised Statutes Annotated and supplements for certified text.
Categories: Maine Real Estate Insider
