November 15, 2010
When applying for a loan to purchase a home with an FHA mortgage, the appraisal of that home is one of the most important steps in the process. Without an FHA appraisal, the entire process is stalled after a certain point until the job is done. FHA appraisals require the buyer to anticipate fees associated with doing the work, and the seller must anticipate costs associated with repairing items that could lower the appraised value of the property.
But who assigns the FHA appraiser? Does the buyer get to pick someone, does the appraiser work for the lender, or does the FHA have a roster of impartial third parties certified to look at a given home to assign it a fair market value?
The FHA has a list of qualified appraisers eligible to work in a given housing market. Lenders are allowed to choose an appraiser from this list, but there are some limitations. Under certain conditions, an FHA appraiser may work directly for a lender–but they can’t appraise properties that lender underwrites when a commission is involved. There is no prohibition against an FHA-qualified appraiser working for a bank to appraise homes in the local market; they cannot do FHA appraisal work for that bank when the presence of a commission could indicate a potential conflict of interest.
Specifically, the FHA requirements state the appraiser must not be, “selected, retained, or compensated by a mortgage broker or member of a lender’s staff who is compensated on a commission basis tied to the successful closing of the loan.”
The FHA goes a step further to prevent conflict of interest with this rule; “Loan production staff, including those that report to any officer who is not independent of the loan production process, are not permitted to participate in substantive communications with an appraiser relating to or having an impact on appraisal valuation. This includes ordering or managing an appraisal assignment.”
It’s easy to see that the FHA rules in this area are designed to protect buyers and sellers from situations–perceived or otherwise–where the appraiser could be seen to be working in the bank’s favor when assigning fair market values for a given property. Yes, the lender is allowed to select the appraiser, but it can’t do so in its own interest–impartiality is one of the most important aspects of the appaiser’s job.
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
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