Can A Lender Not Honor A Home Appraisal

Can A Lender Not Honor A Home Appraisal On Home Purchase

Gustan Cho Associates are mortgage brokers licensed in 48 states

This BLOG On Can A Lender Not Honor A Home Appraisal On Home Purchase Was UPDATED On April 28th, 2019

All mortgage lenders require a home appraisal to be done on a home purchase and/or refinance mortgage.

  • The reason for the appraisal is to confirm the market value of the subject property
  • Home Appraisals is also to protect the mortgage lender’s interest in case borrowers default and foreclosure
  • A home appraisal is performed by a licensed appraiser
  • The market value that mortgage lenders go by is the comparable valuation method
  • Appraisers need to justify the appraisal by providing comparison homes to the subject property
  • Comparable sales needs to be within the same sub-division
  • Or within a one square mile radius that is like and similar in size, quality, and location
  • No property is exactly the same
  • An appraiser can do price adjustments with regards to the following:
    • amenities
    • square footage
    • age
    • condition of the subject property to comparable properties

Can A Lender Not Honor A Home Appraisal? A mortgage lender does not have to take a home appraisal and use it if they do not feel comfortable on the appraisal report. Can A Lender Not Honor A Home Appraisal, the answer to this question is absolutely.

Can A Mortgage Lender Not Honor A Home Appraisal And Appraisal Process

Most home sellers have professional realtors price out the home prior to listing it:

  • Majority of home buyers are buyers that need a home loan
  • In order to get a home loan approval and close on time, buyers need to make sure that the appraisal comes in at the purchase price or the purchase contract needs to be re-negotiated
  • It does not matter whether a home seller gets multiple offers at a high asking price
  • Unless the home buyer is a cash buyer who does not care about the value of the subject property, the home will not close unless it is priced accordingly and the property appraises out

Who Orders The Home Appraisal?

After buyers enter into a home purchase contract and submit the signed real estate contract to a mortgage lender, the lender will order the appraisal as soon as they get a conditional mortgage loan approval.

  • The appraiser will contact the selling real estate agent to get access to the home
  • If the seller’s real estate agent has strong recent comparable sales to help the appraiser, they can provide it when the appraiser conducts the appraisal
  • The appraiser will normally take 3 to 5 days to complete his appraisal report
  • Once complete, the appraiser submits the report to the appraisal management company
  • The appraisal management company supervisor will review the appraiser’s report and sign off on it and submit it to the mortgage lender
  • Once the lender receives the completed appraisal on the subject property, two things can happen depending on the lender
    • The lender will just honor the appraisal and will use the appraised value on the appraisal
    • Or some lenders will have an appraisal review process

What Is An Appraisal Review?

Some lenders have their own appraisal review process. This is where an appraisal review underwriter will go through the completed appraisal that was just completed:

  • The appraisal review underwriter is a quality control underwriter
  • Appraisal review underwriter will be scrutinizing and analyzing the appraisal to find any flaws in it
  • If everything checks out, the appraisal review underwriter will sign off on it
  • If there are issues with the appraisal, then the appraisal review underwriter can not honor the home appraisal until the issues the appraisal review underwriting have addressed have been answered
  • Can a lender not honor home appraisal: Yes, the lender can request a second home appraisal if not satisfied with the original first appraisal

Why Lenders Do Not Honor Home Appraisals?

There are two situations where lender does not honor appraisals:

  • Appraisals can go through mortgage appraisal review underwriting
  • If there are issues loan closings can get delayed
  • Often times, when an appraisal is not honored by the appraisal review underwriter, is due to the fact that the comparable sales were not close enough to subject property
  • Had a borrower buying a property in a semi-rural area in Jacksonville, Florida
  • The purchase price was $365,000
  • The appraisal came in at $365,000
  • But the appraisal review underwriter slashed the market value to $310,000
  • Long story short, after multiple back and forth with trying to justify the $365,000 appraised value the appraiser came in and the supervisor of the Appraisal Management Company validating the $365,000 value
  • The appraisal review underwriter dropped the market value to $320,000
  • We were still short $45,000
  • The sellers did not want to lower the sales price
  • The buyers could not cough up with the difference
  • On this case scenario, I killed the deal with the wholesale mortgage lender and took the file to a different correspondent lender where they did not have an appraisal review process
  • The different correspondent lender just went off the original FHA appraisal
  • FHA appraisals can be transferred from one lender to another

Issues With Appraisal Review Process

On a different case scenario, the appraisal review underwriter had a problem with the appraisal on a subject property that came with 7 lots. There were no comparable sales similar to the subject property.  On this case scenario, the mortgage underwriter requested a second appraisal to justify the original appraisal and its price adjustments.  The second appraisal validated the first original appraisal and the mortgage loan got a clear to close and ended up closing on the loan.

This BLOG On Can A Lender Not Honor A Home Appraisal was updated on April 28th, 2019