During the process of getting a mortgage approval, you broker may require you to get an appraisal. Many times, clients respond with, “but I already did a building inspection. Does the bank want that report?”
Appraisal and building inspection are two different things.
An Appraisal is the process whereby the bank sends in a qualified thirty party appraiser (usually with an AACI or CRA designation) in order to determine the LENDING VALUE of the property for the bank (at the buyer’s cost in most cases).
A building inspection is a third party inspector, hired and selected by the buyer, who goes in to look at the house’s structure, electrical, plumbing, drainage, etc… to determine how SOUND the house is.
Appraisal is for the bank. Inspection is for the buyer.
The bank will only ever want a building inspection if there are some comments in the MLS listing that makes it sound suspicious such as comments about structural issues, asbestos, vermiculite insulation, or some other chemical or mould issues. In my 10 years as a bank employee / broker, I’ve only had to show inspection reports to banks three times, and all three were for asbestos and vermiculite insulation.
Here is an example of when an appraisal will be required: if you are buying a house from a private seller for $450,000 the bank will want an appraisal done to make sure you are paying a fair market value. As a general rule, any time you borrow more than 50% of the purchase price, an appraisal will be required. However, there are “electronic appraisals” that get done when you put less than 20% down and involved CMHC. CMHC is the government organization that guarantees the bank will not lose money in the event you get foreclosed on. They have an internal system called “Emili” that does an electronic appraisal based on recent sales of houses in the area with similar criteria.
Times that an official (non-electronic) appraiser will generally be required (some exceptions apply, but check with me to determine what exceptions they are):
1. Private sales (not sold on the MLS with realtors involved)
2. Any mortgage requiring private financing
3. Any mortgage where you are financing more than 50% but less than 80% of the purchase price or value
4. Any “unique” or “oddball properties” for which the value is higher (or less)
The bank will indicate whether or not they want an appraisal conducted. Most lenders have an “approved list” of appraisers that they do business with and trust. Your broker will generally order appraisals from firms widely accepted so they can send it to multiple lenders if needed.
There is a very disturbing trend in the industry right now: the insistence of lenders that brokers order their appraisals through a consolidator. By this, I mean a company that acts as a middle man between the appraiser and the broker. Here is why the banks want them to be used:
As a broker, I have to log into the consolidator’s online system and request an appraisal. Then, the appraisal is assigned to a firm, and as the broker I am unable to know what firm is conducting the appraisal. This is done so that I, as the broker, am unable to talk to the appraiser and affect their estimation of value. Once the appraisal is completed, it is sent to me through the online system.
Sounds fine and sounds safe (f0r lenders), right?
It’s a colossal pain. The reason is that many times, getting an appointment set is difficult with sellers often elderly, foreigners, or what have you. Here is something that happened to me last week that was REALLY frustrating, and totally unnecessary, but is a common occurance when these consolidators are used:
I had a client whose bank needed an appraisal. I called up my preferred appraiser, and requested him to go and conduct the appraisal. The seller is an elderly man who is very very ill and bedridden. The appraiser called and called and couldn’t get an answer. Eventually a family member called him back and said the man was in the hospital, but if he wanted to come by, the son would make sure the appraiser got access. The appraiser went by the next morning and met the son (who didn’t live there) who provided access. The appraiser then did a walk through, took his photos, and left.
I then took a call from the bank telling me that they were declining the deal. I quickly switched gears to a lender that was willing to do it, but they wanted the appraiser ordered through NAS (the most painful of all consolidators to use). I called NAS and told them the situation with the seller unable to provide access, and that an appraiser (approved by NAS) had done a walk through and inspection but had not yet provided a report. I requested that they please send the appraisal to that appraiser (or at the very least to his firm – whether or not that specific appraiser does the report or not I don’t care). Their response? No. The reason? I am not allowed to know who is doing the appraisal. This is total B.S. because as soon as the appraiser calls the seller for access I can call the seller and ask him who it is. It’s such a load of garbage. When my client heard of this rule he told me to cancel the file with the new lender and find yet another – making me do the deal a third time…
When I try to cancel the appraisal with NAS? Already charged it on my credit card, and will take weeks to get it back. Then, even when cancelled, the new appraiser didn’t get notified by NAS and kept harassing the elderly seller until I found out about it and called him to get him to knock it off. If I had gotten the report through them and needed any adjustments it’s $75 per change even if it takes them 20 seconds.
Bottom line: I hate these companies. I dislike consolidators in general. All they are is a company that gets a cut of the appraisal fee for standing in the middle and clogging up the process for both buyer and seller. I understand why the lenders are starting to like them, but rather than making life difficult for everyone else (and getting the consolidator paid) lenders should just be choosier about what appraisers they deal with. One of my preferred lenders, Westminster Savings, only uses 8 appraisers (out of 200+), and thus doesn’t need to use a consolidator because they know and trust the judgment of the appraisers on their list.
Ok, this blog has taken me a little farther afield than I intended, but that’s what happens when I get fired up about these things (consolidators…)
Until next time, happy house hunting!