Not everyone who reads or receives an appraisal is an Intended User.
While the intention of an appraisal report is to clearly and concisely outline the support for an estimate of fair market value, very few appraisal reports are actually easy to read and understand. This is usually because an appraisal report is written to meet the very specific needs of a particular Intended User for a particular Intended Use and they alone have the appropriate frame of reference with which to interpret the twenty or more pages of information.
If you are reading an appraisal report that was prepared in order to secure financing through a lender or mortgage company, the Client and Intended User is probably that lender or mortgage company. The appraisal report is required to answer specific questions that have meaning within the framework of that particular assignment. Each appraisal has verbiage within it that certifies that no one other than these parties is intended to rely on the appraisal report.
To that effect, we often get phone calls or emails requesting a copy of an appraisal report from someone other than the client. According to the Graham Leach Bliley Act of 1999, law prohibits the transmittal of any appraisal specific information, whether verbal or written, to any party other than the client. This includes a homeowner who may have paid for the appraisal in an attempt to secure a loan. The appraiser is required to keep their client’s confidentiality and their client is not the borrower/homeowner/realtor in a lending transaction, the financier is the client.
Now, let’s back up a little bit. With regard to an appraisal, the definition of “client” is the person or institution who initiates the appraisal service. Given that appraisals for federally regulated financing are required to be ordered by the lender or a processing agent for the lender, this means that the “client” will always be the lender.
“But I paid for the appraisal! It was prepared on my house,” cries a frustrated homeowner.
Trust me, after 25+ years of hearing this lament, we truly understand how the disconnect and triangulation between appraiser, lender, and borrower can lead to headaches. Heck, we’ve been borrowers ourselves and the loan process is no picnic!
Generally, the homeowner has to pay for the appraisal within the loan application period. Loan and application fees, including the appraisal fee, are simply costs incurred to obtain the loan. Paying for the appraisal does not make it the intellectual property of anyone other than the client. Most of the time, the fees paid for the appraisal also include lender expenses to underwrite the appraisal report and to meet compliance standards. When big lenders use appraisal management companies to make this underwriting more efficient, the appraisal fees are usually high and the appraiser will typically only see a small portion of that fee.
That said, it is very common for real estate agents who are participating in the sale of a property or for the homeowners/borrowers themselves to receive a copy of the appraisal report. It is critical that these additional readers understand that the appraisal was not prepared for them and therefore, the appraisal report may lack what would appear to be logic or empirical support for the value estimate conclusion. What the secondary readers of the report should understand is that an appraisal is intended to provide documented historical support, as well as forecasting, in an attempt to help the lender make an educated decision regarding their investment risk, and the selection of comparables and their treatment within the report, is often dictated by guidelines that are handed down by the lenders themselves. The appraisal is not written to be used by the homeowner or real estate agent for any purpose. Because of this, there may appear to be holes in the logic of the appraisal report to a non-intended reader.
After communication with the client at the outset of the appraisal order, the scope of work is determined by the appraiser. It includes decisions as to which regulatory agency the report needs to be compliant, to what degree the subject property will be inspected, on which form the appraisal should be prepared, etc. If it is determined that the client is an individual or homeowner, that appraisal report is constructed on a different set of forms than that which is utilized for lending purposes. For non-lending purposes, an appraisal should never be prepared on forms that are specific to lending as this can be confusing and would violate Uniform Standards of Professional Appraisal Practice. For any other assignment type, an appraisal can be narrative, or prepared on a different type of form, often the GPAR (General Purpose Appraisal Report). These options allow reporting that is more representative of what typical market participants, i.e. realtors, borrowers and homeowners, expect within an appraisal report.
