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Appraisal Independence Requirements

Appraisal independence requirements are federal and GSE-mandated rules that prohibit lenders, agents, and other parties from influencing property appraisal outcomes. Codified in Dodd-Frank and enforced through GSE guidelines, these rules require a structural firewall between loan production and appraisal management. Appraisal Management Companies (AMCs) serve as intermediaries to maintain independence, and borrowers have the right to receive copies of all appraisals. The reconsideration of value process allows for factual challenges without compromising independence.

Key Takeaways

  • Federal law prohibits any person with an interest in a transaction from influencing or coercing an appraiser's value determination.
  • Loan production staff (loan officers, processors) are prohibited from selecting or influencing the selection of appraisers.
  • Appraisal Management Companies (AMCs) serve as intermediaries between lenders and appraisers to maintain the required independence firewall.
  • Borrowers have a legal right to receive copies of all appraisals conducted in connection with their application, regardless of loan approval status.
  • Appraisal waivers offered by Fannie Mae and Freddie Mac eliminate the traditional appraisal requirement on qualifying transactions.
  • The reconsideration of value (ROV) process allows submission of additional comparable data but cannot direct the appraiser to a specific value.
  • Conditioning appraiser payment on loan closing or retaliating against appraisers for unfavorable values is prohibited.
  • The independence requirements were established in response to pre-crisis practices where pressure on appraisers contributed to inflated values.

How It Works

Prohibited Coercion and Influence

Federal law and GSE requirements prohibit any person with an interest in a real estate transaction from influencing or attempting to influence the appraiser. Specifically prohibited conduct includes: suggesting, requesting, or requiring that the appraiser report a specific value; withholding or threatening to withhold future business from an appraiser based on a previous appraisal result; conditioning payment of the appraisal fee on the loan closing; and retaliating against an appraiser for reporting a value that does not support the transaction.

Lender employees involved in loan production (loan officers, processors, and their managers) are specifically prohibited from selecting, retaining, or influencing the selection of the appraiser. The separation between loan production and appraisal management functions is a core principle of the independence requirements .

Appraisal Management Companies (AMCs)

The rise of Appraisal Management Companies is directly tied to the appraisal independence movement. AMCs serve as intermediaries between lenders and appraisers, managing the appraisal ordering process to maintain the required firewall between loan production staff and the appraiser. When a lender needs an appraisal, the order goes through the AMC, which assigns it to an appraiser from its panel based on geographic competence and availability rather than based on which appraiser is most likely to produce a favorable value.

AMCs are regulated at the state level through the Appraisal Subcommittee of the Federal Financial Institutions Examination Council (FFIEC). Most states require AMC registration or licensing. Critics of the AMC model argue that AMC fees reduce appraiser compensation, which may affect the quality of appraisals. Proponents argue that AMCs provide the structural independence that was lacking before the HVCC era .

Borrower’s Right to Receive a Copy of the Appraisal

Under the Equal Credit Opportunity Act (ECOA) as amended by Dodd-Frank, lenders are required to provide borrowers with a copy of all appraisals and other written valuations developed in connection with the application, regardless of whether the loan is approved or denied. The lender must provide the copy promptly upon completion, or no later than three business days before closing (whichever is earlier). The borrower may waive the three-day timing requirement but cannot waive the right to receive the appraisal itself .

Appraisal Waivers

Fannie Mae and Freddie Mac offer appraisal waivers on certain transactions where the automated underwriting system determines that a full appraisal is not necessary based on the confidence level of the property data in the GSE’s database. When an appraisal waiver is offered, the lender may close the loan without ordering a traditional appraisal, potentially saving the borrower $400-$700 in appraisal fees and reducing the timeline. Appraisal waivers are more commonly offered on refinances, lower-LTV transactions, and properties with recent and robust comparable sales data .

Appraisal waivers shift the valuation risk from the appraiser to the GSE and lender. If the property value is later found to be materially different, the consequences fall on the lender and GSE rather than the appraiser. This risk-shifting is why waivers are limited to transactions where the GSE has high confidence in the existing valuation data.

Related topics include respa explained: real estate settlement procedures act, role of fannie mae and freddie mac in mortgage lending, fha program structure and guidelines overview, and mortgage regulations: a borrower’s guide.

Key Factors

Factors relevant to Appraisal Independence Requirements
Factor Description Typical Range
Firewall Between Loan Production and Appraisal
AMC Involvement
Appraisal Waiver Availability
Reconsideration of Value Process

Examples

Scenario: Appraisal comes in below purchase price; borrower submits ROV
Outcome: The borrower's agent submits the comparables through the lender's ROV process. The appraiser reviews the additional data, agrees that two of the three comparables are more relevant than those originally used, and adjusts the value to $422,000. The borrower negotiates a price reduction to $422,000 and the transaction proceeds.

Scenario: Loan officer attempts to influence appraiser (prohibited)
Outcome: The communication violates appraisal independence requirements. The AMC is required to report the attempted influence. The lender may face regulatory action, and the loan officer may face disciplinary consequences. The appraisal must be completed without any consideration of the loan officer's communication.

Scenario: Fannie Mae offers an appraisal waiver on a refinance
Outcome: The lender accepts the waiver, and no traditional appraisal is required. The borrower saves approximately $500 in appraisal fees and the loan closes approximately one week faster. Fannie Mae accepts the valuation risk based on its confidence in existing property data.

Common Mistakes to Avoid

  • Providing the appraiser with a target value or the purchase price in an attempt to influence the outcome
  • Assuming an appraisal waiver means the property value is guaranteed
  • Not exercising the right to receive a copy of the appraisal
  • Threatening to take future business away from an appraiser who delivers a low value

Documents You May Need

  • Appraisal report (Uniform Residential Appraisal Report, Form 1004, or applicable form)
  • Comparable sales data for reconsideration of value submissions
  • Appraisal waiver notification from DU or LP (if applicable)
  • AMC engagement letter or appraisal order confirmation
  • Borrower's acknowledgment of right to receive appraisal copy
  • Property listing information and MLS data
  • Prior appraisals or valuations on the same property (if available)
  • Photos of property condition and any improvements not reflected in public records

Frequently Asked Questions

Can my loan officer choose which appraiser values my property?
No. Appraisal independence requirements prohibit loan production staff from selecting or influencing the selection of appraisers. Appraisals are ordered through AMCs or independent appraisal departments to maintain the required firewall.
What can I do if I disagree with the appraised value?
You can request a reconsideration of value (ROV) through your lender. Provide additional comparable sales or factual data that supports a different value. The appraiser reviews the data independently and decides whether to adjust. You cannot direct the appraiser to a specific value.
Am I entitled to a copy of the appraisal?
Yes. Under ECOA, the lender must provide you with a copy of all appraisals and written valuations promptly upon completion, or at least three business days before closing, regardless of whether the loan is approved.
What is an appraisal waiver?
An appraisal waiver means the GSE's automated underwriting system has determined that a full appraisal is not required for the transaction. The lender can close the loan without ordering a traditional appraisal, saving time and the appraisal fee. Waivers are offered on qualifying transactions where the GSE has high confidence in existing property data.
What is an AMC and why are they involved?
An Appraisal Management Company (AMC) is an intermediary that manages the appraisal ordering process on behalf of lenders. AMCs maintain panels of appraisers and assign orders to maintain the independence firewall between loan production and the appraiser. Most lenders use AMCs to comply with appraisal independence requirements.
Can the seller pay for the appraisal?
The borrower typically pays for the appraisal, but the seller can contribute to closing costs which may cover the appraisal fee. However, neither the seller nor any party can condition the appraiser's payment on the loan closing or a specific value outcome.
What happens if the appraisal is lower than the purchase price?
If the appraisal is below the purchase price, the borrower can: negotiate a lower purchase price, pay the difference in cash (the gap between appraised value and purchase price), submit a reconsideration of value with additional data, request a second appraisal (lender policy varies), or cancel the transaction if the contract allows.
Why was appraisal independence created?
Before the independence requirements, it was common for loan officers and real estate agents to pressure appraisers to hit target values. This practice contributed to inflated property values during the housing bubble. The HVCC (2008) and Dodd-Frank (2010) established the current independence framework to prevent this pressure.
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