Can a Lender Refuse to Transfer an Appraisal?

A real estate appraisal provides a professional, unbiased opinion of a property’s market value. This valuation is a component in mortgage lending, as it helps lenders determine the appropriate loan amount and assesses the collateral securing the loan. The appraisal process involves a qualified, independent appraiser evaluating the property based on its condition, location, and recent sales of comparable properties. The resulting report offers a detailed analysis of the property’s value, which is then used by the lender to mitigate financial risks associated with the loan.

Understanding Appraisal Transfers

Transferring an appraisal means a new lender accepts and uses an appraisal report originally ordered for a different lender. This practice appeals to borrowers shopping for better interest rates or whose initial loan application did not proceed. Borrowers often hope to use an existing appraisal instead of incurring the cost and time for a new one.

An appraisal transfer involves the new lender’s willingness to rely on the existing valuation. This acceptance implies the new lender believes the original appraisal accurately reflects the property’s current market value and meets their underwriting standards. While the appraisal is tied to the specific property, its usability by a different lender depends on various conditions.

Common scenarios for seeking an appraisal transfer include borrowers switching lenders for more favorable loan terms or reapplying for a mortgage with a new institution. Using an existing appraisal can save the borrower time and hundreds of dollars in appraisal fees.

Lender’s Discretion in Appraisal Transfers

Lenders have discretion regarding whether to accept an appraisal completed for another institution. There is no universal mandate compelling a lender to use an existing appraisal, particularly for conventional loans. This discretionary power stems from a lender’s need to ensure the appraisal meets its specific internal risk policies and underwriting guidelines.

One reason for refusing a transfer is the appraisal’s age. Many lenders prefer appraisals to be no older than 90 to 120 days. If market conditions have changed significantly, or if the appraisal exceeds the lender’s freshness criteria, a new report will likely be required.

Different loan programs also have distinct appraisal requirements that can prevent a transfer. For example, an appraisal prepared for a conventional loan may not satisfy the guidelines for an FHA or VA loan, which often have unique property condition standards. A new lender’s investor guidelines may also differ, necessitating a new appraisal to comply with specific secondary market requirements.

A lender’s internal risk policies dictate their comfort level with accepting external appraisals. If the appraiser who conducted the original valuation is not on the new lender’s approved list or if a different Appraisal Management Company (AMC) was involved, the transfer may be denied.

Property changes since the original appraisal can also lead to refusal. If there have been significant improvements, damage, or other alterations, the original appraisal may no longer accurately reflect its current value. A new appraisal is necessary to ensure the valuation is based on the property’s present state.

Borrower’s Rights and Options

Even if an appraisal transfer is not possible, borrowers have specific rights concerning the appraisal process. Under the Equal Credit Opportunity Act (ECOA) Valuations Rule, borrowers have a right to receive a copy of their appraisal report. This copy must be provided promptly upon completion or at least three business days before the loan closing, whichever is earlier, and free of charge.

Borrowers also have the right to challenge an appraisal if they believe it contains errors or inaccuracies. This challenge involves contacting the lender and providing supporting documentation, such as recent comparable sales data or evidence of factual errors. The lender is then obligated to review the challenge and may request a reconsideration of value from the appraiser or order a new appraisal.

If a lender refuses to accept an existing appraisal, the borrower will likely be responsible for the cost of a new one. Appraisal fees are paid upfront by the borrower. While this can add to the closing costs, it is a necessary expense to move forward with the loan application if a transfer is not feasible.

Regulatory Framework for Appraisals

The real estate appraisal industry operates within a regulatory framework designed to ensure unbiased valuations and protect consumers. Appraiser independence is a key element, reinforced by provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act. These regulations prohibit any party with an interest in the loan transaction from influencing an appraiser’s professional judgment.

The Uniform Standards of Professional Appraisal Practice (USPAP) provides ethical and performance standards for appraisal practice in the United States. USPAP ensures consistency, objectivity, and transparency in appraisal reports. Appraisers must comply with USPAP, which includes rules on integrity, impartiality, and record-keeping.

Regulations also mandate that lenders perform their own due diligence on appraisals they intend to rely upon. This requirement contributes to a lender’s discretion in accepting transferred reports, as they must confirm the appraisal meets their own standards and regulatory obligations. A lender may accept an appraisal from a different lender if it complies with appraiser independence requirements and the new lender’s own criteria.