Who Orders the Appraisal in a Real Estate Transaction?

A real estate appraisal provides an unbiased estimate of a property’s value. This objective valuation is a fundamental component of many real estate transactions, offering insight into a property’s true market worth. A licensed professional assesses factors like property condition, location, and recent comparable sales. An accurate appraisal helps ensure fair dealings and informed decisions for all parties involved.

Lenders and Appraisal Ordering

In most real estate transactions involving financing, the mortgage lender is responsible for ordering the appraisal. Lenders require an appraisal to protect their financial investment by confirming the property’s value supports the loan amount. This ensures the collateral for the loan is sufficient, mitigating risk for the lending institution. The appraisal also helps the lender determine appropriate loan terms.

While the borrower typically pays the appraisal fee, the lender initiates and controls the ordering process. This practice helps maintain appraiser independence, preventing potential influence from parties with a direct financial interest in the transaction’s outcome. The lender usually orders the appraisal soon after a purchase agreement is signed and the loan application is submitted, aiming to avoid delays in the closing process.

Appraisal Management Companies and the Ordering Process

Appraisal Management Companies (AMCs) play a central role in facilitating the appraisal ordering process for lenders. These independent entities act as intermediaries, connecting lenders with qualified, state-licensed or certified appraisers. AMCs help ensure appraiser independence and compliance with federal regulations.

When a lender needs an appraisal, they submit the request to an AMC, which then assigns the appraisal to an appraiser from its network. This system prevents direct contact between the lender and the appraiser, fostering an unbiased valuation. AMCs manage administrative tasks, including appraiser selection, scheduling the property visit, and delivering the final report to the lender. This helps maintain the integrity of property valuations within the lending industry.

Other Scenarios for Ordering an Appraisal

While lenders are the primary drivers of appraisals in financed real estate transactions, other parties may also order them for various purposes.

Cash Buyers

Cash buyers often choose to obtain an appraisal even without a lender’s requirement. This provides them with an independent verification of the property’s fair market value, aiding their due diligence and ensuring they are paying a reasonable price. An appraisal can offer peace of mind for a significant investment.

Sellers

Sellers may order a pre-listing appraisal to help determine a competitive and accurate asking price for their property. This can expedite the sales process by setting realistic expectations. Property owners might also seek an appraisal for property tax appeals if they believe their assessed value is too high.

Legal and Financial Matters

Attorneys and estate planners frequently utilize appraisals for legal and financial matters that require an objective property valuation. In divorce proceedings, an appraisal determines the fair market value of marital real estate, ensuring an equitable division of assets between spouses. For estate planning or probate, appraisals establish the market value of properties as of a specific date, such as the date of death, which is necessary for calculating estate taxes and distributing assets to beneficiaries.

Relocation Companies

Relocation companies also commonly order appraisals to establish a guaranteed buy-out price for an employee’s home when transferring for work, often focusing on marketability.