Who Picks the Appraiser in a Real Estate Transaction?

A real estate appraisal is an objective assessment of a property’s market value. This valuation is an important step in many real estate transactions, particularly when a mortgage is involved. The appraisal provides an unbiased estimate of a property’s worth. For lenders, it helps confirm the property’s value adequately secures the loan amount, protecting their financial investment.

The Lender’s Role in Appraiser Selection

In most real estate transactions involving a mortgage, the lender orders the appraisal. This is standard practice for nearly all conventional, FHA, and VA loans. Lenders require an appraisal to protect their investment, ensuring the property’s value is sufficient collateral for the loan amount. This step is an important part of the loan approval process.

The appraisal confirms the buyer is not borrowing more than the home’s actual market worth, which mitigates risk for the lending institution. Although the buyer typically pays for the appraisal as part of closing costs, the report is prepared for the lender. This ensures the valuation serves the lender’s need to understand the collateral risk associated with the mortgage.

Ensuring Appraiser Independence

Appraiser independence is an important principle designed to ensure unbiased property valuations. This independence prevents interested parties, such as real estate agents, buyers, or sellers, from directly influencing the appraisal outcome. Regulations safeguard this impartiality, making it impermissible for anyone with a financial stake in the transaction to exert pressure on the appraiser. These rules protect consumers and maintain the financial system’s integrity by ensuring the valuation reflects true market conditions.

The regulatory framework prohibits actions like attempting to coerce, extort, or bribe an appraiser, or otherwise influencing their professional judgment. This separation ensures the appraiser’s opinion of value is based solely on objective data and professional judgment, free from external pressures. It also means loan production staff within a lending institution, whose compensation might be tied to loan volume, are excluded from directly selecting appraisers for specific assignments.

How Appraisers are Assigned

To maintain independence, lenders commonly utilize Appraisal Management Companies (AMCs) to facilitate the appraiser assignment process. AMCs act as intermediaries, receiving appraisal orders from lenders and assigning them to qualified, independent appraisers from their network. This system helps create an arm’s-length relationship between the lender and the appraiser, further removing the possibility of direct influence on the valuation.

AMCs assign appraisers based on factors like their local experience, license level, and proximity to the property, often using rotating or blind assignment systems. This method ensures the appraiser for a specific property is selected objectively rather than by a party with a vested interest in the transaction. Once the appraisal is completed, the AMC delivers the report to the lender, handling administrative tasks and communication throughout the process.

Buyer and Seller Interactions with Appraisal

While buyers and sellers do not choose the appraiser, they are important participants in the appraisal process. Their involvement primarily includes providing access to the property for the appraiser’s inspection and supplying any relevant information about the home or recent improvements. Buyers are legally entitled to receive a copy of the appraisal report from their lender no later than three days before the loan closes.

If the appraised value comes in lower than the agreed-upon sales price, it can impact the transaction. In such situations, buyers may have options, such as renegotiating the purchase price with the seller. Buyers can also request a reconsideration of value if they believe the appraisal contains errors or overlooks significant property features, providing supporting documentation to their lender.