VIDEO: Can an Applicant Request a Second Appraisal?
In this Compliance Clip (video), Adam tackles a nuanced appraisal question many lenders encounter: can a borrower request a second appraisal when the bank already has an acceptable one on file? Using a real-world scenario, Adam quickly explains the key regulatory and risk considerations, outlining practical compliance expectations, common missteps, and how institutions should approach situations like this.
Video Transcript
The following is a transcript of this video:
This Compliance Clip is going to answer the question of whether a borrower can request a second appraisal once the financial institution already has an acceptable appraisal received from a certified appraiser.
The question we have is this: can a borrower invoke a right to a second appraisal when the purchase price is unknown, the bank already has an acceptable appraisal, no loan estimate has been issued, and the borrower has not provided an intent to proceed?
This is a question I've received over the years - can a borrower request a second appraisal - but, this week, at the time of recording this video, I received an email with a unique twist on this. What they had is they had a lender who had a customer, the customer had lived in a rental property, he was trying to buy the rental property from his landlord, and they agreed that they would rely on the appraised value as the purchase price.
The problem was that the lender didn't have a purchase price, so they didn't have a loan amount, and so, they didn't have a completed application, so they didn't provide a loan estimate, there's no intent to proceed, the bank chose to order the appraisal as part of the process early on. Well, of course, the appraised value came back low because there was no purchase contract listed, and it did come back low, often,, that's what happens with refinances in rental property, rather than a purchase of a single family. It's just how things work sometimes. It came back low, and so, the customer's upset, the seller's upset, the lender is stuck, not sure what to do, the customer wants a new appraisal, and they're gonna figure out a purchase price first. They want to order a new appraisal. So, the bank is saying, “hey, can we order a new appraisal? What do we do at this point?”
The answer to this question, again, is pretty convoluted; it's gonna come from…where? Well, it's a number of places. It's gonna come from some good safety, safety and soundness best practices, it's going to come from reconsideration of value guidelines, guidance that's really been rescinded in 2025, but some reconsideration of value best practices that have been discussed prior to 2025 when Director Rohit Chopra was in office at the CFPB, and also from Regulation Z.
So, let's explore the different components of this question. Some of these is not a hard rule, but it's all definitely best practices.
So, my answer to this, first and foremost, is no, the borrower really does not have a right to a second appraisal in this situation.
Once a bank has an appraisal that it considers acceptable, the bank approved this appraisal, they found no issues with the value, they found no issues with the comps, it's an approved appraiser, right? At that point, once they have an accepted appraisal, that's the value they should be relying on. Ordering a second appraisal to seek a higher value is really appraisal shopping, and the examiners will typically frown on that. This is essentially appraisal shopping, and that is a problem because we can't just cherry-pick appraisals and hope to get a higher value in order three and go with the highest one. That's just not how the system is designed or set up. So, it's really a matter of safety and soundness in not doing that.
Now, this scenario really does not qualify as a reconsideration of value from the conversations we had under CFPB Director Rohit Chopra and his regime at the CFPB because the first appraisal is considered acceptable, and no formal loan application with intent to proceed exists. There's no arguments of discrimination. There's no real reason to get a second appraisal. The interagency appraisal guidance is another place we can look for this. Again, it would be appraisal shopping because we have an accepted appraisal.
Now, it gets complicated because no loan estimate was issued and because the borrower has not indicated his intent to proceed, the bank also cannot require the borrower to pay for that appraisal if the loan does not close. Now that the value is too low, it might be a dead deal. And they might just say, “Hey, if you won't give us the appraisal, raise the value we need, we're going to go somewhere else.” And unfortunately, that happens and that might happen. And at this point, what I urge the lender to understand is if you're worried about getting paid, because the real question related to “what if they order a second appraisal, does the bank have to eat that second appraisal?” My response was, “Hey, just make sure you know that you might have to eat this first appraisal because regularly, Regulation Z is extremely clear. Regulation Z says, Mr. Lender, that if you don't have an intent to proceed from a borrower, you cannot require them to pay for an appraisal. So this was part of the application process. You just don't have a completed application yet because you didn't have a loan amount, but you got the appraisal early. You cannot require the customer to pay. Pay for that. You can't require credit card numbers. You can't require a check. What you have to do is you have to give them a loan estimate, let them provide their intent to proceed, then they can pay for it. And if it cancels before you've given them the loan estimate and intent to proceed, you're going to be stuck with this.”
So this is a bad practice altogether. This is why we try to stick to our existing processes and procedures. I understand the lender was trying to help the customer out, the lender was trying to make the deal happen because it was a unique situation, but the lender really probably should have gotten approval from senior management or explained to the borrower that this is why we do this, we've got established procedures for a reason, and this is what has to happen. You have to give me an initial loan amount. I'll start the application. If you guys want to adjust the contract, that's fine, but at this point, I need a contracted loan amount before I can order an appraisal.
So, it was a bad situation all around. This is something that, again, it's a question that comes up a lot from lenders who don't fully understand the appraisal requirements and the appraisal risk. And again, it's coming from a lot of different places. There’s not a hard rule that says this, but it's coming from the interagency guidance, it's coming from what we know about reconsideration of value, it's coming from a matter of safety and soundness exam. It also comes from Regulation Z. So it's a convoluted question with a convoluted answer, but hopefully that clarifies things for you, and this might be a video you want to pass on to your lending team to help them understand why we do what we do in regards to collecting appraisal fees and ordering appraisals. And why it's never a good idea to make an exception without talking to somebody who understands the potential risk or is willing to eat the potential cost related to that, which in this case would be the cost of that appraisal.
That's all I have for this Compliance Clip.