Update Original Reports & Use the Same Appraiser?

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Question:

A customer/owner wants to have his apartment property appraised using two methods- "as is" and "as if unimproved" (land value). After the appraisal is completed the customer wants to obtain a bank loan to finance either a rehab or new construction. Under FIRREA, can the bank engage the same appraiser and have the original reports updated?

Answer:

From the FFIEC Appraisal FAQ:

12. May an appraisal be readdressed to a regulated institution from the borrower or another institution?

Answer: A regulated institution cannot accept an appraisal that has been readdressed or altered by the appraiser with the intent to conceal that the original client was the borrower. Readdressing appraisals to conceal the original client, whether the client is a borrower or another financial services institution, is misleading and violates the agencies’ regulations and USPAP.

18. How can a regulated institution ensure appraiser independence when accepting an appraisal prepared for a financial services institution?

Answer: Documentation (that is, an engagement letter) should be available to indicate that the financial services institution (not the borrower) ordered the appraisal and that the appraiser has no direct or indirect interest, financial or otherwise, in the property or the transaction. The original lender’s engagement letter to the appraiser should be made part of the appraisal report to provide additional information on the identity of the client in order to ensure independence in the appraisal process.

I guess I would have to question why a bank would want to engage the same appraiser. The bank is going to want a totally independent evaluation.

First published on BankersOnline.com 10/27/08