October 13, 2016
There are some circumstances where a borrower may wonder about requesting a second appraisal on a property to be purchased with an FHA mortgage. For example, if the loan applicant decides to switch lenders, is a new appraisal required? What about cases where there’s a disagreement over the results of the appraisal?
Many of the answers to these questions are circumstantial-it all depends on the nature of the request. Sometimes a second appraisal may be permitted IF conditions described in HUD 4000.1 exist. But in other cases a second appraisal is simply not permitted.
One good example of that-a borrower or seller cannot request a second appraisal to increase the fair market value of the property. However, if “material deficiencies” are suspected in the original appraisal, the market value of the property could be one of the points of contention. But the second appraisal would be allowed only if the deficiencies exist, rather than a simple disagreement over the value of the home.
HUD 4000.1 states, “A second appraisal may only be ordered if the Direct Endorsement (DE) underwriter (underwriter) determines the first appraisal is materially deficient and the Appraiser is unable or uncooperative in resolving the deficiency. The Mortgagee must fully document the deficiency and status of the appraisal in the mortgage file. The Mortgagee must pay for the second appraisal.”
What does the FHA consider a material deficiency? From HUD 4000.1, page 123:
“Material deficiencies on appraisals are those deficiencies that have a direct impact on value and marketability. Material deficiencies include, but are not limited to:
-failure to report readily observable defects that impact the health and safety of the occupants and/or structural soundness of the house;
-reliance upon outdated or dissimilar comparable sales when more recent and/or comparable sales were available as of the effective date of the appraisal; and
-fraudulent statements or conclusions when the Appraiser had reason to know or should have known that such statements or conclusions compromise the integrity, accuracy and/or thoroughness of the appraisal submitted to the client.”
Furthermore, HUD 4000.1 adds a list of situations where a second appraisal is considered appropriate (include the situations already mentioned above):
“A second appraisal may only be ordered by the second Mortgagee under the following limited circumstances:
-the first appraisal contains material deficiencies as determined by the underwriter for the second Mortgagee;
-the Appraiser performing the first appraisal is prohibited from performing appraisals for the second Mortgagee; or
-the first Mortgagee fails to provide a copy of the appraisal to the second Mortgagee in a timely manner, and the failure would cause a delay in closing and harm to the Borrower, including loss of interest rate lock, violation of purchase contract deadline, occurrence of foreclosure proceedings and imposition of late fees.”
If a second appraisal IS ordered, FHA loan rules state, “For the first two cases outlined above, the Mortgagee must rely only on the second appraisal and ensure that copies of both appraisals are retained in the case binder. For the third case above, the first appraisal must be added to the case binder if it is received.”
For more information on what may apply in your situation, speak to your loan officer.
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
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