Reducing Risk of Losing Appraisal Fees on Bank Loan Applications

[Steven Jones]

Hello BP,

I'm looking to do a cashout finance for a duplex and single-family home. Both properties are owned through two separate LLCs. I was recently working with a bank that came very close to approving my loan but at the last moment decided to decline my application. (It's still unclear why the loan was declined, but that's a different post.)

The problem: I had already paid about $1,300.00 total for the appraisals, which was non-refundable.

The question: What are some strategies for reducing the risk of wasting the appraisal fees? I'm in the process of restarting the application process with another bank, but they won't allow me to use the old appraisal since: (1) it's been over 60 days since the last appraisals were done and, (2) the company that did the first appraisals is not approved by the current bank?

Some ideas I'm considering:

1. Apply to about 3 or 4 banks simultaneously and get them to all agree to use the same appraiser. I'm not sure if this is realistic.

2. Get each of the 3 or 4 banks to agree to use an appraisal executed by a company that is not on their list of approved appraisers, as long as it's submitted to them within a specified time frame, for example, 45 days.

3. Negotiate with banks to include the cost of the appraisal in the cost of the loan.

4. Ask the bank to pay for the appraisal (wishful thinking maybe, but it should cost much to ask).

Your help. Does anyone have additional ideas? Or maybe, can anyone expound on any of the ideas listed above, in terms of how to increase the likelihood of success?

I deeply appreciate any input.

[Leigh S.]

Oh man! Following. I had the same thing happen to me on a multi-family - 18 hours before closing! So sorry this happened to you.

[Andrew Postell]

@Steven Jones very sorry to hear that this happened.  Unfortunately, it's a far too common occurrence.  For anyone who is researching this topic you can certainly ask a lender to use your current existing appraisal.  As you mentioned the appraiser needs to already be approved with them to be able to use it.  But this shouldn't be our deciding factor.  If a bank is terrible and they can use our appraisal but another lender is great, but cannot use the appraisal, then the choice should be put on working with the better lender.

Now, how to we reduce our risk with lenders?  The answer is that we need to work with investor friendly lenders.  How do we identify investor friendly lenders?  I wrote an entire post on this topic that you can read HERE.  I know, I know...this is obvious.  But you shouldn't have to apply to 3 or 4 lenders.  That's an enormous amount of time and energy.  Just apply with one. You can certainly interview 3 or 4.  And in that interview a lender should be able to tell you unequivocally if you qualify or not.  "But they all say the same thing"....which is exactly why we have to work with lenders that other real estate investors have already worked with.  We have to lean on other people to give us good references...or we will face the exact thing you are facing now.  And it stinks that it's like this.  Not all lenders are equal.  Some will just outright hate writing a mortgage on an investment property - and you'll never know it.  So read that post and lean on some other investors who have already done the hard work of finding good lenders.  That should help reduce your risk on the next one.

[Alan Lacey]

@Steven Jones I do t have advice you are looking for, but if you are doing Standard Fannie/Freddie financing another lender can use the appraisals with documentation it was ordered in compliance with AIR (appraisal independence requirements) proof paid for, color copy or appraisal and the Appraisal in a cal format. They can use for 120 days and after 120 days can use with a recert of value. I would check with some other lenders. If not a regular conventional loan then ignore all this.

[Daniel Hennek]

1: It should never be unclear why a lender is denying your application.  They have a legal obligation to inform borrowers of their credit decisions with a legitimate reason.  If you're working with someone incompetent who can't tell you that reason then you need to push harder to get one.

2: Appraisals are always non-refundable. The lender isn't going to pay the appraiser, and the appraiser isn't going to take $0 for all that work just because you and the loan officer didn't do your due diligence. You can't transfer appraisals simply because of guidelines. It gets tricky and some lenders allow appraisal transfers, but most competent appraisers won't just transfer the appraisal. It's technically a new assignment even if it's the same appraiser because the client is different, the client is the lender not you. Appraisals are good for 120 days on conventional and FHA. 150 days for USDA, and 180 days for VA...not 60 days so that's just an excuse that doesn't really matter and probably given because they don't want to get into it with you about why the appraisal can't be transferred. A lender can approve whatever appraisers they want, it's a simple process so saying "they aren't approved" is just another way to avoid the conversation with you and get you to move onto the things you should actually be focusing on. One of those being that you'll have to get a new appraisal to work with a new lender.

3: The reduce the risk of have some lender deny your application...work with a better lender and better loan officer.  It's a simple process to get a lot of certainty before you move forward and at that point only a very small amount of rare scenarios can prevent or delay closing because something needs to be done, and in those cases the reason will be obvious to you.  This is why you need to dig into why the lender is denying your application.  Get a reason and don't settle for some incomplete explanation.  They ultimately have to send you a denial letter so you can also look on there.

4: Applying to 3-4 lenders is just a crap move.  You can inquire with those lenders, and technically yes you can apply but it's kind of a jerk move and a huge waste of time.  This is why I suggest finding a really good loan officer first so nobody is wasting time or money.  A really good loan officer won't waste their time because it's very valuable and they'll be straight with you upfront.

5: I'll never pay for a client's appraisal.  Most lenders will never pay for a clients appraisal.  That's not a realistic thing to look for

You just need to find a really good loan officer that knows there business.  It sucks that you wasted $1300 with an incompetent loan officer, but that's your main problem.  Find a better point person.  Ask tough questions, do your research and educate yourself.