FHA 2nd appraisal...who pays for it?

Question

As most investors know about the FHA 90 day flip rule then you know about the 2nd appraisal stip as well.  Per FHA guidelines the buyer can't pay for this...but in my case the last 3 lenders that I've dealt with have pushed the cost on me like that is the only option.  Is this correct or can I make them pay for it because afterall the guideline just says the BUYER can't pay for it?

J Scott · Answer

You are correct that the buyer can't pay for it -- after that, FHA doesn't care.  So, it's up to you to negotiate whether you pay for it or the lender does.

I like to use it as a negotiating tool *upfront*.  I will generally tell the buyer that I'll pay for *ALL* appraisal costs (including both appraisals) if they'll use my lender in the transaction -- because I know my lender will get the job done, it's worth it to me to pay the few hundred dollars to control the deal.

If the buyer refuses to use my lender, I'll tell him, "That's fine, but in that case, I won't be paying any appraisal costs," and we'll write that stipulation into the contract.  As soon as the contract is ratified, I'll call the buyer's lender, and I'll discuss the situation.  I'll explain that the buyer insisted on using him as the lender (which is fine!), but that I then won't pay for any appraisals, and I'll get the lender to agree that he understands this.

While many lenders won't realize until later that two appraisals are needed and the buyer can't pay for both, he can't really come back to me to complain.  He'll just look stupid for not understanding the rules and regulations of FHA loans upfront, and he'll have already agreed that he was okay with me not paying the costs.  He'll then have to cover it himself.

Unless you're willing to just pay the cost yourself, this probably isn't something you want to wait until later in the process to discuss with the lender.  I've had situations where the lender refused to pay, I've refused to pay and the process has just come to a halt.  It wasn't fun, and ultimately the compromise I agreed to was, "The lender will pay out of pocket and I'll reimburse him at the closing."  This way I don't have to pay for the appraisal unless it actually closes.

So, at very least, don't pay for it until close -- just in case the lender can't get the job done and it never closes, you won't have wasted the money.

Chad Bauer · Answer

Thanks J, thats exactly what I needed to know!

Bill Gulley · Answer

Consider too that the purpose is to show the increased value from any improvements and whose obligation it is to show the increased value.