Federal Agencies Update Appraisal Dispute Policy

August 5, 2024

Sometimes, an FHA appraisal comes in lower than the borrower expects. In such cases, the house hunter may be tempted to ask the lender to have the appraisal done again, “just in case” of issues with the original work.

This process, known as a “reconsideration of value,” or ROV, is not allowed just because the appraisal results aren’t what the buyer or seller expected.

In typical cases, a new appraisal is justified if the original work has deficiencies, including work deemed “unrealistic” or “inappropriate.” But how does the borrower communicate those complaints to the lender?

In 2024, five federal regulatory agencies issued final guidance addressing reconsiderations of value (ROVs) for residential real estate. This changes the game, in certain ways.

The new guidance relates to policies financial institutions may use to help customers provide information that may have yet to be considered if deficiencies are identified in the original appraisal work.

What to know:

• ROVs are requests from lenders to appraisers to reassess the value of a home. 
• The process of an ROV cannot be initiated by the borrower, except as a complaint to the lender.
• The lender must request the ROV.
• Deficiencies are defined as omissions in valuations or valuation methods that are unreasonable, unsupported, unrealistic, or inappropriate. 
• Appraisal deficiencies may arise from discrimination or other factors as well.

Before the updated policies were published, federal agencies noted uncertainty in the industry in this area.

Financial institutions are meant to serve an important role in maintaining the credibility of real estate appraisals and helping to avoid potential deficiencies.

The new rules about ROVs give lenders a set of expectations to meet when dealing with a possibly deficient appraisal. What kind of expectations?
 
Lenders are encouraged to develop or reform processes for doing so, which could include independent reviews of appraisals. In cases where deficiencies are noted, lenders are expected to proactively resolve those problems. Lenders are expected to:

• Avoid creating unreasonable barriers or discouraging consumers from requesting ROVs.
• Establish more transparent processes for identifying, managing, and resolving valuation-related complaints.
• Inform consumers how to raise concerns about valuations early in the underwriting process.
• Clearly define roles and responsibilities for processing ROV requests.
• Establish standardized processes to increase the consistency of ROVs.
• Ensure staff are trained to identify deficiencies, including practices that may result in discrimination.

If you feel your appraisal is defective or otherwise needs a review, contact your loan officer as soon as possible.

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