Why a New Lender May Not Accept the Appraisal You Already Paid For

Why would a new lender refuse an appraisal I already paid for?

An appraisal is ordered by and for a specific lender, and a new lender has to be able to stand behind it. Axelrad Capital is a direct lender based in Texas, and we review a lot of appraisals. Problems are not common as a share of files, but with our volume we see one almost every week.

What are the most common appraisal problems?

• Missing information the lender required. Every lender has its own requirements: specific forms, photos, rent schedules, repair estimates, or an after-repair value alongside the as-is value. A report ordered by another lender may not include what the new one needs.
• Comparable sales that are too far away or don't fit. Comps from well outside the neighborhood, or from a different property type or condition, make the value hard to defend. Lenders set distance and recency limits.
• Wrong party or entity information. A common error is the wrong name for the buyer or seller, or the wrong LLC. A mismatch with the contract or the title work holds up the file until it is fixed.
• The wrong property designation. A report that labels a property rural when the lender approved it as non-rural, or the reverse, can change the loan terms or make the deal ineligible, even if the value is right. The same goes for property type and occupancy.
• Other mistakes. Wrong square footage or bedroom count, outdated contract information, and conclusions that don't match the data in the report.

What happens when an appraisal has errors?

Most of the time the lender asks the original appraiser to correct the report or recertify it with the updated information. That is typically cheaper than ordering a brand new appraisal. Sometimes the appraiser doesn't respond, or the turnaround is too slow for the deal. Then the lender has to reject the report and order a new one.

Why can an accurate appraisal still be unusable?

Some appraisers and appraisal management companies (AMCs) are not approved by certain lenders, or are blocked by them. A report can be accurate and still unusable because the lender doesn't take work from that appraiser or AMC. We see this regularly, so ask a lender which appraisers and AMCs it accepts before you order.

How does the age of the appraisal matter?

Values and property conditions change, so lenders want a recent appraisal. Conventional loan guidelines set a maximum age and require an update once a report passes a set window. An older report can often be brought current with a short appraisal update instead of a full new appraisal. Private lenders set their own age limits, and many are stricter in a fast-moving market. Even a report inside the age limit can be refused if it has errors or doesn't meet the lender's requirements.

Can an appraisal be transferred between lenders?

It depends on the loan type.

• Conventional. Fannie Mae's appraiser independence requirements allow a lender to accept an appraisal that another lender ordered, as long as it was ordered properly and the accepting lender takes on the risk of any errors. So a transfer is allowed but not automatic. Many lenders still prefer to order their own.
• FHA and VA. These work differently because the appraisal is tied to a case number in the government system, not just to the lender. A new lender can generally request that the case number and appraisal be transferred, rather than ordering a new one. Time limits differ from conventional loans, so confirm the current rules with the lender. Axelrad does not originate FHA or VA loans, so treat this as general background.
• Private and hard money lending. There is no agency system, so a transfer depends entirely on the lender's own policy. Some lenders will take a report with a transfer or reliance letter, and many will not.

What does a second appraisal cost?

In our experience, appraisals on investment-property and hard money loans typically run $600 to $800, and rush orders cost more. A recertification or corrected report costs less than a full new appraisal, but it is still a real cost. Paying for a full new appraisal only makes sense if the new lender's terms save you clearly more than that.

How can you avoid paying for a second appraisal?

1. Before applying, ask the new lender whether they accept appraisals from other lenders, and which appraisers and AMCs they approve.
2. Ask the original lender or AMC whether the report can be transferred or reassigned.
3. For FHA and VA loans, ask the new lender to request a case number and appraisal transfer.
4. Check the report yourself for basic errors before sending it on: names, entity, address, property type, rural or non-rural designation and square footage. A wrong LLC name is one of the easiest mistakes to catch.
5. Ask whether the original appraiser can recertify or correct the report with the new lender's information.

What should you ask lenders before paying for another appraisal?

Ask the new lender:

• Will you accept my existing appraisal, and under what conditions?
• Which appraisers and AMCs do you approve, and is mine on your list?
• If the report has errors, can the original appraiser fix or recertify it instead of ordering a new one?
• What is your age limit on an appraisal, and can an update cover the gap?
• What will a new appraisal cost, and is it refunded if the loan doesn't close?

Ask the current lender:

• Can the appraisal be released or transferred to another lender?
• Is there a fee to release it, and who owns the report?
• If the loan is FHA or VA, will you process the case number transfer?

Ready to talk through a deal? Apply with Axelrad Capital and tell us about the property.