Appraisals are scrutinized during the mortgage loan process. Occasionally, an additional examination is required via an appraisal review or a second appraisal. Appraisal reviews don’t cost any money, and a second appraisal has the same appraisal costs as a first appraisal.
The appraisal review is the lessor of the two options. It involves a second look from the lender’s staff. A second appraisal is the more severe option and requires a new Appraiser to perform another appraisal.
Appraisal Reviews and Second Appraisals
Nobody likes it when an appraisal report needs a review. Even more so, everyone hates when a second appraisal is required. From a lender’s perspective both add unwanted time, attention, and appraisal costs to the process. From your perspective, these escalated measures jeopardize the loan’s approval. An unfavorable examination on the appraisal review can impose a lower value than what’s been established by the original appraisal.
The loan terms are subject to change if the NEW appraised value versus the sales price comes in lower. You can fight a low appraisal and try to add validity to the first. However, the chances of success are very slim. The second appraisal was ordered because the first was deemed unacceptable.
Appraisal Related Articles
Appraisal reviews can be either “desk review” or “field review”. There is no additional cost to the buyer for an appraisal review.
A “desk review” requires an additional review by someone other than the underwriter. This could be another underwriter, a manager, or even an internal appraiser that’s on the lender’s staff. Every mortgage company will have their own procedures.
A “field review” requires another Appraiser to visit the property and the surrounding area for a second analysis. This is typically an exterior-only appraisal (i.e. a drive-by appraisal) since the pictures and data about the subject property are already known.
When is an appraisal review required?
There are different appraisal requirements for various loan programs. Each program has their own set of guidelines for when reviews and additional appraisals are required.
Appraisals done for conventional loans are uploaded to an industry-wide Uniform Collateral Data Portal (UCDP). Here the appraisal report is given a rating called a Submission Summary Report (SSR). The SSR score is what prompts appraisal reviews.
The SSR score ranges from 1.0 to 5.0. Lower is better. Every lender has their own internal policies and thresholds for reviews. A rule of thumb: scores from 3.0 to 4.0 may need a desk review. Scores above 4.0 require a field review. On very, very rare occasions, an appraisal with a score of 5.0 may warrant a second appraisal. This is very rare and may not be allowed by some lenders.
SSR scores had a major impact on appraisals when they first came on the scene. This has since changed. Occasionally an appraisal will require a review, but the number of incidences has diminished. We suspect this is because:
- Appraisers have adapted to the scoring system,
- Lenders learned the model, gathered loan-performance data, and adjusted their internal policies that require reviews,
- Lenders have upgraded the quality of Appraisers since the SSR scores provide a quantifiable method of monitoring quality.
Fannie vs. Freddie
If an appraisal review deems your appraisal unacceptable, you should ask your lender to switch from a Fannie Mae loan to a Freddie Mac loan. Often times Freddie won’t require the review. Be aware that the loan terms (i.e. the interest rate) may change when you switch products. (Don’t worry: the Mortgage Mark Team is proactive on this and we’ll honor your original loan terms at all costs).
Government home loans don’t typically need reviews or second appraisals. This is primarily for two reasons. First, the appraisals require more scrutiny from the Appraisers. Second, the Appraisers and Underwriters go through considerable training and education to earn the right to appraise and underwrite government loans.
Side note: when an appraised value is determined and the financing is for a government loan, that value stays connected to the property. Check out our appraisal requirements for various loan programs for more details on government appraisals.
When is a second appraisal required
Needing a second appraisal is rare, but it does happen. The value used for the loan will be the lower of the two appraisals. These are the most common scenarios when a second appraisal is required:
- Some jumbo investors require two appraisals
- Occasionally underwriting guidelines may require a second (flip or SSR)
- When working with another lender and the original appraisal won’t transfer the report
Jumbo loans require two appraisals
Some jumbo investors require a second appraisal at all times. Others may only require a second appraisal when the loan amount exceeds a specific amount (like $1,500,000 or $2,000,000).
Guidelines require two appraisals
Other programs may require two appraisals if the subject property is a flip. A flip is when an investor bought the home, remodeled it, and sells it for a profit, all within a few months. The investor wants to ensure the value is accurate with such a rapid increase in price.
For example: FHA loans can have their own nuances. FHA guidelines change with the market. A while back FHA allowed financing for flipped homes and required a second appraisal. That has since changed. FHA no longer allows financing within 90 days of the seller purchasing the property. This removed the need for a second appraisal when buying that type of property.
Work with another lender
If you’re switching lenders, you may need a second appraisal. You may work with another lender if the original lender is unable to close the loan.
You may be able to avoid a second appraisal by transferring the appraisal (assuming one was done). To transfer an appraisal, most lenders will require proof that the appraisal was ordered using an AMC and done is a compliant manner. Unfortunately, there are some Appraisers that won’t transfer appraisals.
Transferring the appraisal would accomplish three things. First, you would avoid the appraisal costs of another appraisal. Second, you don’t risk the value coming in low. Lastly, you save the time of waiting for another appraisal.
Second mortgage after purchase
You may need a second appraisal if you’re getting a second mortgage right after closing on your purchase loan. Often second lien lenders won’t use the original appraisal, especially if you’re doing a home improvement second where the new appraisal must factor in potential improvements.
When a second appraisal is NOT allowed
A second appraisal is NOT allowed because of a low value. If the value comes in low then you should learn how to fight a low appraisal and know your options when the appraised value vs. sales price is different. That’s why you should do everything you can when getting ready for a home appraisal.
Loan Officer, NMLS # 729612