If a broker has approached a lender for a mortgage loan but their client is turned down (for whatever reason), it’s unlikely that the appraisal the broker has arranged will be valid with another lender.
Under appraisal rules, the client of an appraisal is the end user (the lender) and if a broker wants to shop the report to another lender they will have to ask the original lender to relinquish the appraisal.
If the lender does that, the appraiser is then likely to provide a reliance letter, which means the broker can use the same appraisal form with another lender.
It may seem an overly complex process (and it does create confusion for many brokers) but for appraisers it’s a system that plays an integral role in protecting their client and their own professional liability, which is at risk during the loan process.
“We have seen examples where an appraiser was served with a law suit because the person who was loaned the money had a history of fraud and no intention of paying the loan at the front end,” says Keith Lancastle, CEO of the Appraisal Institute of Canada (AIC). “If the appraiser in question had a chance to do it over again, I don’t think he would have taken on work from a lender who was prepared to work with a borrower that risky.”
A solid real estate market is driven by good valuation of collateral, which is made possible by the appraisal process and sensible underwriting. Appraisers play a key role in reducing risk in the market, and brokers should be aware of the factors that can either get in an appraisers way or enable them to create the most effective report in an efficient manner.
The passage of time between an appraisal being conducted and sale being finalized is an increasingly important factor in the current market. “If an appraiser conducted a report prior to the announcement of the changes in housing policy in Ontario, it’s unlikely they will issue a letter of reliance for the same amount now,” Lancastle says.
“Lenders are doing a little more due diligence with respect their loan to value exposure. Appraisers are now being asked to go back out within a three month period to do an update or reappraisal. It’s an interesting transition and something we have not historically seen.”
