It often happens that people buy a house and one gets a recent appraisal report from the sellers. When buyers then submit this report to their bank or mortgage broker, they are told that this appraisal report is not useful and a new appraisal report must be prepared.
The big question is:
Why on earth do you need to have a new appraisal report prepared when you already have a recent appraisal report in hand?
After all, the appraisal report was prepared by an independent appraiser, right?
We’ll give you the answer here.
Let’s start by saying this: we understand that frustration and in fact we think it’s unnecessary bureaucracy and a bad thing ourselves! A valuation report validated by the NWWI is an independent valuation report that simply states the value of the property. It is a terrible waste of money (buying a house is already expensive enough) to have to draw up a completely new valuation report.
Independence in valuation reports
First, we want to give you a little background on the independence that is important in appraisal land. An appraiser who issues an appraisal report for someone must not be involved in any way with the person for whom he is issuing the appraisal report. For example, he or his firm may not be involved in the purchase, sale of the principal. All of this (along with many other factors) should ensure the independence of the appraiser. This independence is very strictly monitored by the Dutch Register of Estate Valuers(NRVT) and the Dutch Housing Value Institute. In the appraisal report, an appraiser states:
“I and my firm have nothing to do with consulting, buying, selling, brokering or managing this property. This also applies to other businesses in which I have an interest, directly or indirectly.”
For this reason, an appraiser should also never appraise for you if he has previously helped you with a purchase or sale in the past 2 years.
But then why can’t I use existing appraisal report for a mortgage?
If you are going to buy a home, then very often an appraisal report has already been done on behalf of the sellers. The sellers had to have this prepared because they needed that appraisal report for a bridge mortgage. It may also be that there is already an appraisal report from other buyers who nevertheless abandon the purchase. In either case, a perfectly useful valuation report for when you buy that property and want to apply for financing with it, right?
Going in blank
The banks see this differently. The moment an appraiser prepares an appraisal report for someone who is going to sell his house, there is a risk that the appraiser is consciously or unconsciously guided by a certain value that the seller of the house expects to receive and on which he has based his bridging loan. As an appraiser, you are not allowed to be led by this, but it is still a risk that exists in the eyes of a bank.
It could then be in the eyes of the bank that the amount shown in an appraisal report that sellers had prepared influenced the final purchase price you paid as a buyer.
We will explain this using an example:
Suppose Jan is going to sell his house, because he has bought another house. Jan’s selling broker is hoping for sales proceeds of €500,000. Because Jan needs a few weeks time to get his new house ready (painting etc.), he will soon have 2 houses. This means that Jan will need a bridge loan. For that bridging loan, Jan must have an appraiser appraise his “old” house. The house is quite difficult to appraise because it is a house that does not have many of the same in the immediate area. The appraiser would prefer to determine the value to 3 homes as equal as possible, but there are none. The appraiser hears from the selling broker that he expects sales proceeds of €500,000. Somewhere, the appraiser is guided by this because he himself suffers from a great deal of estimation uncertainty. The appraiser eventually valued the house at €490,000. The question now is: would another appraiser who is completely blank on this also arrive at this value?
In the eyes of the bank, you solve this by having an entirely different appraiser working for the buyer reappraise the property. Think of the appraisal report as an independent second opinion. So is there ever a difference in the seller’s valuation report and the buyer’s valuation report? Very short answer: yes absolutely. This happens quite often and the difference can also be close to 10%.
That’s why when you buy a home, the bank wants you to hire an appraiser who goes in completely blank. For the bank, this is still an extra check that the property is worth what it is worth.
Liability
In principle, an appraiser is liable for damages suffered by the client due to errors in the appraisal report. That’s what the appraiser signs off on as well. In valuation where financing must be obtained, this is an exception. This involves a bank (lender) for which the appraiser knows that he indirectly prepares the appraisal report and thus also pays liability to the bank. Suppose the buyer can no longer pay the monthly mortgage in 3 years and the bank has to sell the home at a loss, they will knock on the appraiser’s door. If the bank can then show that the appraiser made culpable errors in the appraisal report then the bank could successfully recover damages from the appraiser.
But now the appraiser is appraising for seller Vincent who needs a bridge loan. A month later, seller Vincent sold his home to buyer Charles. Now imagine that Charles gets the appraisal report from seller Vincent and Charles uses this appraisal report to apply for his mortgage. Then it was done without the permission of the appraiser who also bears no responsibility for it. Every appraisal report for the purchase of a residential property states that the client may not share the appraisal report with others without written permission from the appraiser.
As a result, if buyer Charles is soon unable to pay the mortgage and the house is sold by the bank at a loss, the bank will probably not succeed in holding the appraiser liable. After all, they based their financing on an appraisal report that the appraiser did not give written permission for them to have. And the appraiser will rely on the fact that Charles and Charles’ bank are not parties to the appraiser. He only ceded written responsibility to seller Vincent and Vincent’s bank.
Summary
The bank doesn’t want you to use an appraisal report for your new home for sale that doesn’t list you as the principal. This is because the bank wants the appraiser to go in completely blank and not be guided by the value from an appraisal report that is already there. The bank wants to see an independent new report.
In addition, the bank is unlikely to successfully recover damages from an appraiser who did not give permission to use his report, and that is the case if the report is used by the bank from someone who was not the appraiser’s client.
The bank therefore wants you, the buyer, to have a new valuation report drawn up which clearly shows that you are the client. This is done by the bank so that if they ever suffer a loss (because he can no longer pay your mortgage and the house has to be sold at a loss) the bank can try to recover the loss from the appraiser.
Disclaimer: Multiple sources have been used to arrive at the content of this article, but the author cannot vouch for the complete accuracy of the information listed. The use of the information contained in this article is then entirely at your own risk and the author is not liable for any damages resulting from such use.