A mortgage broker’s job comes with its share of uncomfortable moments. Telling a client that you can’t provide them with the appraisal they just paid for is one of them.
It’s an issue that comes up time and again, but one that’s frequently misunderstood. Appraisers and brokers cannot simply hand over appraisals to clients, despite the client being charged for them. Here’s why.
“It’s actually a fairly simple answer to be honest with you,” says Keith Lancastle, Chief Executive Officer of the Appraisal Institute of Canada (AIC), whose 5,000 members make up 80 percent of certified appraisers in Canada. “It’s one of those things where our members’ obligation is first and foremost to his or her client,” he said, and the “client” is almost always the lender, whose guidelines the appraisal is prepared under.
“If the [lender] wants to share a copy of the appraisal with the prospective homeowner that’s fine, but the appraiser cannot provide it because the [borrower] is not their client.”
Lancastle says it’s an issue that triggers ongoing inquiries to the AIC. Prospective homeowners are routinely trying to get their hands on a report, he says. But the association’s response is generally not what people want to hear: “It’s up to the member’s client if they wish to share the report with someone else.”
Aside from the fact that the lender is the appraiser’s client and therefore retains ownership of the report, Lancastle says there’s another reason appraisal reports aren’t freely distributed. “More often than not, lenders are reticent to give prospective homeowners a copy of an appraisal report because they could…[shop] it around” with other lenders.
Industry association Mortgage Professionals Canada notes that appraisal costs are like any other fees paid for by the client for the benefit of the lender. Other such fees include mortgage default insurance and title insurance.
“The expectation needs to be set with the client that the appraisal required by the lender is a non-refundable fee,” said Renee Dadswell, Manager, Professional Development at Mortgage Professionals Canada. “If the mortgage does not fund, the fee must still be paid, which is why it is often charged upfront to the client. Some brokers will negotiate with a client to refund this fee once the mortgage closes. In other cases, the lender may reimburse for the appraisal–once the mortgage funds.”
If a mortgage broker is directly asked by the client for a copy of the appraisal report, Mortgage Professionals Canada recommends seeking the lender’s approval prior to releasing the information to the borrower.
“But in order for that appraisal to be used for any other financing purpose, there needs to be more than just permission from the lender,” notes Jennie Hodgson, Vice President, Education. “The appraiser must agree and prepare a letter of transmittal, an appraisal update or, in some cases, a whole new appraisal.”
She adds that she is not aware of any lenders taking legal steps with a broker or brokerage for an appraisal being released without the lender’s consent. However, brokers should advise borrowers that the appraisal, if provided, is for information purposes only and cannot be used for financing purposes with another lender.
Providing appraisals to other parties without transmittal letters can even open brokers up to legal liability. If a broker gives a private lender an appraisal commissioned by another lender, for example, and the property goes into default and is liquidated for less than the appraisal’s value, Hodgson says it’s not unthinkable that the lender might “launch legal action against multiple parties, including the broker.”
Parting Note: While a lender is not necessarily obligated to release the full appraisal to the borrower, some of the information in the appraisal is the borrower’s personal property, and accessible to them under PIPEDA legislation. More on that.