From the appraiser's perspective - Smart lenders profit from quality borrowers and happy appraisers Charlie Elliott Jr.lender-appraiser relationship, lender-borrower relationship, refinance, There is usually little (if any) discussion between lenders and appraisers concerning the quality of a borrower in a given transaction. This has typically been perceived as none of the appraiser's business, since most lenders look at it as a risk management issue, not a vendor-client issue that has relevance to the vendor's ability to service the client. While most appraisers won't go on the record about the quality of a borrower, you can bet that it is on their mind when it affects their ability to provide service in an efficient manner. You might say that the appraiser will frequently reserve comment on such issues, as they might be considered politically incorrect. It is something that few people talk about. The issue we are addressing is that of the unqualified borrower, the one who has charge-offs, bankruptcies, high credit card payments, past due accounts, excessive debt and a home with a current loan that exceeds its value. We are not talking about restricting credit access to those who are responsible, even if they are short on cash and earn small salaries, provided they have a good credit history. Most of us would agree that America is the land of opportunity and those who work hard to get a home with the white picket fence should not be denied. However, there are also those rotten apples who have been given many opportunities to prove themselves, all to their own detriment. This issue has destroyed many lender-appraiser relationships and wasted the time of both parties. It has further damaged borrower-lender relationships and created other negative effects through the wasted expenses incurred by all parties to the transaction. This issue may pertain to a home purchase, but more frequently, to a refinance. It rears its ugly head after an inadequate borrower qualification or, even worse, no qualification on the part of the lender. Many lenders do an excellent job of qualifying borrowers upfront, before the wheels of the loan processing machinery are set in motion. This is as it should be. Unfortunately, not all lenders do such a good job and therein lies the problem. All too often, lenders particularly those who are untrained take shortcuts in the qualification process or intentionally shirk their qualifying responsibilities. One favorite tactic is to have the appraiser qualify the borrower. No, we are not talking about the appraiser doing a credit check and income verification. We are talking about a simple test that goes something like this: The lender gets a lead on a questionable borrower. Rather than taking time to qualify the borrower, the lender orders an appraisal and is very careful to make the order a "collect-at-the-door," to be paid by the borrower upon inspection of the property. The theory is that if the borrower has enough money to pay for the appraisal and if the appraiser appraises the property at a value sufficient to make the loan, the borrower has, for all practical purposes, passed the first stage of qualification with little or no effort by the lender. For those who think this is a good idea, I beg to disagree. All too often, the borrower is not told by the lender that they must pay the appraiser or how much the appraisal fee will be. When the appraiser calls to set up the appointment, the borrower is automatically put on the defensive and is driven to distrust both the lender and appraiser. If the appraiser is able to collect the fee and proceed with the appraisal, the next pitfall is an appraised value that is too low to fund the loan. In most cases, this could have been avoided if the lender had done a minimal amount of homework. If the borrower is expected to pay for the appraisal, the lender should make them aware of the risk involved in advance. One practical test is for the lender to ask, "Would I use my money to pay for the appraisal and expect to be reimbursed by this borrower?" It is critically important to the lender-borrower relationship, as well as the lender-appraiser relationship, for the lender to spend time with the borrower in the qualification process and to counsel the borrower about what is involved in getting a loan. Loan fees, appraisal fees, other closing costs, creditworthiness, loan-to-value ratios and any other issues likely to affect the loan application process should be covered. The particular issues, which should be at the top of the agenda, are those that affect the borrower's pocketbook and whether the borrower will be able to get a loan. Furthermore, there should be no surprises and the successful counselor will insure that the borrower has a complete understanding of what he or she is getting into before beginning the process. For those who are not convinced that appraisers are concerned about the quality of the borrower, think back: Have you ever called upon an appraiser who was suddenly "too busy" to get around to a particular project? You know the situation I am talking about when the appraiser refers you to one of his less professional and less successful competitors who "has more time." All appraisers need work and most are constantly looking for good, quality business. If this happens to you, there is a reason. It may just be the quality of your borrower. No self-respecting appraiser is interested in spending time chasing down unqualified would-be borrowers, particularly without compensation, which is all too often the case. When reaching into the prospect barrel, being careful to pass on the rotten apples in favor of the shiny, fresh ones can mean extra money in the pocket of the loan originator. The lender-appraiser relationship can have a lot to do with the success of the lenders. A lender who takes the time to pre-qualify a borrower before involving the appraiser will have a better relationship with his appraiser, have fewer deals fall through and get better service most of the time. They will spend their precious time on the transactions that are more likely to bear fruit and have happier borrowers and appraisers, making for a more efficient and more profitable profession. Charlie W. Elliott, Jr., MAI, SRA, is president of ELLIOTT & Company Appraisers, a national real estate appraisal company. He can be reached at (800) 854-5889, [email protected] or through the companys Web site at www.appraisalsanywhere.com.