Full appraisal, a BPO, or the lender's own comps on a 180k loan

Question

Say a borrower needs 180k on a house he is under contract for at 205k, and he wants to close in eleven days. A full appraisal in most markets right now runs a couple of weeks and several hundred dollars, and the borrower has already said he thinks it is a waste because everyone involved knows the street. The options as a newer lender would list them, and there may be one missing. A full appraisal is a licensed opinion with a report that can be handed to somebody else later. A broker price opinion is faster and cheaper, done by an agent pulling comps, and carries no license behind the value. Or the lender pulls their own comps from county records without MLS access, drives the street, and makes the call alone. The case for doing it in house: the lender is going to read the appraisal and check the comps anyway, and a lender who cannot value a neighborhood on their own arguably should not be lending in it. The case for the appraisal: if the loan goes sideways in month nine, an independent value opinion dated at origination is the only document that says the lender underwrote rather than guessed. And any future note buyer will ask for it. What do you actually require, and does the answer change with loan size?

nataliehsu · Answer

The eleven day thing is doing a lot of work in this post. Is the appraisal actually the slow part, or is the borrower using it as the reason he can't give you time to think?

luis_carrera · Answer

Pricing this out in general terms is useful even without a live file to test it against. An appraisal on a $180k loan runs well under a quarter of a percent of the loan amount, and the borrower typically pays it regardless. Against that, being wrong on value by ten percent is $18k. The numbers rarely justify skipping it. The harder question is whether an appraisal actually gets closer to right or just produces a document, since appraisers reconcile to the contract price more often than most people admit.

dmitri_248 · Answer

Require it in the term sheet as a condition of funding, name who orders it, and say the report has to be addressed to the lender. Otherwise it's getting negotiated under time pressure with a borrower who wants to close, which is the worst moment to be deciding what the standards are.

wendy_park48 · Answer

Warranty is the thing that bites people here. Say a lender gets handed an appraisal the borrower had already ordered for his own bank application, and the engagement letter named the bank as the client and the intended user. The lender's name appears nowhere in it. The appraiser owes that lender no duty on that report, and asking for reissue with the lender named as an intended user usually means a new fee and a new inspection. Read the transmittal page and the intended use paragraph before relying on any report a borrower brings in. Also check the effective date, because a value opinion recycled from months earlier gets presented as current more often than it should.

ehernandez74 · Answer

Does a BPO cost the borrower anything close to what an appraisal does? And if a BPO plus independent comps agree within a few percent, is that meaningfully weaker than one appraisal? Worth understanding whether the value comes from the license or from having two independent looks.

brandonlee36 · Answer

Loan size is the wrong dial. Complexity is the dial. On a tract house with six closed comps inside half a mile, a careful set of own comps gets within three percent, which is plenty. On anything unusual, a converted duplex or the only four bedroom on a street of two bedrooms, a licensed opinion with adjustments written down is worth having, and that's true whether the loan is $80k or $400k.

megan_doyle15 · Answer

What's a comp adjustment grid? I've seen the phrase twice in this room now and I don't want to keep nodding.

nicole_adeyemi · Answer

Anchor, the license buys a defined scope and someone who can be asked to explain their reasoning later. It doesn't buy accuracy on its own. One wrinkle for anyone comping off public records: roughly a dozen states don't make sale prices public at all, so depending on where the collateral sits, county data may show the transfer and not the number. In those markets, doing comps without MLS access isn't a discount option, it's not an option.

angela_burke · Answer

Nobody's mentioned the repair side of the value. An as-is opinion on a house that needs a roof and mechanicals is only useful if whoever wrote it actually priced the deferred work, and appraisers mostly won't. The right move is an appraisal for the value and a contractor walk for the condition, because the gap between those two is where a $180k loan turns into a $180k problem.

tonyv88 · Answer

Rent comps too, if there's any chance the exit becomes a lease. Cheap to pull and it shows the floor when the retail buyer doesn't show up.

Full appraisal, a BPO, or the lender's own comps on a 180k loan

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