What Is A Bifurcated Appraisal?
A Bifurcated Appraisal is when one party inspects the property, and a separate party completes the appraisal from their desk.
Why Split Up The Responsibilities?
Banks and lenders tell us that the home appraisal is what slows down the loan approval process - and that having 2 separate parties working on the appraisal speeds up the process. What they won’t say is that hiring anyone to do the inspection (there are no regulations on who can inspect the property in a bifurcated appraisal - it could be a grocery delivery driver) means they can pay less for the inspection, and only pay a licensed appraiser to complete the report - thus lowering their own cost.
What Could Go Wrong?
If the inspection is done incorrectly and that incorrect data is passed to the appraiser, the appraisal will be inaccurate. Looking deeper into how this could happen, let’s look at appraisal codes for condition levels.
Fannie Mae has what they call UAD (Uniform Appraisal Dataset) which are codes for condition levels, quality, etc and these codes are used in the reporting of appraisals to Fannie Mae. As an appraiser, the software we use has access to other appraisers that have used the same comparable’s and shows ratings used by peers in the industry. When a comparable is used by several appraisers - there are often several different ratings for the same property.
This becomes a problem when another appraiser is using the rating from a peer who may see things a little differently. For instance, one appraiser may look at a property and rate it as a C3 condition level, while another appraiser may look at the same property and rate it as a C4 condition level. As long as the appraiser rating the property at C3 also rates the subject and other comparable’s by the same metric - the appraisal will still be reliable. However, if the appraiser rating the comparable’s sees them at a C3 level, but the subject is rated by a different person who rates it at a C4 level when it is actually the same/similar condition as the comparable’s - the value would likely be inaccurate.
In another example, a realtor could do the appraisal inspection, send a glowing biased report to the appraiser, and the appraisal is written based on the realtor’s opinion of quality and condition and could be overvalued.
Appraisers who choose to do bifurcated appraisals can add disclaimers on the appraisal. This would noted as an Extraordinary Assumption “The Uniform Standards of Professional Appraisal Practice (USPAP) defines an extraordinary assumption as: “An assumption, directly related to a specific assignment, as of the effective date of the appraisal results, which, if found to be false, could alter the appraiser’s opinions or conclusions.”, noting the appraiser is relying on the inspection by a [third party] and if the inspection is inaccurate then the results of the appraisal could change.
However, those same appraisers take on additional risk. If an appraisal is found to be inaccurate, the repercussions for the party doing the inspection - none. However an appraiser who signs off on an inaccurate appraisal can be put on a ‘Do Not Use’ list for Fannie Mae, FHA and other, the appraiser can be called before the appraisal board, the appraiser can be required to take additional education, or the appraiser can have their certification suspended, revoked or in extreme cases - could be sued for damages from the bank and/or mortgage company.
When Is A Bifurcated Appraisal A Good Option?
According to AppraisalBuzz, if there is a risk of a shortage of well -trained, licensed, or certified appraisers, a bifurcated appraisal opens the opportunity to allow trainees to perform inspections under the guidance and accountability of their supervisor. Under the current practices, no one will allow trainees to inspect.
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