One thing you should know if you are contemplating a reverse mortgage is that your home will have to undergo an appraisal by an FHA-approved appraiser.

This appraisal will be very extensive, involving an inspection of your entire property, a head and shoulders inspection of the attic (where the appraiser will pop their head up and look around), measurement of the home, and a review of numerous items.

The physical inspection is only a portion of the actual appraisal. The appraiser will usually have done a lot of research on recent sales in the area before they ever visit your home, so the actual physical inspection may not take too long.

Did You Know? Every FHA reverse mortgage requires an appraisal from an FHA-approved appraiser—not just any appraiser a lender chooses.

Evolution of HUD Appraisal Laws

But let’s talk about what the HUD and the lending laws allow the lender to do in this process.  To understand where we are now, we must go back to 2008, before the housing market imploded.

At that time, lenders could order an appraisal from any appraiser they wished.  If they felt the appraiser was doing a poor job or was not responsive enough, they could “fire” the appraiser and obtain a report from another appraiser.

HUD’s process was always that once an appraisal was ordered and obtained, that appraisal was supposed to be logged into the HUD system.  Still, some brokers and lenders were not always consistent with this step, which allowed the originator or the borrower to “appraiser shop.”

When the housing market bubble burst, and homes were found to be way over-valued, HUD, congress, and local lawmakers questioned appraisers who indicated that their livelihoods depended on the values they reported; they claimed they often didn’t get paid, they lost clients when they could not hit the requested values or any number of other punitive actions and were forced to bring in unsupported values to stay in business.

As a result, in 2010, FNMA, FHLMC, HUD, and private investors instituted rules, and State and Federal Laws were passed, known as Appraiser Independence Rules/Laws.  These rules and laws limited people involved in consumer credit transactions secured by the consumer’s principal dwelling, which would violate appraisal independence.

Did You Know? Before 2010, lenders could “shop” for appraisers who gave higher values. New federal and state laws now make that illegal.

The law is written as such:

(a) In general, it shall be unlawful, in extending credit or in providing any services for a consumer credit transaction secured by the principal dwelling of the consumer, to engage in any act or practice that violates appraisal independence as described in or pursuant to regulations prescribed under this section.  (b) Appraisal independence for purposes of subsection (a), acts or practices that violate appraisal independence shall include— (1) any appraisal of a property offered as security for repayment of the consumer credit transaction that is conducted in connection with such transaction in which a person with an interest in the underlying transaction compensates, coerces, extorts, colludes, instructs, induces, bribes, or intimidates a person, appraisal management company, firm, or other entity conducting or involved in an appraisal, or attempts, to compensate, coerce, extort, collude, instruct, induce, bribe, or intimidate such a person, for the purpose of causing the appraised value assigned, under the appraisal, to the property to be based on any factor other than the independent judgment of the appraiser; (2) mischaracterizing, or suborning any mischaracterization of, the appraised value of the property securing the extension of the credit; (3) seeking to influence an appraiser or otherwise to encourage a targeted value in order to facilitate the making or pricing of the transaction; and (4) withholding or threatening to withhold timely payment for an appraisal report or for appraisal services rendered when the appraisal report or services are provided in accordance with the contract between the parties.

Strict Boundaries of Appraiser Independence Laws

If you will note, interested parties (which includes homeowners and lenders) cannot, by law, “instruct” the appraiser by even supplying a value we believe the home should be any longer (in addition to any other action that would interfere with their independent valuation of the property).

To do so is a violation of the law, and the appraiser is not only instructed but also required to report us to the authorities.  We have had some borrowers in the past who did not receive the value they wanted and felt that we had, in some way, instructed the appraiser to come in with a lower value.

Doing so would jeopardize our licenses in every state, cost us our HUD approval, and subject us to a $10,000 fine EACH DAY such violation occurs.  When we order an appraisal, we cannot and do not suggest a value to the appraiser, as this would violate HUD Rules, the licensing rules of every state in which we are licensed, and state and federal laws.

In short, increasing or limiting home values would put us out of business.

Now, the law does allow an exception that is not construed as violating the appraiser’s independence, and that is to request corrections of errors, reconsideration of additional information that the appraiser did not use, and to provide further detail, substantiation, or explanation if you feel that the appraiser did not consider some things that they should have.

Did You Know? Suggesting a value to an appraiser—even casually—can result in fines of up to $10,000 per day and loss of a lender’s license.

That portion of the law appears below:

(c) Exceptions.  The requirements of subsection (b) shall not be construed as prohibiting a mortgage lender, mortgage broker, mortgage banker, real estate broker, appraisal management company, employee of an appraisal management company, consumer, or any other person with an interest in a real estate transaction from asking an appraiser to undertake 1 or more of the following: (1) Consider additional, appropriate property information, including the consideration of additional comparable properties to make or support an appraisal.  (2) Provide further detail, substantiation, or explanation for the appraiser’s value conclusion.  (3) Correct errors in the appraisal report

Reconsideration Requests in Appraisal Disputes

Suppose the appraiser is completely negligent or negligent in their duties.  In that case, we can seek a new appraisal, but this is not available simply because you don’t like or disagree with the value.

In those cases, you can register complaints with the licensing board in the state in which the appraiser is licensed and can file a grievance with HUD.  We can request a new appraisal for particularly egregious instances of appraiser malfeasance.

If you believe your home’s value exceeds the appraiser’s assigned value, you can only refute this conclusion by requesting reconsideration within the law’s parameters.

Did You Know? You can only dispute an appraisal with facts—like overlooked comparable sales—not opinions about your home’s upgrades or features.

What to Do When You Disagree with the Appraiser’s Evaluation

If you ask the appraiser to correct errors (the appraiser said your home is 2800 square feet, and you think it is 2900 and therefore worth more), the appraiser may disagree with you, find other information from old appraisals where other appraisers also concluded very similar square footage, shake it off due to rounding of different measurements or even change the report but state that the additional 100 square feet does not affect the value.

If you disagree with the appraiser about the value of the amenities (the view, the upgrades, the landscaping, etc.), this is a complicated argument to win.  Unless you have additional sales of homes that the appraiser did not use in the report.  The amenities are similar to yours, with no significant differences.  It is your opinion vs. the appraiser’s.

Personal Opinions in Appraisal Reconsiderations

You are an interested party to the transaction and typically are not a licensed appraiser approved by HUD.

Therefore, your opinion is unqualified and biased.  This is no insult.  My opinion is biased when it comes to my home and its value as well.  So, the area where we have the best chance of obtaining a reconsideration of value is by providing additional comparable properties to support a higher value than the appraiser considered.

When doing this, it is important to remember that the appraiser will not consider one floor plan more desirable than another, and other things you feel everyone in your neighborhood “knows” will bring more value, unless there are sales that can verify the contention.

In other words, if you live in a tract of homes where the builder built one model with open concept and higher ceilings that sold for more when the tract opened 15 years ago, but all the recent sales indicate that they are now selling for about the same prices, the appraiser will not consider the premiums that the one-floor plan brought when the models first opened.

Importance of Providing Sales Data in Home Valuation Disputes

If you want to contend that your floor plan will now bring more than a competing plan or your tract more than a previous phase or subsequent tract built just a quarter of a mile away, you would need to be able to support your conclusion with actual sales supporting lower and higher sales based on the floor plan/location.

If those sales do not exist, it would be challenging to convince an appraiser that their value estimate is inaccurate based on no closed sales to support that conclusion.

We have had some homeowners suggest that we, as a lender, work with the appraiser to keep the property value down when their value was not as high as the borrower wanted it to be.  Let me explain to you why this really makes no sense.  The reverse mortgage is a HUD-insured loan.

Lenders Don’t Benefit from Low Property Appraisals

We use an FHA appraiser (whom we don’t even get to pick, with whom we have no relationship, and by law to whom we cannot even suggest a value), and if there is a default on the loan and we have followed all the rules, HUD pays for the losses out of the insurance fund.

We have no incentive to lower the value because we are at no personal risk of default.  Holding down your value would not save us anything at all, but it hurts not only you but us when the lending process becomes bogged down with valuation issues.

Things would be much smoother if every appraisal went smoothly and every value met the borrowers’ expectations.  Every time a value comes in low, there is a risk that the borrower may not be able or willing to close the loan.

This represents a lot of work and costs we cannot recoup if the loan cannot be closed.

Presumably, this is why HUD took the valuation process out of the originator’s hands in the first place: they were convinced that some originators were a little too motivated to find a way to bring values in, whether they were supported or not.

The appraisal of your home is a snapshot in time.  The appraisal is one person’s opinion of value based on the comparison with competing sold homes.

There are Uniform Standards of Professional Appraisal Practice (Find USPAP info here) that all appraisers must follow, and additional rules for FHA appraisals to which the appraisers must also adhere.

If you do not like or agree with the value even after you have disputed the value as allowed by law and have exhausted all avenues, you can always cancel the loan, wait for the appraisal to expire, and reapply, but HUD will not allow a new appraisal until after the first appraisal is over 120 days old.

However, there is something fundamental that you need to know – the rules are the same for all lenders!

Did You Know? Lenders have no reason to push values down. Reverse mortgages are HUD-insured, meaning lenders are reimbursed if a loan defaults.

Why a New Appraisal Won’t Necessarily Solve Valuation Issues

HUD has required appraisal logging for several years, but they went one step further within the past year.  Every appraisal now completed for an FHA appraisal is submitted to HUD before it even goes back to the lender through the HUD Electronic Appraisal Delivery Portal (EADP).

HUD reviews the appraisal through EADP before the lender does, and it is linked to the case number and the borrower’s property. Any new lender must also use the same appraisal for as long as it remains valid.

Once the appraisal expires, all lenders would have to order a new appraisal, and there are no guarantees on the next value.  If the sales are there to support a higher value on the next attempt, the following appraisal may, in fact, come in higher, but only a new appraisal can tell.

After all, it, too, is an opinion of value and a snapshot in time, so it would depend on the sales at that time and that appraiser’s opinion based on the information available then.

Additional sales could be made after the initial 4-month period, supporting a higher value.  It could be that a different appraiser sees things differently, but there is no guarantee that a new appraisal will achieve a higher result.  If any originator tells you they can get a higher value, they are not honest with you about their role in the valuation process, what they can and cannot do, or when.

Did You Know? Once an FHA appraisal is logged into HUD’s system, it follows the case number. Switching lenders won’t get you a new appraisal until 120 days have passed.

The Final Word: Understanding Lender Limitations and Appraisal Disagreements

But the bottom line is that the lender has no control over your appraised value, which is by design and by law.  If we did, we certainly wouldn’t want the values to come in low, only to invest massive amounts of time, energy, and costs, only to see your loans not close.

After all, we are not in the business of processing loans and then letting them fall by the wayside.

If you disagree with the appraised value, you can rebut it with bona fide sales that support a higher value. Alternatively, you can cancel and restart the loan process at a later time if you believe that would be more advantageous.

You can even file complaints with the state licensing board that licenses the appraiser or with NFHA, since they approve the appraiser for FHA appraisals, if you feel the appraiser has acted illegally or unethically, but please don’t ever think that if your lender can’t find any additional sales to support a higher value, they want the value to be lower.

And please don’t mistake our explanations of the appraiser’s viewpoint or our limitations under the laws and rules as our siding up with the appraiser – it’s our job to let you know what is happening and to let you know if we can reasonably expect a different outcome based on our research.

If the time comes that we can no longer support a reasonable argument to request a reconsideration of value, it’s our job to tell you that as well so that you can make an informed decision.

Reverse Mortgage Rebuttal FAQs

Also See: 

• Download our helpful appraisal .pdf checklist
• Reverse Mortgage Appraisal Tips: Laws & Requirements
• HUD May Require a Second Appraisal on Reverse Mortgages