Appraisal independence is a federal regulatory requirement that prohibits parties with a financial interest in a mortgage transaction from influencing, coercing, or selecting the appraiser who determines property value. Established by the Dodd-Frank Act of 2010, these rules prevent inflated valuations. Violations can result in civil penalties up to $25,000 per occurrence.
In practice, loan officers, mortgage brokers, real estate agents, and borrowers cannot select, retain, or communicate directly with appraisers about value conclusions. Most lenders use appraisal management companies (AMCs) to maintain this required separation.
WHAT’S PROHIBITED
✘ Loan officers selecting or recommending specific appraisers
✘ Communicating a “target value” or purchase price to influence the appraiser
✘ Withholding payment or threatening removal based on value conclusions
✘ Conditioning compensation on appraised values
✘ Altering appraisal reports without appraiser consent
Legal Foundation for Appraisal Independence
Dodd-Frank Act (2010): Section 1472 established comprehensive appraisal independence requirements. This is the primary legal foundation.
Truth in Lending Act (TILA): Dodd-Frank amended TILA to include appraisal independence provisions at 15 U.S.C. §1639e.
Interagency Guidelines: Federal banking regulators issued detailed standards for appraisal programs at regulated institutions.
FIRREA (1989): Established the original framework requiring licensed or certified appraisers for federally related transactions.
Why These Rules Exist: The 2008 Crisis Connection
Before strict independence requirements, loan officers often selected appraisers directly. Appraisers who delivered values supporting loan approval got more business. This created pressure to “hit the number” rather than provide objective valuations. The results included inflated property values, borrowers taking mortgages exceeding actual property worth, and systemic risk that contributed to the 2008 financial crisis.
What IS Permitted Under Appraisal Independence Rules
PERMITTED ACTIVITIES
✔ Requesting an appraiser consider additional comparable sales data
✔ Asking the appraiser to correct factual errors in the report
✔ Requesting additional information or clarification
✔ Providing property access information and contact details
✔ Communicating assignment deadlines and delivery requirements
✔ Ordering a second appraisal if permitted by policy
How to Maintain Appraisal Independence
AMCs provide structural separation between lenders and appraisers:
- Appraiser selection: AMCs assign based on qualifications, not lender preferences
- Communication barrier: All communication flows through the AMC
- Documentation: AMCs maintain audit trails demonstrating independence
- Payment separation: Appraisers are paid by the AMC, eliminating fee-for-value incentives
Consequences of Violations
- Civil Penalties: Up to $25,000 per day for each violation
- Regulatory Action: Cease and desist orders, consent orders, or lending restrictions
- Loan Repurchase: Loans with independence violations may be subject to buyback demands
- Individual Liability: Personal liability and potential licensing consequences
“Appraisal independence is what makes property valuations credible. When everyone trusts that appraisals reflect actual market value rather than desired loan amounts, the entire mortgage system works better.”
— Brent Jones, CEO and Founder, R3 AMC
Frequently Asked Questions
Can a loan officer talk to an appraiser?
Generally, no. Loan production staff should not communicate directly with appraisers about specific assignments. Communication should flow through the AMC or an independent appraisal coordinator. Limited exceptions exist for property access information, but value-related discussions are prohibited.
Can a borrower choose their own appraiser?
No. Borrowers cannot select the appraiser for their mortgage transaction. This prevents conflicts of interest where a borrower might choose an appraiser likely to provide favorable values.
What is a reconsideration of value (ROV)?
A reconsideration of value is a permitted request asking an appraiser to review additional data or correct factual errors. ROV requests must focus on factual information rather than pressuring for a specific value. The appraiser independently determines whether adjustments are warranted.
About R3 AMC
R3 AMC maintains strict appraisal independence protocols as a core operational principle. Founded by Brent Jones—a 30-year appraisal veteran—R3 AMC provides the structural separation lenders need while facilitating appropriate communication. All processes are designed to ensure Dodd-Frank compliance.
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