Quick Answer: A lender can order a second appraisal when there is a documented, reasonable basis to believe the first report is materially deficient, when a loan program or investor requires two appraisals, or as part of a pre-funding or post-funding quality control process. A lender cannot order a second appraisal simply because the first value was lower than hoped, and cannot use the second to pick the higher number. R3 AMC, an appraiser-owned appraisal management company based in Henderson, Nevada, helps lenders document the reason, order the right product, and stay inside appraiser independence rules. Call (702) 658-1191 to discuss a file.
Second appraisals come up in two very different situations. In the first, a loan program requires two independent reports, and the lender simply needs to order them correctly. In the second, a lender has a completed report in hand and a reason to question it. The rules for each are different, and the dividing line between a legitimate second appraisal and value shopping is one that regulators, investors, and appraisers watch closely. This guide covers when a second appraisal is required, when it is permitted, when it is prohibited, who pays, and what alternatives a lender should consider before ordering one.
When Is a Second Appraisal Required by Rule?
Some loan types require two appraisals regardless of how the first one looks. The most common cases for residential lenders are:
- Higher-priced mortgage loans on flipped properties. Under the Truth in Lending Act appraisal rules for higher-priced mortgage loans, a lender must obtain a second written appraisal from a different appraiser when the seller acquired the property within the prior 180 days and is reselling it at a significantly higher price. The thresholds are a price increase of more than 10 percent if the seller bought within 90 days, or more than 20 percent if the seller bought within 91 to 180 days. The lender may not charge the borrower for the second appraisal in this situation.
- Jumbo and non-QM investor requirements. Many jumbo and non-QM investors require two full appraisals above a stated loan amount or when the loan-to-value exceeds a set level. These are contractual requirements set out in the investor's guidelines, and lenders should check them at application rather than at closing.
- FHA HECM collateral risk review. FHA may require a second appraisal on a reverse mortgage following its collateral risk assessment. When required, the lower of the two appraised values is used to determine the maximum claim amount; the lender follows FHA’s current processing instructions.
In each case, the lender must follow the applicable program’s requirements for appraiser independence, disclosure, and selection of the controlling value. Some programs require the lower value. Fannie Mae’s general rule for multiple appraisals is to select the most reliable appraisal and document that decision, rather than automatically choosing the higher or lower number.
When Is a Second Appraisal Permitted but Not Required?
Outside of program requirements, a lender may order a second appraisal when it has a reasonable and documented basis to believe the first appraisal is flawed. The Appraiser Independence Requirements allow this specifically. Acceptable grounds include:
- A material factual error in the report, such as wrong square footage, wrong lot size, or a missed addition, that the appraiser will not or cannot correct.
- Comparable sales that are clearly unsupported, for example sales well outside the market area when closer sales existed, with no explanation.
- Unresolved quality control findings, such as a collateral risk score or an automated review that identifies a specific, documented problem.
- Evidence that the appraiser lacked geographic competency or the appropriate credential for the property type.
- A pre-funding or post-funding quality control sample, where second appraisals or field reviews are part of the lender's written QC plan.
The common thread is documentation. A lender that orders a second appraisal should be able to show, in the file, exactly what was wrong with the first one and when that concern was identified. "The value came in low" is not a documented deficiency.
When Is Ordering a Second Appraisal Prohibited?
A lender cannot order a second appraisal to obtain a higher value, and cannot choose between two reports based on which number is more favorable to the loan. Both practices are treated as attempts to influence the appraisal result under the Appraiser Independence Requirements and the federal appraisal independence rules. The warning signs regulators look for are a second order placed shortly after a low value with no documented deficiency, a second appraiser who was told the first value, and a file that uses the higher number without explaining why the first report was rejected.
If a lender has a real concern about a report, the first step is usually not a second appraisal at all. It is a reconsideration of value, which gives the original appraiser specific data and asks for a response. We cover the lender's options in detail in what happens when an appraisal comes in low.
Who Pays for a Second Appraisal?
It depends on why the second appraisal was ordered. When a program requires two appraisals, such as a jumbo investor rule, the borrower is normally charged for both, and the fee must be disclosed. When a second appraisal is required under the higher-priced mortgage loan flip rule, the lender must pay for it. When the lender orders a second appraisal because of a quality concern with the first report, the lender generally absorbs the cost, because the borrower already paid for an appraisal and the deficiency is not the borrower's doing.
For applications secured by a first lien on a dwelling, Regulation B generally requires a free copy of each appraisal and other written valuation promptly upon completion or at least three business days before consummation or account opening, whichever is earlier. This includes a second appraisal even if it is not relied on. A permitted applicant waiver can change the timing, subject to the rule’s conditions. The CFPB publishes the rule and official commentary.
What Are the Alternatives to a Full Second Appraisal?
A full second appraisal is the most expensive and slowest way to address a concern, and it is often not the best one. Lenders have several alternatives:
- Reconsideration of value. Specific comparable sales or factual corrections are sent to the original appraiser, who revises the report or explains why the conclusion stands. This is the first step in most cases.
- Desk review. A second appraiser reviews the report and its data without visiting the property, and comments on whether the value is supported.
- Field review. A second appraiser inspects the exterior of the subject and the comparables and forms an opinion on the original report's reliability. This is the standard tool when the concern is about the comparables or the neighborhood analysis.
The choice between these depends on what the concern actually is. Our guide to the difference between a desk review and a field review explains when each is appropriate. A review resolves most quality questions faster than a new appraisal and leaves a cleaner independence record, because it evaluates the first report rather than replacing it.
How Does an Appraisal Management Company Help With Second Appraisals?
An appraisal management company gives the lender a documented, independent process for every step. At R3 AMC, every report is reviewed against USPAP and agency guidelines before delivery, which catches many deficiencies before the lender ever sees them and reduces the number of second appraisals needed in the first place. R3 AMC uses ValueTest.ai research reports to support quality control and reconsiderations of value, so a concern about a report is evaluated with data rather than instinct.
When a second appraisal is required by program or justified by a documented deficiency, R3 AMC assigns it automatically to a different appraiser from a panel of more than 500 active appraisers, with no production staff involvement, and keeps a record of the reason for the order. The lender ends up with a file that shows what was ordered, why, and who decided, which is exactly what an investor or examiner will ask for.
What Should the File Document When a Second Appraisal Is Ordered?
Whatever the reason, the loan file should answer four questions. Why was the second appraisal ordered, and what specific rule or deficiency triggered it? When was the concern identified relative to the first value being delivered? Who made the decision, and was that person outside loan production? Which value was used, and why? A file that answers these clearly will hold up under investor review. A file that contains two appraisals, no explanation, and the higher value will not.
Frequently Asked Questions
Can a lender order a second appraisal just because the first value was low?
No. A low value by itself is not a deficiency, and ordering a second appraisal in the hope of a higher number is considered an attempt to influence the appraisal under appraiser independence rules. The lender needs a documented, specific concern with the first report, or a program requirement, before ordering a second appraisal.
Which value is used when a lender has two appraisals?
Follow the applicable program rule. FHA HECM cases requiring two appraisals use the lower value to determine the maximum claim amount. Under Fannie Mae’s general multiple-appraisal policy, the lender selects the most reliable appraisal and documents its reasons. A replacement report is not automatically controlling merely because it is newer, and a higher value alone is never a valid selection reason.
Does the borrower have to be told about a second appraisal?
Yes. For a first-lien dwelling application, Regulation B generally requires a copy of every appraisal and other written valuation promptly upon completion or at least three business days before closing or account opening, whichever is earlier, subject to permitted timing waivers. This includes a second appraisal not used in the credit decision. Any fee charged to the borrower must also comply with the applicable program and disclosure rules.
Is a field review the same as a second appraisal?
No. A field review is an evaluation of an existing appraisal by a second appraiser, who inspects the exterior of the property and the comparables and states whether the original value is supported. A second appraisal is a complete new report with its own value conclusion. Reviews are faster and less expensive and resolve most quality concerns.
Does R3 AMC order second appraisals for lenders?
Yes. R3 AMC orders second appraisals when a program requires them or when the lender has a documented quality concern, assigning them to a different appraiser through automated assignment from a panel of more than 500 active appraisers. R3 AMC also provides reconsiderations of value and review products as alternatives when a full second appraisal is not necessary.
Need help now? Call R3 AMC at (702) 658-1191, email orders@r3amc.com, or send an inquiry through the R3 AMC contact page.
Key Takeaways
- A second appraisal is required by rule for higher-priced mortgage loan flips within 180 days, by many jumbo and non-QM investors, and on certain FHA HECM loans.
- Outside program rules, a second appraisal is permitted only for a documented, specific deficiency in the first report or as part of a written quality control plan.
- Ordering a second appraisal to get a higher value, or choosing the higher of two values without documentation, is prohibited as an attempt to influence the appraisal.
- The lender pays for a second appraisal required by the flip rule or ordered for quality reasons; borrowers are normally charged when a program requires two appraisals, and must receive copies of all of them.
- A reconsideration of value, desk review, or field review resolves most concerns faster than a new appraisal.
- Document why, when, and who on every second appraisal, and route the order through an AMC so loan production is never involved.
