Lenders are not Appraisers

Lenders are not appraisers. Lenders hire appraisers to perform an appraisal, and to provide an independent third party (unbiased) opinion of the property’s value. Lenders rely on the appraisal for (among other things) the as-is value, the subject to renovations After Repair Value (ARV), and flood certification.

Lenders do not change appraisals to suit their needs (at least they shouldn’t), they use them to verify the numbers provided by the investor / borrower, and lend based on those numbers. When capping at X% of the ARV, the appraisal (among other possible sources such as Broker Price Opinions, and Realtor comps) is where the lender obtains the ARV.

When the appraisal comes in at the projected value, or higher, the project proceeds as planned. When the appraisal comes in below the projected value the loan parameters may adjust, or the project may be cancelled. It is also possible that the appraiser is incorrect and the appraisal needs to be disputed, this is something for the investor to review and discuss with the lender.

Whatever the scenario once the appraisal comes in, the lender is using the appraisal to verify the values, not adjust them to fit their needs. That is the purpose of the independent appraiser and their appraisal; an honest, unbiased, neutral party’s educated and trained opinion of the value.