We receive many calls from mortgage brokers and borrowers for value checks. In most cases, these requests are related to a refinance, a purchase money loan or a construction loan. In each case, it is typically stated that the borrower would like a “feel” for the property’s value before paying for a “full-blown appraisal.” Further, there is usually the dangling carrot of an appraisal assignment (either implied, inferred, or stated) at the end of the value check stick.

"While we understand the desire to have a comfort level that the appraisal will “come-in” at a desired value, value checks are simply bad for all parties involved."

"The role of an appraiser is primarily that of an independent third party." But the concept of a value check fly’s in the face of such independence and can cause far more harm than good. The laws of most states recognize this and have made value checks ostensibly illegal through the adoption of the Uniform Standards of Professional Appraisal Practice, USPAP.

Such illegality comes into play in several ways:

• first, USPAP makes it illegal to provide a value for a subject property without having "credible data" to reach a reliable opinion of value;
• second, USPAP states clearly that an appraisal may not be based upon a predetermined value;
• third, USPAP makes clear that if an appraiser states, writes, or otherwise transmits a value to another party, the appraiser is, in fact, reporting findings of an appraisal; which takes us to the fourth problem with value checks;
•  reporting a value without having done the proper analyses is in clear violation of the Ethics Rule in USPAP.

 "But what if the appraiser is just pulling comps for the client?"

The Appraisal Foundation, the authors of USPAP, has even clarified their position on this issue. If an appraiser has any input into the comps that are generated, he/she is guiding the results, which means that the appraiser is guiding the resulting value, or range of value, that his/her client will conclude to. Thus, it is a violation of USPAP.

Conclusion:

Value Checks may seem useful and reasonable to many on the lending side. After all they save their client money on appraisal fees. But in reality, Value Checks rarely make any sense at all. By doing a Value Check we appraisers stand a very real chance of locking ourselves into a predetermined value without having done any research or analyses. With independence shattered, we can then be pressured, either externally or internally, to make the appraisal fit the reported numbers. Thus, in my opinion USPAP’s rules are clearly grounded in a firm understanding of the real world of appraisal and are set-up to protect the appraiser’s role as an independent third party.

Moreover, while a Value Check may reflect an accurate value for a property, there is also a very strong chance that it will miss crucial data in the determination of market value for the subject property. The rules were written to protect against such instances.

Thus, it is apparent that a Value Check is not only potentially harmful to the appraiser, but it is equally harmful to all parties involved in a transaction be it for a construction loan, a refinance, or a purchase, as the lack of "credible data" can mislead decision makers into making ill-informed decisions.