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I was recently under contract to buy a new construction house. Long story short, the house had some pretty serious issues and I backed out of the transaction. My mortgage broker, who is an independent owner/operator had already paid for the appraisal, which happened on the same day that the house was inspected and problems were uncovered. 

The broker is a stand up guy as best I can tell and has been honest and truthful throughout the entire process. When I talked to him about the issues with the house and told him I was thinking of backing out, he asked for me to reimburse him for the appraisal.

This is my first experience with getting a mortgage or buying a house. Is it standard for the buyer to reimburse the broker for his $725 cost for the appraisal? I'm definitely willing to pay if it is customary for the buyer to pay in this kind of a situation. 

Thanks!

Edit- Update provided on 9/3

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Thanks for updating. These threads seldom get any resolution and it's nice to hear the outcome.

drodge (Sep. 04, 2016 @ 1:24p) |

Now there's a nice lesson in the build quality of 'nationally known chain builders'. Yikes. Normally one would think the... (more)

taxmantoo (Sep. 04, 2016 @ 6:54p) |

The "national chains" where I live use day laborers and in-house inspectors, so you can imagine how that works out.  The... (more)

drodge (Sep. 06, 2016 @ 7:56a) |

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This is a standard practice, yes. He paid a third party to conduct the appraisal and the service was completed. I would ask for a receipt for verification.

Yes, that is normal. $725 is steep for my area though (~$500 here). Perhaps that is normal for your area.

Its standard for you to pay for the appraisal. Most brokers and banks have you pay in advance of the appraisal. Its surprising that he did not go over that with you.

It depends on your personal preference.  If you rescind the transaction you cannot be legally held liable for any fees.  Edit to clarify this applies to refi transactions.

Well think about it. The appraiser did his job and deserves to be paid for it regardless of whether the sale goes through or not. Then who else but the buyer who needed the appraisal to get financing should pay that bill? Thus it's a good reason to do the inspection prior to getting appraisal.

Only if OP agreed to pay for the appraisal.  OP needs to read through documents and see if OP is actually liable.
If the "mortgage broker"("mortgage salesman") ordered it completely on their own volition without disclosing the costs and getting paperwork signed that made it OP's cost, then the salesman gets to eat it.  If they don't disclose the charge and you don't agree to it, there's no reason for you to go and donate funds to them.

That said, it's very likely OP agreed to it, which is standard practice like several have said.  If this was not made clear to OP when signing things, the salesman/"broker" is clearly either not an "honest and stand up guy" or is just completely incompetent.  Are you not paying him (potentially, including his office/employer/whatever) $1000s primarily to explain the costs and obligations to you?

For my purchase and refi's, the paperwork I signed was all very clear on the appraisal fee being my responsibility in the purchase (and I had to sign to agree to that charge before they went and did it), and for the refi's they actually had me agree/sign and put a $500 charge to my credit card with any difference from $500 addressed at closing.  It was very clear in the paperwork that my responsibility for the fee started with its ordering (and my approval) and remained if the sale or refi fell through.

Its customary to have that done after you have released an inspection contingency.  They should have known better than to be so aggressive with the financing but then maybe you needed it to close sooner than was reasonable.  I still think he should have known better than to get that done when he did.  

Someone did the appraisal .. so yes, it has to be paid, but $700 seems high for a house appraisal.  I would not mess around with  not paying - in case they hit your credit report, and put something negative.   Perhaps they can give you bit discounted deal on next house?

It happened to me once .. i thought i was out $400 or so .. but luckily i had a special deal, was employee of the bank. They did not volunteer - but i called and asked - and they refunded me only because it was a special deal for employee (if appraisal comes too low and it falls thru, they give back that money).

Also note sure why you proceed with appraisal before inspection. Typically you would do the inspection first - in case you find any issue & need to re-negotiate with seller. And then you proceed with appraisal.

That has been normal for decades regardless of new or existing. When I sold real estate and a deal fell thru, the buyer paid for the appraisal if it was performed as you indicate it was. The broker is only asking for his expenses.

vegas4x4 said:   Yes, that is normal. $725 is steep for my area though (~$500 here). Perhaps that is normal for your area.
check that the broker didn't up charge it

rufflesinc said:   
vegas4x4 said:   Yes, that is normal. $725 is steep for my area though (~$500 here). Perhaps that is normal for your area.
check that the broker didn't up charge it

 yeah they typically do, as most use a third party appraisal company that deals with the appraisers on their behalf, and this middleman gets a cut.

solarUS said:   rufflesinc said:   
vegas4x4 said:   Yes, that is normal. $725 is steep for my area though (~$500 here). Perhaps that is normal for your area.
check that the broker didn't up charge it

 yeah they typically do, as most use a third party appraisal company that deals with the appraisers on their behalf, and this middleman gets a cut.

I meant that the broker isn't keeping a cut

I understand what things may be customary to pay by whom, but why doesn't the builder get an appraisal prior to listing the house? It would show buyers the house is worth what he is asking and simplify the purchasing experience.

It's standard practice. In my area, you'll be charged for an appraisal before it happens. That said, in several states there is a 3 day right of rescission which you can exercise up to 3 days after signing and get all fees returned, including appraisal. Though you'll probably have to sue for it.

I think everyone morally agrees on the answer, what about legally?

atikovi said:   I understand what things may be customary to pay by whom, but why doesn't the builder get an appraisal prior to listing the house? It would show buyers the house is worth what he is asking and simplify the purchasing experience.
  ...Because nobody would ever bribe the appraiser to make sure the property appraises at or above asking?

Just pay him if he provided the service. You might check around that 725 is a reasonable fee for an appraisal if your area, that is the only thing I would be concerned about. You said you think the guy is a "standup guy" so do the right thing.

Do you plan to use this guy again in the future?  If so, pay him for the appraisal - it's good to have someone you feel you can trust on your side.

AaG12 said:   I think everyone morally agrees on the answer, what about legally?
  Depends on what was signed and agreed to.

And I don't think everyone agrees.  

In my opinion there are four possibilities based on things we don't know:
1. If the person paid to explain it (mortgage broker) didn't explain it, then they didn't do their job.  So, "morally", if that was the case I would argue that the cost would be fully on the broker.

2. If it's buried in the fine print that was signed but not understood or explained to OP, then legally the cost would be on OP.

3. If OP never signed or agreed to pay it yet (which is possible since it was oddly ordered before even inspection, though we don't know if this is a couple days after the offer or what the timeline is), then both morally and legally the cost would be on the broker that ordered the services of their own volition.

Last of four possibilities: OP signed agreeing, plus it was clearly explained by the broker and OP just didn't pay attention to what was said and signed without reading.  In this fourth case, both morally and legally it would be OP's responsibility.

IMBoring25 said:   
atikovi said:   I understand what things may be customary to pay by whom, but why doesn't the builder get an appraisal prior to listing the house? It would show buyers the house is worth what he is asking and simplify the purchasing experience.
  ...Because nobody would ever bribe the appraiser to make sure the property appraises at or above asking?

  And no buyer would ever bribe the appraiser to make sure the property appraises below asking to get a price reduction?

mikk1 said:   Do you plan to use this guy again in the future?  If so, pay him for the appraisal - it's good to have someone you feel you can trust on your side.
  Good to have someone "you can trust" that didn't bother to communicate the non-refundable service fees before they were incurred?

atikovi said:   
IMBoring25 said:   
atikovi said:   I understand what things may be customary to pay by whom, but why doesn't the builder get an appraisal prior to listing the house? It would show buyers the house is worth what he is asking and simplify the purchasing experience.
  ...Because nobody would ever bribe the appraiser to make sure the property appraises at or above asking?

  And no buyer would ever bribe the appraiser to make sure the property appraises below asking to get a price reduction?

When you get a mortgage, it's not technically the buyer ordering the appraisal or paying for it. The lender pays a third party for the appraisal. Then they\ buyer (or in this case, the middleman broker) pays the lender what they paid the appraisal company. And then finally, if there's a contract the buyer signed agreeing to reimburse these non-refundable appraisal fees (part of the standard mortgage disclosures) the buyer pays out of escrow at closing*.
*(or, alternately, buyer prepays before the appraisal is ordered, and is reimbursed if it never happens or credited at closing. Which is how my purchase and refis have been done.)

The appraisers are supposed to be independent third parties, although they will bend the value pretty far to reach what they think the sales price is or what the owner "wants" for a refinance. There's room for subjective $$$ "adjustments" in the appraisal form.

What I can't figure out is multiple posters talking about rescinding a mortgage that never closed.

I am also puzzled as to why an appraisal would be done before inspection? Did you ask him to do this? It's a very stupid thing to do as inspections frequently cause deals to fall through, obviating the need for an appraisal. If you requested he do it, pay. If he stupidly went ahead and did it early, let him eat it.

OP, the broker should have disclosed to you up front that you would be responsible for the appraisal fee, and it is common for them to collect the money up front, which it sounds like did not happen. If the broker ordered the appraisal without having disclosed that to you, you likely do not have to pay. So you need to go through all the documents you already received/signed. And you obviously want to verify the cost. You also have a right to receive the appraisal report, which may or may not interest you, but should verify the cost.

Regarding the amount, in my experience it is not uncommon to see more expensive appraisals for new construction homes, but that is when the appraiser does multiple inspections before, during, and after construction is completed. OP did not provide enough information to determine if that is the case here.

Regarding whether to do the inspection or appraisal first, everyone is saying to do the inspection first because that may make the deal fall through, and while I generally agree with that and that is common practice, appraisals can make a deal fall through as well, and in a case like that, it would have been better to do the appraisal before the inspection. However, the OP stated the inspection and appraisal were done on the same day. So that's kind of guaranteeing you'll be out an extra fee if one of them makes the deal fall through, which doesn't seem like the best option.

Side note: If the inspection showed the house had some pretty serious issues, the appraiser should probably have noticed at least some of that and reflected it in the appraisal/value; I'd be interested to see that.

The broker paid for it in good faith, so you should reimburse them. Just ask for a receipt for your records.

atikovi said:   I understand what things may be customary to pay by whom, but why doesn't the builder get an appraisal prior to listing the house? It would show buyers the house is worth what he is asking and simplify the purchasing experience.
lenders will generally not accept an appraisal they didn't order. so that wouldnt mean much.

BingBlangBlaow said:   
Side note: If the inspection showed the house had some pretty serious issues, the appraiser should probably have noticed at least some of that and reflected it in the appraisal/value; I'd be interested to see that.

  
If you pay for the appraisal, it's yours. Might as well read it.

100% chance this is outlined in detail in the agreement with the broker.

drodge said:   100% chance this is outlined in detail in the agreement with the broker.

I'd put it at 98-99% cause there are some lousy mortgage brokers / companies out there. I dealt with one that tried to over charge me about 3-4k at closing and they ended up eating the appraisal cost because their paperwork was so messed up. My first experience with a lender.

atikovi said:   
IMBoring25 said:   
atikovi said:   I understand what things may be customary to pay by whom, but why doesn't the builder get an appraisal prior to listing the house? It would show buyers the house is worth what he is asking and simplify the purchasing experience.
  ...Because nobody would ever bribe the appraiser to make sure the property appraises at or above asking?

  And no buyer would ever bribe the appraiser to make sure the property appraises below asking to get a price reduction?

  Pretty risky game to play, since that would also reduce the amount that the bank is willing to lend.

My guess is because its a new build both the inspection and appraisal occurred closer to closing than normal as the home was just getting completed. Many homes where I am from are being sold while in the building process therefore neither inspection or appraisal could occur at the time of contract.

Need more info from OP but I can see why the appraisal may have been ordered the same time as the inspections in these cases.

Dup Post

Dup Post - Computer must have gone a bit crazy.

jerosen said:   
drodge said:   100% chance this is outlined in detail in the agreement with the broker.

I'd put it at 98-99% cause there are some lousy mortgage brokers / companies out there. I dealt with one that tried to over charge me about 3-4k at closing and they ended up eating the appraisal cost because their paperwork was so messed up. My first experience with a lender.

  So 100%. If the paperwork is messed up or doesn't include that the buyer will pay the appraisal, then OP is not responsible. It's either in there or it's not.

BingBlangBlaow said:   
jerosen said:   
drodge said:   100% chance this is outlined in detail in the agreement with the broker.

I'd put it at 98-99% cause there are some lousy mortgage brokers / companies out there. I dealt with one that tried to over charge me about 3-4k at closing and they ended up eating the appraisal cost because their paperwork was so messed up. My first experience with a lender.

  So 100%. If the paperwork is messed up or doesn't include that the buyer will pay the appraisal, then OP is not responsible. It's either in there or it's not.

  Incredibly flawed logic.   It's standard language in the vast majority of agreements.     If it's in there, he's 100% on the hook.    If it's not in there, that doesn't mean he doesn't owe it.   Sorry, but that's not how the law works.  
 

drodge said:   
Incredibly flawed logic.   It's standard language in the vast majority of agreements.     If it's in there, he's 100% on the hook.    If it's not in there, that doesn't mean he doesn't owe it.   Sorry, but that's not how the law works.  

What? Why would you say someone owes it if they were never informed about it nor agreed to it? That's nonsense. The incompetent broker would be the one who clearly owes it if the buyer never approved the broker to go order whatever he wanted on the buyer's behalf that is non-refundable without informing him. 

You don't owe for services you never agreed to pay for. That's not how the law works. 

Bend3r said:   
drodge said:   
Incredibly flawed logic.   It's standard language in the vast majority of agreements.     If it's in there, he's 100% on the hook.    If it's not in there, that doesn't mean he doesn't owe it.   Sorry, but that's not how the law works.  

What? Why would you say someone owes it if they were never informed about it nor agreed to it? That's nonsense. The incompetent broker would be the one who clearly owes it if the buyer never approved the broker to go order whatever he wanted on the buyer's behalf that is non-refundable without informing him. 

You don't owe for services you never agreed to pay for. That's not how the law works. 

  It's exactly how it works when there are laws, regulations and guidelines that lay out how transactions work.  Obviously that's different in every jurisdiction.   I personally haven't seen a buyer's agreement that didn't have this spelled out in detail, but certainly there are cases where it isn't.  In those cases, the only opinion that counts is that of a judge.
 

Skipping 9 Messages...
taxmantoo said:   Now there's a nice lesson in the build quality of 'nationally known chain builders'. Yikes. Normally one would think the condition inspection on a new build is mostly a formality.
 The "national chains" where I live use day laborers and in-house inspectors, so you can imagine how that works out.  The large builders employ their own engineers who have access to the county inspection database and can sign off on all required inspections.  The legitimate county inspector never actually sees a house, despite all of the inspections being checked off and the county certifying the final project as code compliant.    How often do you think any of those inspections fail?  There's a large development down the road where the siding blew off almost all of the houses after the first big storm.  A friend of mine did his final walkthrough on a high-end home and it happened to be raining that day.  He saw a spot on the ceiling and found that the roof was leaking and the builder came in that morning, threw up some drywall mud and painted over it while it was still wet in an attempt to hide the leak.   It's pretty common for them to backfill unbuildable lots with loose fill and build on top, leading to foundation issue or even houses sliding down slopes.   No one should ever assume that new = correct.  



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