Who must pay for the cost of appraising a property that is going to be used as collateral for a mortgage loan?

That depends on the policy of the bank from which the loan is being applied for. Banks usually pass on the cost to the customer. However, a bank could request an appraisal for itself, in which case it could not pass on the cost.

If the valuation expenses are paid for by the customer but the job is managed through the bank, then the customer is entitled to receive a complete copy of the appraisal report, or the original if the transaction isn’t eventually executed, and in any event the invoice for the service provided by the appraisal company. In any event, the customer is entitled to know the identity of the selected professionals and the price of the appraisal.

It should be pointed out that when the customer assumes the appraisal expenses, they are afforded several very important rights: (1) the authority to choose the appraisal company; (2) the authority to negotiate the loan with various entities based on the appraisal report of their property; and (3) the authority to review the report or file a claim with the appraisal company if the they deem it necessary. This latter point is especially important, given that, precisely in guarantee of consumer rights, the result of an appraisal is used as the basis for determining the auction value in the event of possible foreclosure, wherefore consumers are interested in maximum transparency in the procedure used to determine that value.

Since 2013, the law has established that credit institutions must accept any appraisal of a property provided by the customer, as long as it is certified by an appraisal company that holds current, official approval from the Bank of Spain. The credit institution can naturally make all the checks it deems appropriate regarding the appraisal presented by the customer, and in any event it can decide whether or not to grant the loan, but it cannot charge the customer for making those checks.

How should a home that is going to be used as collateral for a mortgage loan be appraised?

Once the appraisal company that is going to conduct an appraisal has been selected (by the customer or by the bank), the company will appoint a valuer, who must be an architect (superior or technical) and will be in charge of the valuation. Before visiting the home, the valuer will analyse the data of the immovable property that are recorded in the documentation of the property registry (generally, a non-certified note) and of the cadastre, as well as other data provided by the customer or bank (lease agreements, etc.). 

Then the valuer will visit the home, where they will check the surface area, the quality, the state of upkeep, the installations, annexes, community elements and all other characteristics that could have an influence on its value. Likewise, the valuer will analyse not only the market in the surrounding area (asking for information, consulting official data, consulting data from other experts, etc.) but also the offer or sale prices of similar homes in the area, and with that information and the information provided by the appraisal company, the valuer will issue a report that estimates the price that the home could reach if it is sold under market conditions.

The report must then be validated by the control service of the appraisal company before being delivered to the customer or the appointed person. That control task must be performed by valuation professionals with extensive experience, who will also rely on all the control mechanisms placed at their disposal by the company, including databases based on appraisals made by the company and those based on the market data it obtains from various sources. This control is also used by the company to ensure that the valuer who drafted the report has complied with applicable valuation standards and with the company’s standards of quality and thoroughness.

Who is liable for a bad appraisal?

First of all, the appraisal company that signs and bills the appraisal is liable, and then the valuer who drafted the corresponding report, regarding the part for which the valuer is exclusively liable (for example, the data resulting from the visual inspection of the home, such as its surface area, its quality, the state of upkeep, the orientation, etc.).

It must be pointed out that an appraisal should not be deemed to be bad, for example, merely because the price of a home is now 30% below the value it was given when the appraisal was done in October 2007 (at nearly the highest point of the prices during the last real estate boom). The fact is that appraisals are like thermometers, evaluating the level of prices at the time when they are conducted, and it is impossible to know how prices might vary in the future, above all due to external factors or unexpected crises. 

How can you file a claim against a mortgage appraisal that is considered incorrect?

If a mortgage appraisal that was ordered is deemed to contain any error, whether in the data used or in the methodology applied, the first step will consist in requesting that the appraisal company conduct a review of the file. This request may be made directly by the customer who was billed for the appraisal or by the bank when it acted as the agent for managing the job. 

If, once the file is reviewed, a customer deems that the work does not meet the essential requirements of thoroughness and quality, then they may file a claim against the appraisal company through its Customer Service Department, while keeping proof or a receipt of having contacted the company to try to resolve the matter. 
In the event that no response is received from the company after one month has elapsed as from when a claim was filed, or if the customer does not agree with the resolution of a claim, then a claim may be filed with the Market Conduct and Claims Department of the Bank of Spain.