When getting a loan, why is the bank required to order the appraisal when the borrower has to pay for it?

This is a bank regulation that is a result of the Savings & Loan crisis that occurred in the 1980's. When bank examiners found inflated appraisals prepared by unethical appraisers, they wrote into law that if an appraisal is to be utilized by a federally insured financial institution, the bank - not the borrower - shall be the client of the appraiser [Title 12 of the Code of Federal Regulations, Part 34.45(b) ]. The intent of this law is to help insure that the appraiser's role is that of an unbiased third-party.

While we recognize that some individuals would like to order an appraisal first, so that they can make the determination of how much they can borrow, and then shop for the best financing; we recommend that the individual start the negotiations with one financial institution, and have that bank order the appraisal. If an alternate institution is found later, we can re-direct the appraisal to the new bank with permission from the original client.

A bank cannot legally accept an appraisal that was not prepared for a financial institution, and it is unethical for the appraiser to prepare an appraisal for an individual knowing that the intent is to utilize the appraisal, to document the collateral value of a loan for a federally insured financial institution.