I Didn't Get to Pick My Home Appraiser Even Though I Had to Pay Them. Here's Why

Since I am buying a home soon, I needed to go through the process of getting a home loan. And during the process of applying for a mortgage, I had to pay for an appraisal.

Appraisers are professionals who assess the valuation of a home to tell you -- and your lender -- what the property's current market value is. An appraiser is paid by the home buyer (me, in this case) and looks at comparable sales to make a report about what the property is worth. The lender then uses this information to determine whether the house is worth enough to serve as collateral for a mortgage loan.

When I paid my appraiser, I spent over $500 to get a report on what the home I was trying to buy should be worth. But despite the fact I had to shell out all of this money, I had no say in who the appraiser was and I was not allowed to shop around for the best price.

Here's why that's the case.

Regulations prevent you from picking your appraiser

There's a very simple reason why you cannot shop around for your appraiser. Banks and regulators won't allow you to do it.

See, there are rules and regulations to prevent fraud in the appraisal process. In the past, there were problems with appraisers coming back with inflated home values because otherwise they knew that a deal would fall apart if a property appraised for too little. To try to avoid a situation where a bank or buyer could influence an appraiser, neither banks nor homeowners pick an appraiser personally.

Instead, banks generally outsource the selection of an appraiser to a third-party appraisal management company. When someone is buying a home, the bank just reaches out to the management company to let it know an appraisal is needed and a licensed appraiser is randomly selected from the pool of professionals that the management company works with.

Why this rule makes good sense

Ensuring that an independent third party is valuing the home can protect consumers from a situation where an appraiser says a property is worth more than it is and the buyer then overpays for the property.

If the buyer does overpay, they could find themselves immediately owing more than the house is worth (also known as being underwater on their mortgage). That would be a huge problem if they wanted to refinance their home loan in the future because the new bank would likely require another appraisal and the appraiser might not be willing to inflate the price this time around.

It's an even bigger problem if a homeowner buys a property and then wants or needs to sell and ends up not being able to do so for the amount they paid. The homeowner could be trapped in the house or could have to bring money to the table to repay the remaining loan balance, which isn't always possible. This could put the homeowner at risk of foreclosure if they really had to get out, perhaps because they found the payments weren't affordable.

So, while it was annoying to me to pay for an appraisal and not be able to pick my appraiser -- and it will probably be annoying to you too if you're buying a house -- just know there's a good reason for this regulation.

The good news is, while you can't shop around for an appraiser, you can shop around for a mortgage lender. By comparing rates and terms, including upfront closing costs, you can make sure your total borrowing expenses are as low as possible over time. That's going to impact your finances far more than just being able to pick your own appraiser would.