A processor asks how to handle a file where the person preparing the valuation would be paid more if the value is higher. Which response is most accurate?
Correct Answer
C) Remove the value-based compensation conflict
Why this is correct: The governing concept is the appraisal independence rule under 12 CFR 1026.42(d). A core prohibition is that an appraiser's compensation cannot be based on the property value conclusion (e.g., paid more for a higher value). This creates a clear conflict of interest that undermines the appraisal's credibility. The rule requires such conflicts to be removed before the valuation is relied upon. Why the other choices are wrong: "Withhold the valuation copy until closing if the applicant does not ask" is wrong because regulations typically require providing a copy of the appraisal promptly, regardless of a request. "Remove unfavorable valuation comments before giving the report to the applicant" is wrong because altering an appraisal report is illegal and violates appraisal independence rules. "Ask the appraiser to ignore a condition issue so the loan can meet timing" is wrong because it constitutes improper influence on the appraiser. Exam tip: Any compensation tied to value is an automatic red flag. The conflict must be eliminated; you cannot work around it by withholding or altering the report.
Why This Is the Correct Answer
The correct response is "Remove the value-based compensation conflict" because Lines 215-219; 12 CFR 1026.42(d).
Why the Other Options Are Wrong
Option A: Withhold the valuation copy until closing if the applicant does not ask.
This choice is not the best answer because it applies the wrong file step for appraisal and valuation independence; the governing rule is tested by the correct option.
Option B: Remove unfavorable valuation comments before giving the report to the applicant.
This choice is not the best answer because it applies the wrong file step for appraisal and valuation independence; the governing rule is tested by the correct option.
Option D: Ask the appraiser to ignore a condition issue so the loan can meet timing.
This choice is a tempting shortcut, but it conflicts with appraisal and valuation independence because the file still needs the required documentation, timing, or rule-based review before the action is taken.
Memory Technique
appraisal and valuation requirements: identify the rule being tested, then choose the action that documents or applies that rule before the file moves forward.
Exam Tip
For appraisal and valuation independence questions, separate the required file step from plausible sales, timing, or documentation shortcuts.
Common Mistakes to Avoid
- -Choosing an internal exception instead of the governing rule
- -Treating preliminary or informal facts as a substitute for required documentation
- -Answering from a familiar but unrelated mortgage topic
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