Hi All,

Can a bank deny a loan for the appraisal not having comps for the property being purchased? If so would the denial reason be for "Value or Type of Collateral not Sufficient"

That's what we would do.

IMHO, unless the property is very "weird" or "unique", an appraiser should be able to come up with some comps, even of they have to extend the time (and adjust for it) or go beyond the customary distance from the subject property. E.g. If it is mountaintop property, there may not be a similar mountain for 20 miles - beyond a 5 mile area. The appraiser would adjust and comment.

Absent of finding another appraiser, or valid comps denial would be for inability to establish value.

We have a value on the property. The appraiser came up with a value but was not able to come up with comps for the property. To me it just does not seem like a reason to deny a loan, but maybe I am missing something? So it is ok to deny a loan and send out an adverse action notice for not having comps for the property being purchased?

Cedar, first thing to be clear, is I am not an appraiser. That being said, the purpose of an appraisal is to identify the value of the property. One way it is achieved is through sales. The value is comparing recently sold (similar) properties and adjusting them to the subject property. If there is a value on your collateral, IMHO it would be based on the contract, or tax or cost to replace or rental income. Those, while usually included in the appraisal are worth a lot less than comparable sales to determine the value. How did the appraiser come up with the value?

A definition of Market Value
What is the definition of Market Value?
By The Appraisal Foundation
Definition of Market Value: The most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller, each exacting prudently, knowlegeably and assuming the price is not affected by undue stimulous. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby: (1) buyer and seller are typically motivated; (2) both parties are well informed or well advised, and each acting in what he or she considers his or her own best interest; (3) a reasonable time is allowed for exposure in the open market; (4) payment is made in terms of cash in U.S. dollars or in terms of financial arrangements comparable thereto: and (5) the price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale.

Cedar- IMHO the answer to your original post is yes, you can deny based upon the lack of comps. This is not uncommon in secondary market loans where the value estimate is not supported by sales data that meets investor guidelines.

As for the AAN, if you use the canned reasons, then the "Value or type of collateral not sufficient" reason is the best one that fits. However, it is not fully descriptive and may be misleading (after all, the appraiser did arrive at a value estimate and you are not denying the loan based upon the type of property.)
You may consider to also use "Other" and state something such as, "Value estimate of collateral not supported by reliable sales data." Or you may just want to include a brief letter stating something similar if using the "Other" category makes one nervous.

Regardless of your decision, I would have a few sets of eyes, including the Compliance Officer review it before sending to the applicant.