Background.
An appraisal was requested on a property after we received their intent to proceed. The appraisal came back as a Q 5 with many needed repairs. The value of the home was less than the borrower requested and we turned down the loan request. The officer now wants the borrower to pay for the appraisal. It has been suggested that additional language be added to the intent to proceed document we currently use- that states in the event we do not approve the loan-, the borrower will pay us for the appraisal. Is this permissible? Is it even legal?

Whether it is legal is a question for your counsel and based on State law. If you don't want to get stuck with the appraisal fee, then collect it after the intent is received and before you order the appraisal. Otherwise, you have no leverage after the fact beside suing them if they don't pay. Chalk it up to a cost of doing business. It is going to probably hurt you marketwise to collect ahead of time if that is not common in your area.

on the Loan estimate under other considerations
Appraisal.- "We may order an appraisal to determine the property's value and charge you for this appraisal. We will promptly give you a copy of any appraisal even if your loan does not close"
Could this statement be interpreted to indicate if the loan does not close they would be charged.

The loan estimate is a disclosure and does not constitute a legal agreement regarding the assessment of fees.