Appraisal - In most cases, lenders require a professional, independent appraisal of the property you want to buy or refinance to ensure that it is worth at least as much as they are being asked to lend on it. If you are making a smaller down payment and have a lower credit score, the lender is going to be even more interested in making sure the property that will be collateral for the loan is worth lending the amount requested.Comparable sales of similar properties is an approach to evaluate most single family residence. Other approaches, such as the Cost Approach and Income Approach are also used for different types of properties. The Cost Approach is an estimate of the cost to rebuild the property of similar characteristics as the subject property. Income Approach is often used when the subject home generates rental income, such as duplex, triplex and quadplex.
An appraisal is simply an OPINION of value, from someone who is licensed to give such an opinion. Opinions vary from individual to indivdual. Likewise, the appraised value of the home will vary from appraiser to appraiser. However, appraisers base their opinions on comparable sales (what similar houses have sold for in the area recently), as well as other factors. Since the factors used to determine value are the same for every appraiser, most apraisers will give similar opinions about the value of the house.
Though an appraised value might be one thing, a lender reserves the right to "cut" that appraisal as they see fit. A lot of lenders have their own appraisal review department; these departments will look at comps themselves, look at the appraisal, and decide weather to honor that value.
A professional written opinion, about the value of a property, like a House, Condo, or other residential unit. Commonly required when a residential unit is sold, taxed, insured, or financed.
An appraisal is a great tool for finding out how to add value to your home once bought. Looking for features that comparable sales in your area have that you do not will show you which items can be added to your home to increase value.
The more similar the subject property is, in terms of size, age, design, quality, sitelines, condition, etc., to other nearby properties, the more accurate the appraised value will be. The more unique the property is, the less accurate the appraisal will be. Because of this, a unique property with no or few good comparable properties could be considered a higher risk by the lender. In some cases the lender will cut the value on the appraisal to mitigate this risk.
An appraisal should not be confused with a home inspection. Where an appraisal deals with the home's value a home inspection is performed for the functionality of the systems and structure. An appraiser will inspect the house only to the degree of viewing what is in the house i.e. does it have Central A/C or window units etc... The inspector will check the systems to insure they are working properly.
Appraisal Reviews - Having an appraisal completed by a licensed appraiser is not always necessarily the end of the appraisal process. Sometimes a lender will request an appraisal review by a second licensed appraiser. The purpose of the appraisal review is to verify the data and conclusions of the original appraiser. Generally, you can expect the lender to request an appraisal review, or even a second appraisal, if the loan amount request is for more than $1 million.
Appraisal reviews usually have a cost associated with them that the lender will pass on to the client. The lender will give the broker notice before ordering the appraisal review so that the client will not be surprised of the additional fee.
Some lenders are more stringent on appraisal review than others. Generally, a desk review is preferred over an on-site review as it's faster, cheaper, and less likely to bring down the appraised value of the property.
Why Isnt My Loan To Value Based On The Appraisal? - Many homebuyers are surprised to find that they do not automatically have a down payment built into a home they are buying for less than the market value. If you are buying a $130,000 home for $100,000 the lender is typically going to base your mortgages loan to value ratio on the lesser of the appraised value, or acquisition cost.
The appraised value can be used when the borrower wants to take some equity out of the house after the purchase. Since the lender looks for the current market value, which is provided by the appraisal report, the borrower is able to use the equity after the purchase transaction. However, the borrower needs to be careful when he/she wants to take the equity right after the purchase because some lenders would like to see some seasoning on the property before letting you borrow some money against the equity.
Almost all banks grant mortgage loans base on the lesser value of the purchase price or appraisal value. One of the reasons such policy is in place is to curb mortgage fraud. If any bank would lend base on the higher value of the purchase price or appraisal, the buyer and seller could conspire to have the bank lend more money than what the property is really worth.
How can I get a free appraisal? - It generally isn’t possible (at least not in an ethical way) to obtain an appraisal for free. However, there are ways to find a rough estimate of the value for your home.
