Appraisals Vs Appraised Value

When applying for a mortgage loan, you need to keep in mind that the lenders require borrowers to submit the appraisal information for the property before they agree to finance the purchase. Some lenders may take care of ordering the appraisal for the property but will still charge you for it, unless it is already calculated into the mortgage rate. Also, most highly motivated sellers usually have the property appraised before placing it on the market in order to save new buyers the hassle and a little extra money so the home can sell sooner. If you're thinking about purchasing your first home and not quite sure what exactly an appraisal is and why you need one in order to get a mortgage loan, here's a bit of information you may find rather helpful.

 What Is An Appraisal?

An appraisal is simply defined as an opinion of value in regards to a particular piece of property and the home itself. Home appraisals are conducted by accredited appraisers that are licensed by the state to assess the size, condition and quality of the home. Home buyers must provide lenders with a full appraisal report to establish a property's market value so they don't overpay for a home. Lenders do this in order to protect themselves by avoiding the possibility of loaning the buyers more money than the property is actually worth.

 How Are Appraisals Determined?

Typically, there are three parts to the appraisal process. First, the appraiser comes out to the property and fully inspects the home and its perimeters. After the full inspection is completed, he will then research up to 3 similar homes in the area and compare recent sales in order to determine a fair market value. Once the appraiser has completed his or her inspection of the home and compared other properties in the area, he or she will then issue a final appraisal report. This final appraised value is more than likely determined by how much the appraiser thinks it would take to rebuild the home from the ground up. If you plan to rent the property out to tenants, the appraisal report might also include the projected amount of monthly income you should receive and the expenses that will be required in order to maintain the property.

In order for both the lender and the home buyer to be provided with an appraisal that is completely fair, the appraiser should be an objective third party who has no personal connection to any person involved in the transaction or the potential to gain financially other than the appropriate fee. There are quite a few things that can help raise the appraised value of a home including features such as a solid foundation, enclosed garages, appealing landscaping and updated kitchens. Usually the turn around time for an appraisal is anywhere between 3-7 business days in most states. It's important to keep in mind that if the property is in a remote area, it could take a little longer to get an appraiser out to inspect the home.

 Appraisal Costs

The cost of an appraisal can range from anywhere between $200-$600. A few of the factors that may affect the total cost of an appraisal is the area of the home, the property type and square footage. Understandably, an appraisal for a multi-unit property or one in a rural area will generally cost more than a single-family home in a densely populated area. The most basic type of appraisal provided by professional appraisers is known as the URAR (Uniform Residential Appraisal Report). This particular report consists of both interior and exterior photos, comparison sales which are also known as “comps” and a thorough breakdown of the appraised value for the property.

 What's the Difference Between An Appraisal and A Home Inspection?

Some first time home buyers believe that an appraisal and a home inspection are the same thing, but they're not. A home inspection differs from an appraisal because it entails having a licensed home inspector evaluate the structure of the home and its mechanical systems such as the heating, plumbing and air conditioning. A home inspector will also check out the quality of the roof, the chimney or any other attached structure. The appraisal is more centered on the potential sale price of the property by comparing similar homes in the neighborhood, the curb appeal of the home and any added desirable amenities.

 The Appraisal Review

Once the appraisal has been completed by a local appraiser, the majority of lenders will then order a review of the appraisal. This review is generally conducted by a different appraiser or by using an Automated Valuation Model, also known as an AVM. If the appraisal review happens to come in low or if the property is deemed unacceptable, the lender may decline the loan all together and deny financing to the buyer. Even if the borrower has an impressive credit score, a long history with the lender and a generous amount of assets, a flawed structure or overvalued property can kill the entire deal.

As of January 2015, Fannie Mae (the Federal National Mortgage Association) now allows lenders to use a proprietary tool known as a “Collateral Underwriter”, or CU. This unique tool automatically provides lenders with an appraisal risk assessment which includes a risk score, any red flags and messages notifying the lender that they may want to further review certain aspects. It works by analyzing a large database of property records, market data and diagnostic models to determine the potential risks.

As you can see, a professional appraisal is always required before you seek financing for a particular property from a lender. Hopefully this information has helped you become a better informed home buyer so you're not surprised by appraisal fees when it comes time to getting a mortgage loan. To find a reputable appraiser in your area, you may want to do a little online research or ask your broker for a few references. It also never hurts to ask your friends and family who they had perform the appraisal for their last home purchase. Just make sure the appraiser is licensed in your state and trustworthy so you can avoid running into any discrepancies that may lead to the decline or delay of your loan.

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