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Appraisals

Introduction [back to top]

There are several stipulations that determine whether or not you and your property will qualify for a loan, the last being the appraisal.

Why are appraisals necessary? [back to top]

Appraisals are important for a few reasons. They help the lender decide if the loan at hand is a good business investment. They also help determine the quality of the property, and if the selling price is reasonable or not. Appraisals are an impartial assessment of the property and its features, and may make or break the pending loan agreement.

Who chooses the appraiser? [back to top]

Typically the lender will have a number of appraisers that they like to work with, though most appraisers are independent contractors who are licensed or certified by the state. Appraisers need to give honest, forthright opinions about the property they are evaluating, and the lender will want to work with someone that fits this description. The buyer or seller will not choose the appraiser, as this may taint the very attributes that are necessary in an appraisal, and the lender is quite unlikely to accept information from an appraiser they did not hire.

How do Appraisals work? [back to top]

When it is time to evaluate property, the lender notifies the appraiser they would like to work with, who will peruse the property and dwelling in question, taking pictures and noting special features, until they have enough information to compile their report. Generally an appraisal does not take very long, though the appraiser will find similar properties with which to compare. This appraisal is not the same as an inspection; appraisals take into consideration aspects such as square footage, the number of bedrooms and bathrooms, and remodels. They do not, for instance, inspect the condition of the foundation. You should order an inspection when purchasing a home to evaluate its more mechanical aspects.

What is Desktop Underwriting? [back to top]

There is a different kind of appraisal now available known as desktop underwriting, wherein an appraisal is done based on a curbside inspection. Rather than evaluate the home by walking through it, the appraiser drives by and makes notes, which later are compiled in new Fannie Mae software that helps the appraiser generate the value and information about the property. The appraiser looks mainly at value by square footage, and does not take into consideration other factors that a traditional appraisal would. This is a more cost-effective method, though by cutting costs it leaves out many details that might help or hurt the loan situation.

What if the market is changing? [back to top]

Value can be supported by pending sales. In a rapidly changing market such as relocation destinations in which housing values can increase as much as 19 percent a year, the appraisal can be adjusted with pending sales. In new home subdivisions where builders can change prices as often as quarterly, home values are more difficult to set and the only reliable appraisal must include pending sales.

In slow markets, appraisers may suggest that sellers obtain a listing appraisal. If the seller chooses an appraisal company that is on many lenders' lists, the seller can then turn the appraisal into a selling asset. The buyer can use the appraisal if s/he chooses one of the lenders on the appraiser's list. The fee will be saved and the loan will progress more quickly.

Sound shady? It isn't. The appraisal is still a third-party evaluation. It won't pay the seller to inflate the value of the home because the market will determine the selling price. After it sits for six months, the seller and the market will know it was overpriced.

The appraisal is still a tool for the lender no matter who orders it.

If you have a need for an appraiser, you can find one in your area at the Real Estate Appraisers Directory at RE-Appraisers.com, The National Appraisal Network,Inc., is an appraisals site to help you appeal taxes, eliminate private mortgage insurance payments (PMI,) or evaluate assets in the dissolution of divorce or other partnerships.