This site is best viewed using Mozilla Firefox browser.

Banking & Finance

2004-04-01 14:46:00

Tell me about appraisals?

Who orders an appraisal on a home that one is buying? Who does it?  Why is it necessary?

ANSWER:  A real estate appraisal is ordered by the lender for the purpose of establishing the correct fair market value of a particular parcel or parcels of real property upon which they are considering making a mortgage loan. The appraisal takes into consideration such factors as the land value, and all of the improvements, if any, located on that land. The appraiser will thoroughly inspect and gather information about the subject property and the surrounding area. The appraiser will consider all of the relevant factors about the property and the neighborhood, both negative and positive. A search for similar properties that have sold will be made, and the most relevant of these will be inspected by the appraiser and photographed. Adjustments will be made in certain value considerations that will bring to or remove support from the subject property being appraised.  After the appraiser has gathered as much information as is needed relevant to the property being appraised, the appraiser follows a process that leads them to a logical conclusion as to the fair market value of the property. Depending on the type of property, it might take the appraiser anywhere from a few hours to a few days, sometimes weeks to complete an appraisal. The property owner usually only sees the appraiser when their property is being inspected. Most of the appraiser's time to complete the appraisal is spent away from the subject property location. Most appraisers utilize similar tools to aid them in establishing the value based upon a cost approach workup, which give the appraiser value factors that are updated quarterly. This portion of the appraisal is known as the Cost Approach. The most weight in a residential appraisal is normally given to the Comparative Market Analysis, wherein homes that have sold recently in the nearby neighborhood that are similar to the subject in size, features, quality, etc. are compared and adjusted to the subject property. Through experience, practice, and required continuing education, a certified appraiser gains the expertise and knowledge to perform to the high standards required by most lenders and underwriters in the mortgage business today.The appraiser works for their client, who is the person or corporation that hired them. For example, when you apply for a mortgage loan, the lender is going to have your house appraised in order to determine the value, so that they can loan you a certain, known percentage of the correct market value. The lender engages an appraiser from their "approved appraiser" list to perform the appraisal. The lender is the client so the appraiser works for the lender. But some folks think that since the lender charged them for the appraisal that the appraiser should be working for them, the buyer of the home. The answer is no, even though the lender passed along the appraisal fee costs to the buyer as a required loan cost,  the lender is still the client because they hired the appraiser. But, if the home buyer did pay for the appraisal fee, the lender is legally obligated to give them a copy of the appraisal if they ask for it in writing. In addition, they should not hesitate to ask the appraiser questions or point out any discrepancies on the appraisal report to the lender. After all, even though the buyer is not the client of the appraiser, the appraisal affects them and their loan. More Next Month…