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Home Featured Topic: Love thy Appraiser - Understanding the Appraisal Process
How Appraisals Work The appraiser is the eyes and ears of the lender, making sure that the lender has the correct property value to base the loan on. It’s important for the lender to be assured that the loan has a low probability of defaulting, or in the case of foreclosure, has a realistic market value for resale. Appraisers are licensed by the state, go through a detailed training program and are tasked with providing a complete evaluation and accurate assessment of the property. Elaine Michaud of Wentworth Appraisals stopped by our office and gave us some input on some of questions that we hear most often about appraisals. What is actually included in an appraisal
document? The
appraisal includes the legal address, a detailed assessment of the property,
photos of the property and information and photos of “comps” – that is
“comparative sales” that have closed recently in the same area as the home
being appraised. All of these factors help the appraiser set an appraised
value on the home. The final appraisal is submitted to the lender’s
underwriters, who review it carefully to ensure that they agree with the
appraisers research and assessed market value. What process does the appraiser follow? First
the appraiser does some research. They review the deed to ensure that the
property description on the deed matches the property. For example, the
appraiser makes sure that basic information, like the street address is
correct. (Some towns have changed street numbers to comply with the 911
system!) An appraiser will also see if there are any easements or
encroachments on the deed, as that is important information for the lender to
know. Next,
the appraiser searches a database of properties that have sold recently.
Appraisal values are primarily based on “comparable” sales. This means that
appraisers look for houses that have sold recently with similar square
footage, location and are in a similar neighborhood with similar values.
Appraisers look at what these comparable houses sold for to determine the
value of the property that they are appraising. Pictures and descriptions of
these comparable sales are included in the appraisals and are reviewed
carefully by the lender. Generally, the comparable properties will have the
same number of bedrooms and will be the same style, i.e. ranch, cape, etc. To
account for minor differences in square footage, number of bathrooms, etc. an
appraiser will “adjust” the market value, using certain guidelines set by
national bodies. Ideally, appraisers must compare the property that they are
appraising to comparable properties within a one mile radius that have sold
within six months. If similar properties can’t be found, an appraiser might
expand the radius. What happens when the appraiser visits
the property? The
appraiser will walk through the entire property and carefully analyze the
home. They look at everything from safety issues and basic systems (heat,
electric, septic) to cosmetic conditions. Safety factors might include having
railings on decks and banisters on stairways. Appraisers also look around the
neighborhood for any adverse factors that would affect the marketability of
the house in the future (such as new highways, new water towers, etc….) The
appraiser also analyzes factors like whether the property is considered by
FEMA to be in a flood zone. I’ve made a lot of improvements to my
home. Doesn’t that mean my appraisal will be higher? In
some cases yes, in some no. Some improvements, like adding a bathroom, might
add to the appraisal value. But, some improvements might simply make the home
more marketable and while the appraisal value might be higher, you may not
recoup the entire cost of the improvements. For example, finished basements
are “below grade” and therefore will not increase the square footage of a
house. However, in certain types of homes, like ranches with walk-out,
finished basements, this might add to the overall marketability of a home and
slightly up the appraisal value. The same goes for decks, three season rooms
or rooms over detached garages. None of these will add to the square footage
of a home, though they might improve its marketability. You want to consider
how much money you put into a project, versus how much you’ll actually get
back. Do your research carefully if you’re making an improvement that you
want to increase your appraised value, and make sure that it will really add
the value you’re hoping for. What should I do to prepare for an
appraisal? Good
question. It’s a good idea to have
your home tidy, so that the appraiser can get a good look at all of your home’s
features. A home that is in good condition is appraised higher than one in
average or poor condition. If you’ve done recent upgrades or improvements,
have those written up in a list for the appraiser. Ideally, construction and
renovation projects must be completed. If they can’t be completed, the lender
might adjust the appraisal value down. The safest rule of thumb? If the house
is under construction and you want full value, finish the construction first. This is just a high level overview of the
appraisal process. We are happy to answer other questions and can get more
input from our appraisers about specific scenarios. Bauer Mortgage strives to
educate our customers about important issues like the appraisal process, so
that you can understand and make informed decisions about home financing! Karen Wimer, Branch
Manager To obtain your personalized rate quote from Bauer Mortgage Group, email Karen or call 603-430-7729! |
