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Property
Questions |
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| What
is an appraisal and who completes it? |
| What
types of things will an underwriter look for when
they review the appraisal? |
| Will
I get a copy of the appraisal? |
| Are
there any special requirements for condominiums?
|
| I'm
purchasing a home, do I need a home inspection AND
an appraisal? |
| I've
heard that some lenders require flood insurance
on properties. Will you? |
| How
long does it take for the property appraisal to
be completed? |
|
| What
is an appraisal and who completes it? |
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To determine the value of the property you are
purchasing or refinancing, an appraisal will be
required. An appraisal report is a written description
and estimate of the value of the property. National
standards govern not only the format for the appraisal;
they also specify the appraiser's qualifications
and credentials. In addition, most states now have
licensing requirements for appraisers evaluating
properties located within their states.
The appraiser will create a written report for us
and you'll be given a copy at your loan closing.
If you'd like to review it earlier, your Loan Officer
would be happy to provide it to you.
Usually the appraiser will inspect both the interior
and exterior of the home. However, in some cases,
only an exterior inspection will be necessary based
on your financial strength and the location of the
home. Exterior-only inspections usually save time
and money, but if you're purchasing a new home,
your Loan Officer will contact you to determine
if you'd be more comfortable with a full inspection.
After the appraiser inspects the property, they
will compare the qualities of your home with other
homes that have sold recently in the same neighborhood.
These homes are called "comparables" and play a
significant role in the appraisal process. Using
industry guidelines, the appraiser will try to weigh
the major components of these properties (i.e.,
design, square footage, number of rooms, lot size,
age, etc.) to the components of your home to come
up with an estimated value of your home. The appraiser
adjusts the price of each comparable sale (up or
down) depending on how it compares (better or worse)
with your property.
As an additional check on the value of the property,
the appraiser also estimates the replacement cost
for the property. Replacement cost is determined
by valuing an empty lot and estimating the cost
to build a house of similar size and construction.
Finally, the appraiser reduces this cost by an age
factor to compensate for depreciation and deterioration.
If your home is for investment purposes, or is a
multi-unit home, the appraiser will also consider
the rental income that will be generated by the
property to help determine the value.
Using these three different methods, an appraiser
will frequently come up with slightly different
values for the property. The appraiser uses judgment
and experience to reconcile these differences and
then assigns a final appraised value. The comparable
sales approach is the most important valuation method
in the appraisal because a property is worth only
what a buyer is willing to pay and a seller is willing
to accept.
It is not uncommon for the appraised value of a
property to be exactly the same as the amount stated
on your sales contract. This is not a coincidence,
nor does it question the competence of the appraiser.
Your purchase contract is the most valid sales transaction
there is. It represents what a buyer is willing
to offer for the property and what the seller is
willing to accept. Only when the comparable sales
differ greatly from your sales contract will the
appraised value be very different. |
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| What
types of things will an underwriter look for when
they review the appraisal? |
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In addition to verifying that your home's value
supports your loan request, we'll also verify that
your home is as marketable as others in the area.
We'll want to be confident that if you decide to
sell your home, it will be as easy to market as
other homes in the area.
We certainly don't expect that you'll default under
the terms of your loan and that a forced sale will
be necessary, but as the lender, we'll need to make
sure that if a sale is necessary, it won't be difficult
to find another buyer.
We'll review the features of your home and compare
them to the features of other homes in the neighborhood.
For example, if your home is on a 20-acre lot, or
has a large accessory building, we'll want to make
sure that there are other homes in the area on similar
size lots or with similar outbuildings. It is hard
to place a value on such unique features if we can't
see what other buyers are willing to pay for them.
In some areas, additional acreage or outbuildings
could actually be a detriment to a future sale.
Finding comparable properties can be more challenging
in rural areas where it is more difficult to find
homes that have similar features.
We'll also make sure that the value of your home
is in the same range as other homes in the area.
If the value of your home is substantially more
than other homes in the neighborhood, it could affect
the market acceptance of the home if you decide
to sell.
We'll also review the market statistics about your
neighborhood. We'll look at the time on the market
for homes that have sold recently and verify that
values are steady or increasing. |
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| Will
I get a copy of the appraisal? |
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| As soon as we receive your appraisal, we'll update
your Loan Status with the estimated value of the
home. As a standard practice we will provide a copy
of your appraisal at closing. |
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| Are
there any special requirements for condominiums?
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Since the value and marketability of condominium
properties is dependent on items that don't apply
to single-family homes, there are some additional
steps that must be taken to determine if condominiums
meet our guidelines.
One of the most important factors is determining
if the project that the condominium is in is complete.
In many cases, it will be necessary for the project,
or at least the phase that your unit is located
in, to be complete before we can provide financing.
The main reason for this is, until the project is
complete, we can't be certain that the remaining
units will be of the same quality as the existing
units. This could affect the marketability of your
home.
In addition, we'll consider the ratio of non-owner
occupied units to owner-occupied units. This could
also affect future marketability since many people
would prefer to live in a project that is occupied
by owners rather than renters.
We'll also carefully review the appraisal to insure
that it includes comparable sales of properties
within the project, as well as some from outside
the project. Our experience has found that using
comparable sales from both the same project as well
as other projects gives us a better idea of the
condominium project's marketability.
Depending on the percentage of the property's value
you'd like to finance, other items may also need
to be reviewed. |
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| I'm
purchasing a home, do I need a home inspection AND
an appraisal? |
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Both a home inspection and an appraisal are designed
to protect you against potential issues with your
new home. Although they have totally different purposes,
it makes the most sense to rely on each to help
confirm that you've found the perfect home.
The appraiser will make note of obvious construction
problems such as termite damage, dry rot or leaking
roofs or basements. Other obvious interior or exterior
damage that could affect the salability of the property
will also be reported.
However, appraisers are not construction experts
and won't find or report items that are not obvious.
They won't turn on every light switch, run every
faucet or inspect the attic or mechanicals. That's
where the home inspector comes in. They generally
perform a detailed inspection and can educate you
about possible concerns or defects with the home.
Accompany the inspector during the home inspection.
This is your opportunity to gain knowledge of major
systems, appliances and fixtures, learn maintenance
schedules and tips, and to ask questions about the
condition of the home.
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| I've
heard that some lenders require flood insurance
on properties. Will you? |
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| Federal Law requires all lenders to investigate
whether or not each home they finance is in a special
flood hazard area as defined by FEMA, the Federal
Emergency Management Agency. The law can't stop
floods. Floods happen anytime, anywhere. But the
Flood Disaster Protection Act of 1973 and the National
Flood Insurance Reform Act of 1994 help to ensure
that you will be protected from financial losses
caused by flooding.
We use a third party company who specializes
in the reviewing of flood maps prepared by FEMA
to determine if your home is located in a flood
area. If it is, then flood insurance coverage
will be required, since standard homeowner's insurance
doesn't protect you against damages from flooding.
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| How
long does it take for the property appraisal to
be completed? |
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| Licensed appraisers who are familiar with home
values in your area perform appraisals. We order
the appraisal as soon as the application deposit
is paid. Generally, it takes 10-14 days before the
written report is sent to us. We follow up with
the appraiser to insure that it is completed as
soon as possible. If you are refinancing, and an
interior inspection of the home is necessary, the
appraiser should contact you to schedule a viewing
appointment. If you don't hear from the appraiser
within seven days of the order date, please inform
your Loan Officer. If you are purchasing a new home,
the appraiser will contact the real estate agent,
if you are using one, or the seller to schedule
an appointment to view the home. |
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