Appraisal

An appraisal is a report written by a licensed third party representative known as an appraiser, and is used to help determine a properties fair market value.  Most home loan programs will require that an appraisal be done before determining what the programs acceptable loan limits can be.  Lenders will cap a programs maximum allowable loan amount at or slightly below the fair market value of the home, therefore an appraisal is needed to help the lender determine what that maximum allowable loan amount might be.  For example, if a home has a fair market value of $320,000 and the home loan program you are looking to qualify under only allows you to borrow up to 90% of the fair market value, then your total allowable loan amount will not exceeded $288,000. 

The appraisal report will provide the lender with a number of details which will be used during the qualifying process.  These details will go beyond just the fair market value for the home.  For instance a lender will use the appraisal to verify what condition the home is presently in.  This is done to ensure that the home meets the desired condition requirements needed to insure the home on the open market.  Lenders do not want to be stuck with a major liability in the event of default.  For this reason homes are given condition ratings, and in order to meet the markets minimum condition standards, the home must be rated “fair” or better.   

The cost of an appraisal report will be included in the list of costs outlined in your Good Faith Estimate, and though the cost of an appraisal can be collected at the time of closing, most mortgage providers will require an upfront payment at the time it is ordered.  Once the appraisal has been ordered the appraiser will contact the realtor to set up the best time from them to come out and view the home.  On the other hand, if you are refinancing your home, the appraiser will contact you directly to set up a time that is convenient for you. 

We find that ordering the appraisal in the final stages of the approval process works best in reducing your risk to needless cost.  The purpose for doing so is to avoid any out-of-pocket costs to you in the event your loan does not close.  We simply want to make sure that your loan will close before putting you at risk of loosing the money paid out on an appraisal.  However, once the appraisal has been ordered you will be expected to pay the appraisal fee directly to the appraiser when they arrive to do the inspection on your property.  Most appraisers will accept either a personal check or cash depending on what works best for you.  The appraisal fee can vary depending on where you live, but you can typically expect your appraisal fee to range between $300-$500.

When the appraiser arrives to inspect the property you are more then welcome to inspect the property with them.  In fact I encourage my applicants to do so, because you are more likely to point out any upgrades or improvements made to the property, then what the appraiser might notice on their own.  The appraisal begins with the appraiser walking through the home room by room to inspect for any major flaws or structural issues that can be easily identified.  Remember they are not home inspectors therefore they are not out to look for every issues they can find.  Instead they are focusing on their opinion of value and will use the inspection process to support that opinion of value.  As the appraiser makes their way from one room to the next they will take pictures of these rooms to use later on in the final appraisal report.  Once the inside of the home has been inspected, the appraiser will move outward to inspect the outside of the home.  Most of the measurements used by the appraiser will come from the inspections done on the outer exterior of the home.  These measurements will be compared to the square foot measurements currently on file at the county clerk’s office or the information provided to them on the MLS.  Once the property has had the opportunity to be inspected by the appraiser, a detailed report will be released on the appraiser’s opinion of market value, which is determined by using a variety of techniques. (These techniques can be viewed in the “Property Value” segment.)