Home Appraisal Report-What To Know- we will give you some explanations here…
In mortgage lending the evaluation process is somewhat complicated at times, just like all things in a mortgage can be. This is not to scare you about the appraisal process. However, it is to help you be aware that there are a lot of processes that have to take place in any purchase, sale of a home, or refinance of your mortgage.
The appraiser has an obligation to give the value of the property, the true value. He cannot make the value just to please the borrower or the lender. This professional has to have integrity, make sound evaluation judgments, and live by the rules. They have regulations that must be adhered to or lose his/her appraisal license. Remember, this is his or her job and they are trained in a proficient way.
How Important Is The Property Value In The Home Appraisal Repost?
Not only must a person get qualified and approved with the verification of their financial position, but the home being purchased. The land/lot that the home is on must be evaluated and pass the necessary guidelines. This is valuable as it is the security for the loan.
Normally you, the borrower must become qualified first before going to the expense of an appraisal. All lenders/brokers/mortgage companies must hire a qualified-approved appraiser of real estate who holds a license to evaluate the house and property. Large investors such as Fannie Mae, Freddie Mac, and FHA have rules and regulations which must be adhered to and complied with for licensed appraisers.
They set the guidelines for appraisers to use and spell out the full evaluation process. Appraisers must have formal education and be approved by the lenders and agencies to be selected to give a property evaluation/appraisal on mortgage loans.
What Does the Appraiser do?
The appraiser must get a copy of the purchase contract and legal description (if a purchase), legal description (if a refinance) of the property, and the details of the pending purchase or refinance. He/she will then call the homeowner and set up a time to visit the property to do the inspection of the home and land/lot.
A majority of appraisals ordered through the lender require an interior and exterior inspection. Meaning the appraiser must measure the inside of the dwelling, reviewing the workmanship of the home structure both inside and out. He/she will evaluate the condition of the home. **These guidelines were amended for the Coronavirus Pandemic in 2020.
The appraisal process is now back to the Standard Appraisal Guidelines that FNMA requires for Conventional Financing. This often depends upon the type of property and other investor requirements.
This means that they will review the entire house including the attic and basement (if applicable) and determine the material which has been used to build the home, both inside and out.
The Condition Of The Property Is a Mandate
The material and condition of the walls, i.e. sheet-rock, paneling, floors, ceilings, kitchen cabinets, and any material used in the home. The grades of material used will also determine the cost per foot as some grades are more durable than others. For instance, if the floors are ceramic, hardwood, or just plain tile floors; the ceramic and hardwood flowing, of course, are more expensive, will last longer, and are more valuable than tile floors.
The features and amenities of the home also help to determine the final value. For instance, if the home is a custom-built dwelling, the grades of materials are important to the final value. The number of square footage; total rooms, the bedrooms, baths, and separate dining, all add to the final decided value.
This can and will increase the value if existent in the home. It includes high-quality appliances, hardwood floors, the amenities in the bath (whirlpool/separate showers/tub) are also important to the evaluation process.
The outside features include but are not limited to; a deck, double garage, or carport, and a paved drive will also be part of the evaluation. If a pool exists on the property, value is added for the pool, and there should be a comparable to show the sale-ability of the home with a pool.
News of Home Prices
Update 12-03-2021- Mortgage News Daily reporting that housing prices moved up by $100,000 for conforming loans within the past week.
Home prices have rebounded and have been for a while. All in all, depending upon where you read, and where you are located pricing has been up. Significantly better than in a previous couple of years.
It seems, however, that homeowners still anticipate their home value to be somewhat more than the appraiser’s value. Quicken loans reported some time ago that the homeowner’s appreciated home value was .60% greater than the appraiser’s final value.
The appraised value by a professional is what determines the loan amount and the loan to value of the property for the lender. Most lenders will not make a loan with the sale price being higher than the true value.
If the sales price is higher…the difference in the sale price and the loan amount must be paid by the borrower. *Many applicants cannot afford to pay over and above the value of the home, and lenders do not want to deal with this kind of situation.
Housing values rising is good news for mortgage people, however, it should be noted that incomes are not keeping up with the value increase of homes.
The above does depend upon the location as stated. It is also necessary to remember that any housing issues that may exist are not due to the housing market. It is due to the Coronavirus pandemic.
As stated in my other post, the mortgage market can change from one day to the next. It is ever-evolving, and you do not know on a daily basis what could be next. At the moment buying, and refinancing is high. That could change if there are more delinquencies, and the job market declines further.
Buying REO Property
If you are buying at a lower than normal sales price home, because it is a bank-owned property, it is always good to check out the neighborhood to make sure there are no conditions that could further lower the value of your home. You do not want a home that is in a steadily declining market, if you lose value, should you have to sell you could not get what you possibly owe on the property.
Additional Appraiser Evaluations for Submitting Value to The Lender
The appraiser gathers comparable homes that have sold within the past 3 to 6 months (preferably, not more than 12 months) that are closest to the subject (the home you are buying or selling). He/she must give at a minimum three (3) comps. These comparable must be within the same square footage, within close approximates to all features such as bedrooms and baths.
The square footage for a 2100 sq ft home should have comps that are within close range of 2100 sq ft. If they are not close; the appraiser must have an upward if higher or downward adjustment within the appraisal grid. For any item which is not similar to the subject property, there must be an adjustment. If the subject property has more amenities, such as ceramic in the kitchen and one comp has plain tile, an adjustment should be made.
When the subject is in average condition and the comps are superior, an adjustment should be made. For instance, if one of the comps has a swimming pool and the subject does not, if at all possible the comp should not be used or otherwise an adjustment must be taken into consideration.
Comparable Sales Should Be Within The Subject’s Immediate Area
Sometimes an appraiser has difficulty in using comps within the subject’s immediate area. There are instances when he can only find one comparable located in the subdivision or within a mile of the subject.
The appraiser has guidelines that he can only use homes from a certain distance from the subject property in the evaluation. If there are no comps in the subject’s immediate area, they may search farther away to at least indicate the value it should generate according to the amenities of the home.
Often the appraiser must go into another subdivision to get comps that support the sales price that is given. The seller may need to come down from the initial listing price if the value does not support it. There are instances where the buyer has been willing to pay over and above the value. However, usually, it is rare and not an option for many as they do not have sufficient funds on hand to pay the dollars down to the sale price listed. The loan amount is based upon the lower of the sales price or value.
Rural Property Appraisals
Rural properties are much harder than urban and suburban properties to evaluate. This is because sometimes the houses which have sold recently are 10 to 15 miles away. In these instances, this is acceptable to the investors such as Fannie Mae, as long as it is reasonable and explained. It depends upon the trends and what is considered normal in the area.
Final Thoughts For Mortgage Appraisal Report
Fannie Mae and Freddie Mac are always looking very closely at the trend in the neighborhood concerning the stability of sales within the area of the subject.
The appraiser must disclose if the trend is stable, increasing, or declining. Meaning are the values steadily going lower or are they stable and increasing. (With this update, values are definitely increasing and being more stable).
Investors are looking for stability, always in any market. They also want to know the average number of days on the market within the neighborhood. This tells how slow or averages the existing sale of the property is within the subject’s immediate area.
There are many other details of the appraisal process that is voluntarily omitted in this article so that you are not left with information that is not professionally understood as a layman. I will elaborate on other appraisal issues at a later time.
**Conforming loan limits for 2022 is up to $647,200 – FNMA/Freddie Mac
