Inevitably there's a point during my conversation with almost every new mortGene Mundt Chicago Bancorp Explaining Real Estate Appraisals blog, Pt. 1 gage client that the talk turns to the property appraisal. If the client themself brings up the topic, it's an indication to me that I'm speaking with an educated buyer. That buyer has already done some homework regarding mortgages already ... and that's good.

Typically, new home buyers and homeowners want to know the basics of the appraisal. Who is going to do the appraisal? Will they get to see it? Will they get a copy? What happens if the home doesn't appraise out? Currently, many of my clients have read or heard that appraisals are presently a sticky issue when applying for a mortgage. They're right.

Obviously for any buyer or present homeowner, of huge concern is the bottom-line value of the property. What does the appraiser think the property is worth? Much rests upon this final figure, including approval of the mortgage. But it's not the only information contained within an appraisal that ultimately matters.

Lending underwriters are going to be looking for other "clues" and information regarding the property, it's value, and its condition within the appraisal report. And that's what I'm going to touch-upon here.

With well over 20 years of real estate appraising experience and expertise behind me, I'm hoping I can answer many of the questions that new buyers, present homeowners, and broker/agents have about today's appraisals and appraising challenges. So hang on to your hat ... there's going to be ALOT of information that is supplied, both in Part 1 and Part 2 of this topic's posts.

(I'll remind anyone reading this, that I'm always available to answer questions. Please ... just contact me, should something above not be clear or if you have a more specific question.)

I've already established that the property's bottom-line value is very important. But what else, in addition to the value, is covered within the appraisal and considered important by lending underwriters?

Appraisals also address the following items, which may or may not affect YOUR loan approval and YOUR mortgage payments:

 

  1. Your appraisal confirms the amount of the Real Estate Taxes on your property. It is confirmed by the Title and County records.
  2. The appraisal will state if a Homeowners Association exists that includes your property. If an Association does exist, the amount of the Annual Dues paid should be noted/included in the report.
  3. Your appraisal should confirm the current contract price and any prior sales that have taken place on the property in the last three (3) years. * Note: This addresses or calls attention to the issue of "flipping" a property, which brings in another set of rules, etc., (should a sale have occurred).
  4. The appraisal identifies the property type you are purchasing, i.e. Single-family Detached, Townhouse or PUD, Attached Single-family (Duplex, etc.), or Condominium. * Note: Condominium appraisals command much more explanation and are a blog in-and-of-itself.
  5. Lot size, Zoning, Legality of property use, Flood Plain Determination are a high-priority focus of an appraisal. * Note: Zoning, non-conforming uses, properties in flood hazard areas COULD change the approval status, let alone the payments, of a mortgage.
  6. The condition of the property you are buying is detailed in the appraisal. The appraiser will also note if the appraisal is subject to repairs being completed on the property. If that occurs, WHO will make those repairs must be decided upon prior to Closing. I, and Chicago Bancorp, will coordinate that repair process for my clients to make sure that the repairs are inspected and approved so that a delay in closing does not occur.

As you can see, I have already touched upon many important features and considerations addressed within a property appraisal. In Part 2, I will write about what is found within the "guts" of an appraisal report. The "logic" used to support the appraiser's findings is all important. In today's challenging real estate market, this information definitely calls for a detailed explanation and blog post of its own.

Entering into a mortgage transaction with a thorough knowledge of what is contained on the appraisal report will calm nerves and better prepare a buyer/borrower for their transaction. So ... I ask again, should you have need for clarification of anything written above, please do not hesitate to contact me. I will be happy to hear from you and have the opportunity to answer your questions.

Watch for: "Understanding Real Estate Appraisals. How Appraisals can effect the outcome of your transaction, Pt. 2 ...

 

 

 

 

 

 

 

 

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Gene Mundt, Sr. Vice President - Chicago Bancorp mortgage lender     

Gene Mundt

Regional Manager - Mortgage Lender

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38 Comments on Understanding Real Estate Appraisals. How Appraisals can affect the outcome of your transaction, Pt. 1

20 Most Recent Comments Displayed Show All

JUN
24
2011
208,296 Points 1 Featured Post

When discussing appraisal with clients it is important to make two distinctions:

1. Assessed value vs appraised value

2. Appraised fair market value vs sales price

 

The second one really tends to irritate buyers and sellers when an appraisal doesn't match what they would like it to be.  As I have blogged about previously appraised value reflects the value of the property in a non-duress, arms-length transaction in a HYPOTHETICAL MARKET WITH SUPPLY AND DEMAND IN PERFECT BALANCE. Sales prices reflect the instantaneous spot market where supply and demand are almost never in perfect balance - i.e. it may tend towards a buyer's or a seller's market.  Appraisals are not supposed to reflect things like the fact that there were, for example 6 competing offers and the price was bid up (or the reverse).

Clients often have the idea that the market value is OBVIOUSLY whatever someone is willing to pay for it. This is emphatically not true. That is the definition of the SALES PRICE!  The market value is what a hypothetical buyer would be willing to pay for it in an ideally balanced market.
9:52am • #19
139,747 Points 3 Featured Posts Outside Blog

Gene...as always, an excellent imformative post.  In these days when appraisals are so significant to a successful transaction, we will share this information with both our buying and selling clients.
9:59am • #20
548,816 Points 9 Featured Posts Outside Blog Called Shot Master

Gene:

You have explained appraisals and their important during a sale.  I am going to share the information with my clients.  This is tough market for all of us.  You have helped make a portion of it easier to explain to our clients.  Thanks.
11:54am • #21
548,816 Points 9 Featured Posts Outside Blog Called Shot Master

Gene:

I forgot to mention that you new photo is very nice.  You and your wife make a nice looking couple.
11:56am • #22
982,552 Points 114 Featured Posts Outside Blog Attended Rain Camp Called Shot Master

The appraisal is the most important aspect of the loan.   And how it plays out is always interesting.  And just make sure the buyers realize they are paying for it, and can request a copy for their records.  It's a very good detail of their home with sq. ft. details, etc. 
12:17pm • #23
485,670 Points 52 Featured Posts Localism Sponsor Attended Rain Camp Called Shot Master

I have found that discussions with sellers about the appraisal helps them grapple with the price.  If the appraisal is lower than what someone might be willing to pay, then that could be a problem, no? 
12:50pm • #24
989,975 Points 50 Featured Posts Outside Blog Called Shot Master

Gene - Great information about appraisals, can't wait to read part 2 of this series.
4:15pm • #25
186,626 Points Localism Sponsor Outside Blog Attended Rain Camp

Hi Gene: Excellent article. With all that information contained in the appraisal report, it behooves those involved and their agents to review it to make sure it's accurate. A simple mistake or typo caught early will likely make it a small thing.
Thanks for sharing and I am looking forward to part two.
5:18pm • #26
498,639 Points 150 Featured Posts Outside Blog Hit Router Called Shot Master

Wow! Was out of the office with closings, came back and find all these comments. Thank you all. Will be playing catch-up replying and answering a few questions. Thanks again ...

Gene
5:23pm • #27
498,639 Points 150 Featured Posts Outside Blog Hit Router Called Shot Master

Teral: Thank you. Hopefully the article is up and running later today yet ...

Rosalie: I understand exactly what you're saying. Appraisals have always had the potential to put a kink in a transaction, but never more than in this market. Time, care, and attention need to be taken to get it right. Too many suffer if that's not done ..

Sandi: At least at this point I am the one deciphering the work of the appraiser, no longer appraising myself. It's a tough market. But I think with all the years of appraising under my belt, I can explain this process to my clients and referral partners better ... and also be their advocate should they need one.

Sharon: I hate to hear that. Hope all works out well for you in the end. Please have faith ... most times issues can be addressed and the transaction can move forward successfully.

Maureen: Glad you felt the post was valuable. There's alot that goes into an appraisal, esp. those that are done correctly. Hopefully this post helps explain a bit of that.

Steve and Carol: Thank you kindly. I think understanding something better helps the transaction move more smoothly for all involved. I'm trying to contribute to that education. I appreciate your writing me very much ..

Gene
5:33pm • #28
498,639 Points 150 Featured Posts Outside Blog Hit Router Called Shot Master

Christine: I hope it helps your clients understand their mortgage process just a bit more clearly ... thanks for writing.

Anna: I am so very honored by your statements. Thank you. Maybe someday we'll have those "dream" transactions together. Chicago Bancorp has a branch in AZ!! Thank you again, Anna ...

Kim: To answer your questions(s) ... Typically not. It depends on how thorough the Appraiser is ... and if the homeowners identify that was how the work was conducted. But generally no, Appraisers do not research municipal records for building permits regarding the property. IF the bank finds the appraisal mentioning a lack of permit(s), they could hold financing on the property. Good advice to the seller ... file the permit. But know that doing so could cost them. Perhaps a fine would be levied, on top of the normal permit fees. But at least they are not taking the chance with buyers' financing issues down the road. Your suggestion to your client was a wise one. Hope all works out well for you and your client ...

Christian: Sellers are generally "anxious" until the appraisal is in. And you're right. All the professionals involved in the transaction need to contribute to the education of the clients involved. Fewer surprises await them then ... and fewer issues to tackle throughout.

Richie: I tell you, friend .. bringing my wife into the mix has always improved my positioning! I did my best sales pitch over 34 years ago when I asked her to marry me. And I so agree. The more we understand and can empathize with one another as professionals, the better. Certainly makes for a much smoothly conducted transaction all around. Always a pleasure to hear from you Richie ...

GOLD Team: You offer very good information and contribute to those that are reading this post and its comments. There ARE distinctions to be made regarding this terminology. To those not in the profession of real estate, it can be quite confusing, I'm sure. You clarify much beautifully. Again, thank you for taking the time to contribute your knowledge ...

Howard and Susan: I greatly appreciate your kind words. Thank you. Glad that you found merit in this post. If I can ever be of assistance or offer insight, please don't hesitate to contact me ...

Evelyn: Thank you ... and thank you!! Makes me feel good to know that I've offered some assistance and something of value to you and your clients. I'll pass your kind words regarding the pic on to my wife, also ...

Carla: You're right, the clients should have a copy for their records. It contains alot of info that comes in handy in a number of ways. This, along with their closing statement documents, is definitely something that should be kept safely for record keeping and more. You do well to point that out ..

Thanks Michelle ... I'll get to work on Pt. 2 immediately for you!

Bruce: You make an excellent point. The underwriters are definitely going to go through the appraisal with a fine tooth comb. I, as the loan officer, and other professionals should take the time to acquaing themselves with the info on the report as well. As you state, it can alleviate problems and issues down the road. Thanks for offering that important point out ...

Gene
6:00pm • #29
286,657 Points 12 Featured Posts Called Shot Master

I always ask for permits for any new additions or recent work especially if the listing agent mentions it in the MLS description.  But then that is me and most do not do that. 

I think what you have posted is great because most don't understand it unless they have had the experience of being an appraiser, like you and I.  Do me a favor and put this post as a link on the bottom of your next post in case someone missed it or wants to go back and review.

As always, you are an amazement of information just pouring out for all of us to learn.  Thank you.
9:51pm • #30
561,763 Points 11 Featured Posts Localism Sponsor Outside Blog Attended Rain Camp Called Shot Master

great in depth info.. thanks for the wonderful post. I will have to bookmark it for the future!!
11:27pm • #31
JUN
25
2011
498,639 Points 150 Featured Posts Outside Blog Hit Router Called Shot Master

Barb: If there are obvious signs of recent improvements, it's best to question. Or if someone out-and-out tells you that they've been remodeling as of late, there's a big clue to question about the work and documentation/permit(s). I review appraisals when they come in. I think because of present guidelines, some are hesitant or scared to scratch below the surface much. Given some of the requests made in underwriting, I can kinda understand it. Probably wouldn't be the route I would take, if I were still appraising however. There are many things to understand on an appraisal. Current market conditions don't help that. I'm hoping the articles I post here will help clarify some of it at least a little. I appreciate your kind words, Barb. Coming from you they mean alot ...

Sheila: Thank you! Glad you found it worthy of storing for future reference.

Gene
12:27am • #32
286,657 Points 12 Featured Posts Called Shot Master

Good points Gene.  Good points and it really makes sense given the market conditions and the times.
3:52am • #33
840,383 Points 69 Featured Posts Outside Blog Called Shot Master

To Mrs Mundt....please consider Gene to be a "keeper".....thank you for posing with him. His personal stock just shot up
9:48am • #34
498,639 Points 150 Featured Posts Outside Blog Hit Router Called Shot Master

Barb: Thank you again ...

Richie: lol I definitely passed your note on. I need all the PR help I can get ... thanks Richie ...

Gene
5:19pm • #35
JUN
26
2011
Outside Blog Called Shot Master

Thank you so much for the much needed education. We recently had a deal die because of an appraisal that reduced some square footage used to calculate the price and offer.

I have saved it for my team and our clients.  Look forward to the next segment.

Have a wonderful Sunday.
8:36am • #36
498,639 Points 150 Featured Posts Outside Blog Hit Router Called Shot Master

Virginia: Sorry to hear that you had issues with an appraisal. I hear that way too often. If I can ever answer any questions for you ... please just yell! I'm honored that you saved the post. Part 2 is coming later today ...

Take care,

Gene
4:30pm • #37
JUN
27
2011
150,943 Points

Hi Gene. I just want to say thank you for answering my question.  My client confronted the contractor yesterday and he agreed to take the blame and go pull the permit. 
1:55pm • #38

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