Special offer

How to Read an Appraisal Like an Underwriter

By
Commercial Real Estate Agent with Matthews Capital Markets NMLS 2415712

Realtors should ask for a copy of the appraisal, both lising agents and buyer's agents.  If you are unclear about whether you have access to it, have the buyer and the lending institution sign a waiver before you execute a contract.  they waiver pierces the "privacy issue" we lenders love to throw in your face.

Who owns the appraisal?  The lender own the appraisal; the borrower pays for it and is entitled to it after the loan funds or is declined.  Lenders have 90 day to furnish it to the borrower.  The waiver, accepted by the lender and borrower requires immediate access to the appriasal report.  I always e-mail everyone the appraisal but I have the borrower sign a release at loan application.

Appraisals are opinions of value and limiting conditions of that value by a human being.  They are not an edict from the Almighty above.  They are folded, spindled, and mutilated by 1-3 people before the value is accepted (especially nowadays).  Underwiters disagree, alter, and guess about value after reading an appriasal report. The LO usually makes them see it thir way with more comps, better narrative from the appraiser, begging, pleading, and cajoling.

Here are the quick things you should look for.

Comments (9)

Ken Stampe
iBrandPlan.com - Grow your e-Profile & Brand - Dallas, TX
iBrandPlan

Two other suggestions I would add:

1) look at the net adjustment percentage at the bottom of the column for each comparable sale. On each comparable sale you will see plus and minue adjustments to compensate for differences between your property and the comparable property. The more adjustments, the less comparable the two properties are. I've worked with lots of underwriters who will just go to the bottom of the column where you find two percentages. There is a gross and net adjustment percentage. If those are over 20% then the underwriter is PROBABLY going to ask your appraiser for additional (more than 3) comparable properties and an explanation of the market as to why better comparable properties are not available.

2) Look at the pictures. This is for 2 reasons. First, if the apprasier supplied any photos with people in them you will need to get new photos WITHOUT people. Brian Brady will know the appropriate legislation behind this but trust me, you can't have people in the appraisal photos. The second reason is human nature. The underwriter will look at the photos and try to deem reasonability from them. It the three comparables look dissimilar to the subject then your underwriter MAY get it in their head that you are trying to push values a little bit by using comparable sales that are truly less comparable but sold for more money.

Hope this helps.

Ken Stampe  HomeLoanDFW.com 

Sep 15, 2006 02:21 AM
Brian Brady
Matthews Capital Markets - Tampa, FL
858-699-4590

I didn't even think of those two, Ken.  Good comments.

An add-on to the pictures.  Make sure there are no laddres, scaffolding, or other "construction" type indicators on drive-by appraisals.  That is a sure fir way to have a full appriasal ordered and you may find out that the client is going through a remodel 

Sep 15, 2006 11:48 AM
James Graner
Residential Services: http://appraisalmo.com - Saint Charles, MO

It is mentioned that REALTOR's should ask for a copy of the appraisal report.

I really do not see the benefit in the agents having the appraisal report, unless the appraisal rider (appraisal less than sales price clause of contract) is utilized.

 

Jun 08, 2008 05:33 AM
Brian Brady
Matthews Capital Markets - Tampa, FL
858-699-4590

Most REALTORs like to see it.  It can help them as they hone their valuation skills.

Jun 08, 2008 06:06 AM
James Graner
Residential Services: http://appraisalmo.com - Saint Charles, MO

Many REALTORs also like to practice their negociation and debate skills after seeing the appraisals.

Jun 08, 2008 01:34 PM
Anonymous
Misty

So when you receive an appraisal in 2004 with a cost approach of $78,000 and a sales approach of $61,000, then in 2008 after over $15,000 or renovation receive an appraisal with cost approach of $186,005 and Sales approach of $60,000 are you supposed to be confused or really leery of the appraisal/appraiser in general?

Nov 11, 2008 08:10 AM
#6
Brian Brady
Matthews Capital Markets - Tampa, FL
858-699-4590

I think just confused, Misty.  Call the appraiser and ask that very question

Nov 11, 2008 10:45 AM
Catherine Coy
Equistar Funding Corp. - Huntington Beach, CA

I've never yet, in nearly 20 years of originating loans, had a realtor ask for a copy of the appraisal. Since the appraisal belongs to the lender and has been paid for by the buyer, I would tell the realtor to go fly a kite--unless, of course, the realtor wants to pay for it. Then they can analyze it till the cows come home or they're just being nosey.

 

May 16, 2009 07:33 AM
Anonymous
everett

after all the comparables have been adjusted, are the comparable adjusted prices averaged together to get the value?

my report gives a value of $96,000, but the average of all six comparables is 106,000 when I did the math.

Aug 23, 2009 11:17 AM
#9