Understanding the Home Appraisal Process

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Mortgage and Lending

 

Consumers are often baffled by the home appraisal process. They may feel their home is worth a certain dollar amount, and therefore, the appraised value doesn't make sense to them. It is important to know that appraisal guidelines are dictated by the lenders. In many states, the lenders must disclose the purpose of the appraisal, as each situation carries its own set of rules.

In essence, lender guidelines force appraisers to put a fair market value on a home based upon comparable sales in the area where the home is located, as the home must be bracketed according to size and value. For example, there is no set amount associated with a great view, pool, spa, bathroom upgrades, etc. If a homeowner installs a custom pool that cost them $30,000, and the local marketplace supports the value of a pool at $15,000, that item will be bracketed as [$15,000] on the appraisal.

Upgrades can usually be expressed at full value in newer homes since they required investing additional money onto the cost of building the home. On the other hand, the amount invested in upgrading or remodeling an older home is rarely reflected in full in the final appraisal. The reason is the home had value in its original condition, and again, the value of the upgrades must be supported by comparable examples within the same marketplace.

These comparisons must be drawn from current market activity within the last six months. Some lenders may want to look at both closed and pending sales to see if there is any room for negotiation. This is a safeguard to prevent appraisers from over-valuing the home in question. It is further stated in the guidelines that appraisers can only place a value on homes that have closed escrow. However, when property values rapidly increase within a marketplace, appraisers are generally permitted to make concessions and put more weight on the evidence provided by comparisons to pending sales and listings. This allows for a "real time" appraisal.

Although there is no formal standard to speak of, most lenders give the appraiser a 5% margin of error. If the file is reviewed and the appraiser is off by 8%, there is a good chance the value will be cut by the full 8%. It is in the best interest of both the appraiser and the homeowner not to push the value up higher than the market will support, otherwise the property evaluation may be exposed to a strict appraisal review.

As a loan executive, I make it a point to follow lender guidelines at all times, and work within the systems they provide. This promotes a good relationship with the lender, and smooth closure for my borrowers. As always, you are welcome to contact me if you have any questions.

Call me directly for a free consultation.

Karl Peidl
Superior Mortgage Corp
Augusta Professional Center 854 S White Horse Pike
Hammonton, NJ 08037

800-706-6671 ext 4349

kpeidl@supmort.com

www.karlpeidlsmc.com

 


Superior Home Mortgage Corp. licensed in DE, FL, GA: Georgia Residential Mortgage Licensee #14511, MD, MI, NY: Licensed Mortgage Banker - NY State Banking Department, NC, PA, SC, VA: Virginia State Corporation Commission License # MLB-566, & DC. Superior Mortgage Corp. licensed in CT, MA: Mortgage Lender License # MC3208, NJ: Licensed Mortgage Banker - NJ Department of Banking, RI: Rhode Island Licensed Lender & Broker, & TN. SHM Mortgage Licensed by the New Hampshire Banking Department






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Re-Blogged 1 time:

Re-Blogged By Re-Blogged At
  1. Michele Hanigan 06/22/2011 12:51 PM
Topic:
Mortgage / Finance
Location:
New Jersey Atlantic County Hammonton
Groups:
Delaware Valley Region
New Jersey & Pennsylvania -- Realtors/Loan Officers/Title Clerks/Real Estate Lawyers
1st Time Buyers
Dedicated Bloggers
Addicted to Active Rain
Tags:
home values
property values
appraisals
market value
appraised value
appraisers
home appraisals
appraisal guidelines

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Anonymous
Robert Zuniga

Appraisals are the most difficult and challenging aspects of buying real estate in many parts of the country. The impact of REOs on comparable properties requires a professional approach!

Thanks for sharing the information!

Robert

Jun 24, 2009 06:49 AM #1
Rainer
108,048
Karl Peidl
Moorestown, NJ
Accredited Loan Consultant

Robert,

I agree.  And the recently passed Home Valuation Code of Conduct has made it increasingly difficult and challenging.

Thanks for your comment and for stopping by.

Jun 24, 2009 07:32 AM #2
Rainer
42,892
Diane Donnelly
Keller Williams Flagship - Annapolis, MD
Anne Arundel County, MD Real Estate

The appraisals are harder and the 4506 has done us no good! But, we had great weather today :)

Sep 16, 2009 01:14 PM #3
Rainer
108,048
Karl Peidl
Moorestown, NJ
Accredited Loan Consultant

The new TILA rules are starting to cause some delays as well.  It makes me wonder what the next set of new regulations will bring...

Sep 17, 2009 03:49 AM #4
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Rainer
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Karl Peidl

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