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The Truth About Appraisals
Knowing the Guidelines Solves the Mystery
The appraisal process often baffles consumers. They may feel that their home is worth a higher dollar amount, and so the appraised value doesn't always make sense to them. It is important to know that the appraiser is completely independent from lenders, buyers, sellers, and real estate agents, and that the guidelines to which they adhere are dictated by the Uniform Standards of Professional Appraisal Practice (USPAP) and Fannie Mae. In most states, the mortgage lenders must also disclose the purpose of the appraisal, as each transaction carries its own set of rules.
In essence, these important guidelines help appraisers put a fair market value on homes based on comparable sales in the same area, and the home must be bracketed in size and value.
For example, there is no set dollar figure associated with a great view, pool, spa, bathroom upgrades, etc. If a homeowner installs a custom pool that cost them $30,000, but the local marketplace supports the value of a pool at $15,000, then that item will be bracketed as [$15,000] on the appraisal.
Upgrades can usually be expressed at a higher percentage of their value in newer homes because the only way to obtain those upgrades was to put more money into the cost of building the home. On the other hand, the upgrading or remodeling of an older home is rarely reflected in full in the final appraisal. This is because typically 25-40% of the project involves demolition and the fixing of issues that aren't uncovered until the project has already begun, such as plumbing or wiring that may need updating.
Ultimately, 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. This is a safeguard to prevent appraisers from attaching too high a value to the home in question, and opening up the appraisal for review. This guideline further states that appraisers can only base their opinion on the value of home sales that have actually closed.
As a loan professional, I make a point to follow the appropriate guidelines at all times. This promotes a good relationship with the lender, and helps to create easier and much smoother closings for my borrowers.
Call me if you or your clients would like more information on this subject.
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All loans subject to credit approval and property appraisal. Programs, rates, and terms subject to change without notice. For ARM loans, rate may increase after settlement. Prequalification is not a commitment to lend, a condition of loan approval, or an application for credit. Pre-approvals will result in a loan decision subject to conditions. Consult a tax advisor regarding the deductibility of interest.-- a Division of National City Bank
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Topic: FHA Condominium Project Approval Process Reminder
Reminder! As previously announced, FHA has announced significant changes to their requirements for condominiums. The following changes take effect for case numbers ordered on/after 10/1/09:
1. FHA Spot Approvals will be eliminated. Condos MUST be on FHA's approved list to be eligible for FHA financing.
2. Many projects will drop off the approved list on 10/1/09. FHA plans to remove all projects approved prior to 10/1/08 from their approved list. These projects will require re-approval by FHA
3. FHA will limit the concentration of FHA Finance properties in any project to 30% of the total units. Currently, 100% of units in an approved project may have FHA financing. This means that some projects that have been on FHA"s approved list will not be open to any new FHA financed sales. Projects on the approved list will be subject to evidence that not more than 30% of units are FHA financed. This requirement may be met by obtaining certification from the title company. I recommend we request a certification from the title company rather than copies of deeds for the sold units.
Case numbers for any pending transactions should be ordered before 10/1/09
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