Understanding Appraisals

Appraisals are one of the most important but least understood steps involved in getting or refinancing a mortgage. The appraisal’s sole purpose is to protect the lender in the event of a default by limiting the loan to the market value of the property. Appraisers work for lenders; their cost is passed along to the borrower at closing.   

Despite the fact that appraisers have no direct relationship to consumers, their decisions can cost buyers, sellers or refinancing owners tens of thousands of dollars. When properties appraise at levels below the agreed upon selling price, the deal will fall apart unless the seller lowers his price or buyer comes up with a larger down payment. A low appraisal reduces the equity a refinancing owner has available, which can prevent him or her from refinancing.

For answers to these and any questions regarding a refinance loan, speak to a loanDepot licensed loan officer today.

Homeowners and sellers, and to a lesser extent buyers, have opportunities to influence the appraisal process to help the appraiser make the most accurate and fairest valuation of the property. Much of the appraisal process – the market research, selection of comparable, nearby properties that have sold recently, and past valuations of your home – take place outside your purview. But the home visit and follow up after the appraisal is finished, provide opportunities for consumers to make a difference.

Appraisers are licensed professionals who must be very familiar with local market conditions, but sometimes lenders hire appraisers with limited experience in a community. Check the credentials of the appraiser your lender hires. 

"The best way for homeowners to combat potential problems with appraisals is to ensure the appraiser hired by their lender is highly qualified and competent," said Appraisal Institute President Ken P. Wilson. "Consumers have every right to demand the use of someone with field experience in their market and the knowledge to handle the assignment properly."

Manage the home visit

How you go about working with an appraiser is critical. Hard-sell and high-pressure tactics will backfire quickly. On the other hand, if you take the approach that you sincerely want to make the appraiser’s job easier, you can make a huge impact.

Consider having your real estate agent do a competitive market analysis or a brokers’ price opinion of your home. These market analyses will provide the appraiser a starting point. And you will convince him you are very serious about getting an accurate and fair appraisal.

Before the appraiser visits, de-clutter every room. Make it easy for the appraiser to access major systems like air conditioning, furnace, electrical box and appliances. Clean living spaces so that the home feels fresh. Eliminate mold and repaint any affected areas. Dry the basement floors. Clean the kitchen and bathrooms. Make minor repairs on cracks in walls and ceilings. Clean up the yard; mow and edge the lawn and get rid of accumulated leaves or debris. Without spending a lot of money, scrub and straighten your home as if you were expecting company in every room of your house.

Before the appraiser arrives, gather all the documentation you can find to help him estimate upgrades and maintenance investments you have made – remodeling, additions, new windows, driveway, roof, system upgrades, electrical, landscaping, etc. Get out your paperwork from your purchase of the home so that you have a record of what you paid and what it appraised for at the time. Put together an appraiser’s package. The more hard documentation you can provide the better the chances will be that the appraiser gives you credit for all that you have done.

Provide a package of information in advance when the appraiser for your buyer’s lender calls. In addition to the CMA, BPO or appraisal you ordered in advance, include plats, surveys, deeds, covenants, HOA documents, floor plans, specifications, inspection reports, neighborhood details, recent similar-quality comparable homes, detailed list and dates of upgrades and remodels, and energy-efficient green features. Include driveway, landscaping, roofs and gutters, patio and deck, appliances, heating and cooling systems, plumbing and electrical, structural, remodeling and additions.

Be courteous and helpful when the appraiser arrives. Answer his questions precisely. When he is ready for the tour of the house, lead him through room by room. Point out good features: fireplaces, wood floors, granite counter tops. Before he leaves, make a list of anything else you can help him with and be sure to get him the information.

After the appraisal

Buyers and refinancing homeowners will receive copies of their appraisals. Review the lender’s appraisal thoroughly to make sure that all the basic facts are correct: square footage, features of the home, number of rooms, etc. If you find mistakes, call the appraiser and ask to have them corrected.

If the appraisal comes in too low, check to see if the comps were fair. If sales are brisk, ask the appraiser to use more recent comps. Review the appraiser’s credentials and knowledge of the local market. If you have questions, ask to speak directly with your appraiser.

If you are still unhappy with the result ask your lender for a second opinion (which you will have to pay for). Often lenders will agree to a second appraisal if the first is so low it will kill the deal. Use what you have learned with the first appraisal to focus the attention of the second on problem areas that could be resolved in your favor.  

To get the process started, speak with a loanDepot licensed loan officer about a refinance today. Call now for more information.

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Appraisal tips when selling a home
Home Affordable Refinance Program (HARP)