What is an appraisal? An appraisal is a report provided by a licensed appraiser, which states that appraisers opinion on what, the current value of a specific property is. It includes pictures, charts and an assessment of the neighborhood. There are three methods used to asses the value, but the most common for residential mortgages is the Comparative Market Approach which heavily relies on the data involving the activity and sales of similar and like homes within a close geographical area.
Why is the appraised value of a property important? The bank relies on the information provided from the appraisal to determine if they want to lend and how much money they would lend on a specific property based on the value and condition, which is in the appraisal report.
What changed recently that suddenly homes are not appraising? Well in the last few years, there has been a decline in Real Estate values and therefore homes are appraising for less now than they have in recent years. People who want to sell or refinance are faced with appraisers who are very conservative on value because house prices are declining.
If I want to Purchase or refinance, can I choose my own appraiser?
Not anymore. This is another change that has occurred in the last year. There are new rules that lenders have to adhere to. This rule is called HVXCC, Home Value Code Of Conduct. Almost all mortgages in the country have to follow this rule which basically does not let anyone with any interest in the transaction speak to an appraiser regarding the appraisal and the value. So when you enter into a mortgage transaction, an independent appraisal management company randomly chooses the appraiser. The Realtor or Mortgage professional cannot speak to this appraiser to ask what the value may be or tell them what value is necessary to make the deal.
Once an appraisal is done and the value came in lower, is the appraiser fee refundable? No, appraisers get paid to do their job and once they have provided their report, the fee is not refundable anymore.
What are your options when the value comes in low? It is possible to challenge the appraised value. Usually you would have to provide the management company with new information such as another comparable sale or a copy of an active contract of sale etc. Once the appraiser has received the new information they can revise the appraised value at that point.
How can a person determine the value of there home before applying for a mortgage? There are some online sites, which for the most part are inaccurate. I would think that the best way would be to call a local realtor who has a good handle on the Real Estate market. They are familiar with the same information as the appraiser and therefore they can give you an accurate guide as your approximate value.
What are the biggest obstacles to getting an accurate appraised value? One of the biggest challenges is that a lot of appraisal management companies have appraisers from other areas do the appraisal. Sometimes those appraisers just cover the county where your home is but they are for the most part unfamiliar with the demographics of the area so the value can be wrong. For example about one year ago I did a refinance of an attached home in Spring Valley. The appraiser compared it to other attached homes in Spring Valley. Because he was not from Rockland, he didn’t know about all of our villages and unincorporated areas. This specific home was in South Spring Valley. There was a sale on the block that the appraiser missed because he never searched South Spring Valley. The appraisal came in about $60,000 less than it should have. If this was a purchase it may have killed the deal.
Appraisals are key components of the mortgage transaction. Understanding the in’s and out’s of the appraisal limitations and expectations is key to a successful transaction.
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