Appraisal - In most cases, lenders require a professional, independent appraisal of the property you want to buy or refinance to ensure that it is worth at least as much as they are being asked to lend on it. If you are making a smaller down payment and have a lower credit score, the lender is going to be even more interested in making sure the property that will be collateral for the loan is worth lending the amount requested.

An appraisal is a great tool for finding out how to add value to your home once bought. Looking for features that comparable sales in your area have that you do not will show you which items can be added to your home to increase value.

A professional written opinion, about the value of a property, like a House, Condo, or other residential unit. Commonly required when a residential unit is sold, taxed, insured, or financed.

The more similar the subject property is, in terms of size, age, design, quality, sitelines, condition, etc., to other nearby properties, the more accurate the appraised value will be. The more unique the property is, the less accurate the appraisal will be. Because of this, a unique property with no or few good comparable properties could be considered a higher risk by the lender. In some cases the lender will cut the value on the appraisal to mitigate this risk.

An appraisal is simply an OPINION of value, from someone who is licensed to give such an opinion. Opinions vary from individual to indivdual. Likewise, the appraised value of the home will vary from appraiser to appraiser. However, appraisers base their opinions on comparable sales (what similar houses have sold for in the area recently), as well as other factors. Since the factors used to determine value are the same for every appraiser, most apraisers will give similar opinions about the value of the house.

Though an appraised value might be one thing, a lender reserves the right to "cut" that appraisal as they see fit. A lot of lenders have their own appraisal review department; these departments will look at comps themselves, look at the appraisal, and decide weather to honor that value.

Comparable sales of similar properties is an approach to evaluate most single family residence. Other approaches, such as the Cost Approach and Income Approach are also used for different types of properties. The Cost Approach is an estimate of the cost to rebuild the property of similar characteristics as the subject property. Income Approach is often used when the subject home generates rental income, such as duplex, triplex and quadplex.

An appraisal should not be confused with a home inspection. Where an appraisal deals with the home's value a home inspection is performed for the functionality of the systems and structure. An appraiser will inspect the house only to the degree of viewing what is in the house i.e. does it have Central A/C or window units etc... The inspector will check the systems to insure they are working properly.

Why get an appraisal? - An appraisal is used to show the lender the value of your home and to secure financing for borrowers.

An appraisal is required on almost all real estate transactions. The lender usually requires an appraisal to be done to make sure the home is worth the amount that is being financed. The more money you are financing compared to the value of the home, the higher the risk the loan is to the lender. Therefore, the lender wants to protect their investment and have an appraisal done on the property.

There are different types of appraisals depending on the lenders requirements, and the intended use of the property. For example an appraiser may request a drive by appraisal where only an exterior inspection is needed, a full appraisal where the interior of the home is also looked at. If you are planning to use the home as an investment property the lender may also require the inspector to examine rental rates for similar homes in the area.

Appraisal Reviews - Having an appraisal completed by a licensed appraiser is not always necessarily the end of the appraisal process. Sometimes a lender will request an appraisal review by a second licensed appraiser. The purpose of the appraisal review is to verify the data and conclusions of the original appraiser. Generally, you can expect the lender to request an appraisal review, or even a second appraisal, if the loan amount request is for more than $1 million.

Some lenders are more stringent on appraisal review than others. Generally, a desk review is preferred over an on-site review as it's faster, cheaper, and less likely to bring down the appraised value of the property.

Appraisal reviews usually have a cost associated with them that the lender will pass on to the client. The lender will give the broker notice before ordering the appraisal review so that the client will not be surprised of the additional fee.

Pushed appraisal - A pushed appraisal is an appraisal the home value has been falsely inflated in order to meet a value needed by the mortgage company to secure financing. There are many negative side affects of a pushed appraisal that can affect you for a long period of time.

Pushed appraisals can also lead to an increase in foreclosure rates which in turn tends to devalue other homes in the area, sometimes lender will not even lend in those areas if the rate gets too high..

Pushed appraisals have been an increasingly growing problem over the past decade or so. Many consumers have gotten into real financial trouble because there house's appraised value was inflated, and now they owe more on their mortgage than what their home is worth. Therefore, they are unable to sell their home because they can not get enough to pay off their mortgage.

The most widely publicized case of inflated appraisals involved Ameriquest Mortgage. Although they may have been the biggest culprit there are many smaller companies that have been found to participate in the same shenanigans.

Inflated values are often seen in illegal home flipping schemes. Although flipping a house for profit is perfectly legal, there are people who flip homes illegally using inflated values that decieve the lender into lending more money than the home is worth.

Inflated values or pushed appraisals also create problems when the borrower is trying to refinance.

The point of using an appraiser is for the lender to get an independent evaluation of their home. Most lenders have blacklists of appraisers they will not accept appraisals from. Be sure to ask your mortgage specialist to make sure the appraiser you're using is not blacklisted from your lender.

Appraisals are designed to protect lenders and homeowners alike from overextending themselves when taking out a home loan. When the appraisals are pushed, or inflated, borrowers can wind up owing more than their home's value, even if prices don't fall.

 

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