Getting an Appraisal When Buying a Home
Important Information You Should Know Regarding Appraisals
Overview
You’ve found the home of your dreams, the paper work has been processed and a closing date set. The next step is to order an appraisal to gauge the true value of the home.
There are several questions surrounding the appraisal process and what to expect. The appraisal is ultimately your safeguard against spending more on your home than it’s worth.
You are ready to move forward with your home purchase. You’re taking advantage of the best buyer’s market in decade. Whether you’re a first-time home buyer or an experienced buyer moving to a new home, this is the time to do it. Prices are lower than they’ve been in years and you are cashing in on the opportunity. Maybe you’re even a property investor, scooping up homes at record lows to turn a profit later. Whatever the reason, you know that now is the time to buy a home!
You have found the home of your dreams, the paper work has been processed and a closing date set. The next step is to order an appraisal to gauge the true value of the home.
There are several questions surrounding the appraisal process and what to expect. The appraisal is ultimately your safeguard against spending more on your home than it’s worth. It’s also a safeguard for your mortgage company to not lend out more on a property than it’s currently worth. Appraisers are always 3rd parties in the mortgage process (it’s illegal for the appraiser to work directly with or for the mortgage company) and they have only one purpose – to realistically judge a property for its actual worth at the time of the appraisal.
If you prefer to read, below are the top things to understand about an appraisal. These should answer most of your questions regarding the appraisal process during a home purchase, but in case you still have questions, please call us at (888) 724-7402 or email ted@tedcanto.com and we’ll answer all your concerns.
- How long will an appraisal inspection take?
The physical appraisal inspection usually lasts anywhere from 5-30 minutes, depending on the size and complexity of the home. The appraiser will make note of the floor plan or any significant upgrades and features. - Measuring the House
- An appraiser has several different ways of obtaining measurements to the house.
- Physically measure the property
- Obtain measurements from a prior mortgage survey
- Obtain measurements from a previous appraisal
- Obtain measurements from county or city assessor’s records
- Square footage is generally determined from exterior measurements.
- Please keep in mind that proper county permits are required in order to include any square footage that had been added on to the home.
- Finished Basements and Gross Living Area
- Basements, below grade or partially below grade area are typically not considered part of the square footage or room-count on an appraisal, regardless of window size, ceiling height or walk-out features.
- Adjustments to value may be made in favor of finished basements
- Cost Improvements
Improvement costs are not usually recovered in the market. For example, one may have spent $45K in remodeling their kitchen. The remodel may have included granite countertops, tumbled marble backsplash and glazed porcelain flooring. However, the additional value given by the appraisal will only be for the updated kitchen and will not take into account the separate materials and their cost. Also, improvements such as a new roof, new furnace, new windows, etc. are considered a part of typical wear and tear and do not typically bring additional value. - Differences in Bedroom Counts
The market recognizes very little difference between a 3-bedroom and a 4-bedroom home. Typically there is not an adjustment for this and the difference in square footage is adjusted under the Gross Living Area. There is usually a market difference between 1-, 2- and 3-bedroom homes and comparable sales for 1- and 2-bedroom homes are typically difficult to find. - Comparable Sales Data
- Recently closed sales similar in location, size, style and features are used to help determine value during an appraisal. These sales must be closed and verified by a public data source at the time of the appraisal inspection. Comparable home sales should have taken place within the last 90 days; however that’s not always possible in slower markets. Additionally, the sale should have taken place within 1-mile of the home being appraised. Distance and time guidelines are usually exceeded for rural property locations. Comparable sales within your subdivision (if applicable) would be looked at first – however, not all homes sold in your neighborhood may be comparable. For instance, your home may be a ranch home with an unfinished basement and a two-car garage. The home next door to you may have just sold, but it is a 4-bedroom colonial with a fully finished basement and 300 more square feet of living space. These homes wouldn’t be considered comparables.
- Evaluations must be based on the closest comparable homes. Similarly, appraisers must consider the most recent sales in your area, regardless of the value.
- Appraiser Qualifications
- To become an approved appraiser with The Canto Team, all appraisers must submit a completed package to Academy Mortgage management for review. Each appraiser must provide their licenses, E&O insurance, fee schedule, coverage areas, three work samples, and a W-9 form. The first five orders are flagged for audit to determine if the appraisers are meeting our standards. All of these standards and requirements are put in effect for one simple reason – to make sure our appraisers provide excellent service and fair appraisals for our clients 100% of the time – no exceptions!
- Certified trainees are allowed to complete appraisal inspections in many states. The supervisory appraiser must sign the report which will place full responsibility of the appraisal report and its contents on the supervisory appraiser. The appraisal is still valid.
- The appraiser is NOT an employee of Academy Mortgage. All appraisers who work with us are 3rd parties, licensed to perform appraisals in specific counties. The majority of the information in an appraisal comes from the MLS (Multi Listing System) which is available to licensed real estate professionals.
- Appraisal Reassignment
An appraisal CANNOT be reassigned to another mortgage company regardless of a consent form from the prior company. The exception to this guideline is an appraisal completed for the purpose of an FHA loan within the specified time frame allowable by FHA. - Appreciating/Depreciating Values
In general, homes across the county are experiencing a decrease in value. This could lead to varying reported values in a short period of time. For example, a home appraised 6 months ago at $200, 000 could now be valued at $150,000 depending on how homes sold in the recent months following the original appraisal.
Understanding the appraisal process is a very important part of getting the right home purchase mortgage. Knowing how appraisals work will allow you to work closer with your mortgage banker to find the best possible mortgage for your situation. If you have any questions about appraisals or buying a home in general, please call us at (888) 724-7402.
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With 11 years in the lending industry, Ted is proficient in structuring the client’s loan to ensure that the client obtains the best financing. He has become a recognized leader in real estate education and hosts real estate seminars for his clients and the business communities in the Southwest. His attention to the details and in-depth knowledge of the loan process ensures that you are getting the best service possible.
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