The Appraisal made Simple

The Appraisal……not so mysterious.

People often get intimidated by the appraisal process because they know, or they’ve heard, it’s important but they are unsure of what, if anything, they’re supposed to do. Well, we’re going to clear away all the confusion. The appraisal process Simplified.

What is the Appraisal?

The appraisal is an assessment of the value of a property at the time of the appraisal (It’s like a snap shot of what the home is worth at that point in time). It is performed by a certified and licensed third party appraiser (no affiliation with the Borrower, Seller, or the Lender) to ensure that it is an unbiased evaluation.

How do they Determine the Value?

The appraiser will inspect the property, and the surrounding area (neighborhood), to determine the value of the home based on recent sales of similar properties in the immediate area. The value of your home will be determined by comparing it to the recent sales of similar properties in close proximity. Don’t worry; it is simpler than it sounds.

• Similar Properties: A similar property is defined as a property that is
  • Similar in size (square footage, room count, etc)
  • Age
  • Style (two story, Ranch, Bi-level)
  • Lot Size
  • Build (brick, wood, siding)
  • Finish (Upgrades)
  • Other factors (guest home, covered garage, pool)
• Recent Sales: A recent sale is generally one that has sold within the last six (6) months. In some areas it may be necessary to go further back due to a lack of activity.
• Close Proximity: A property being used to support the value of a property must be within close proximity. Close Proximity is defined as-
  • Urban/Suburban: Within one mile
  • Rural: Within 3-5 miles

As you would imagine, it wouldn’t do anyone any good to compare a 1,500 square foot patio home that sold three years ago to a 5,500 square foot property 10 miles away that sits on 3 acres and sold a week ago. These properties simply aren’t similar. The idea in an appraisal is to see what similar properties in the area sold for to give everyone involved an idea of what the property in question is worth.

Who needs the Appraisal?

Lender

The Lender needs the appraisal to determine the value of the collateral they are lending against. They don’t want to lend a Borrower(s) $200,000 on a property worth $120,000. If something went wrong, and the Borrower(s) failed to make the payments, the Lender would own the house worth $120,000 for $200,000 (the amount of the loan). It’s pretty obvious that this scenario would be really bad for the lender. They would own a home for $80,000 ($200,000 - $120,000 = $80,000) more than it was worth, and would more than likely lose this money when they sold the home for what it is worth.

Borrower

As the Borrower, the appraisal will ensure that you’re paying the right price for the home. The Real Estate agent will use this tool to determine if the deal is a sound deal. If it is determined the value is less than anticipated, the appraisal can serve as a tool to determine a fair price. Additionally, the appraiser, although not a structural engineer or certified inspector, may call to attention items that need to be addressed by a professional. This will protect your interest in the transaction.

What Should I Expect During the Appraisal?

What to expect during an appraisal will depend on if you’re purchasing a home or refinancing. If you’re purchasing you will more than likely not be there for the appraisal. So, there isn’t really anything noteworthy. If you’re refinancing you will more than likely be home during the appraisal. So, assuming it’s a refinance, and you’ll be home, lets’ take a look at the appraisal process.

• How long will it take? The actual appraisal will take anywhere from 10-30 minutes depending on the size and complexity of your home.
• What will the Appraiser do? The appraiser will walk the home both interior and exterior (this includes attics and basements). They will do sketches of the floor plan, make notes, and take measurements. You certainly don’t need to lift a finger or feel it’s necessary to “narrate” the appraiser through the home.
• Should I clean my house? Oddly enough, this is one of the most common questions we receive. The answer is “NO”. The appraiser isn’t grading the home based on whether or not you vacuumed the floor or if you dusted the windows. They are looking at the structural integrity of the home, and looking at the cosmetic up keep. If you have broken windows, missing closet doors, and exposed wiring coming from electrical outlets, than you should be aware these items will be noted in the appraisal. If you didn’t get to last night’s dishes, or the kids left the bathroom a mess, don’t worry. These items won’t be mentioned or relevant to the appraiser or his appraisal.
• Will they tell me the value? At the time of the appraisal they will not have the value calculated. The physical appraisal is the review of the property, and they will have to go back to their office to collect all the data they need to figure a value. However, once they’ve completed the appraisal report you will get a copy.
• How long does the finished Appraisal report take? Generally, the appraisal report will be completed within 4-5 days of when the appraisal inspection was completed. With Loan Simple we’ll keep you in the loop the entire process. We never leave you wondering.

How do I order an Appraisal?

At Loan Simple we make it SUPER SIMPLE. We can set the appraisal up for you based on your availability, or we give you direct access to our preferred network of Appraisal Management Companies (AMC). They’re the best in the business and they have passed our stringent review. We’re here to help you with any and all of your needs.

The Simple Truth

An Appraisal is an important part of the mortgage/real estate process. However, it’s a simple process and we’ll be here for you every step of the way.