Appraisals

Appraisals

What Is An Appraisal?
A home appraisal is the process of getting a qualified professional opinion on the market value of a home. This information is used by lenders to determine if a loan on the property is a good risk. There are many factors that determine the value of your home - age, condition, square footage, lot size, location, improvements, recent past sales, new zoning, etc. The appraiser will compare your property with similar homes that have sold recently. It is very important that the appraiser use current information on comparables in your neighborhood. Be prepared to provide this information if you do not feel the appraiser will have the latest facts. You can access this information on the Internet or from your real estate agent. Appraisal's typically run between $200 - $400, and are ordered by the lender as part of the application process.

Why Do I Need an Appraisal?
Mortgage companies want to know that the sale price is consistent with the fair market value of the house before they approve your loan. Most appraisals come out near the asking price, but if it doesn't the lender may not approve your loan. They need to be sure that if you default on the loan, they will be able to recover their investment.

Choosing an Appraiser
We recommend that you choose a state licensed appraiser. These are the only appraisers who meet the federal requirements of appraisal courses, continuing education, experience and licensing tests. Each state certifies appraisers according to federal guidelines, but only half the states require actual licenses.
Here are some things to look for:

	Is the appraisal company a professional organization? Are the fees reasonable? Will they process the report quickly? Can they provide references? Are they licensed in your state?
	What is the appraiser's specialization? Are they knowledgeable and experienced in your area and with your property type?
	Does the appraiser have access to the best data sources?

The Appraisal Process
Although appraisals must comply with federal guidelines, they are still a subjective process. It can sometimes be difficult to determine the market value. Remember market value is not necessarily what the property is worth, but what someone will pay for it. When there are fewer houses on the market than buyers, market values goes up. When there is an abundance of homes, values drop. In active markets, and those where properties vary within neighborhoods, it may be difficult to establish exact values. Also each appraiser is different. Some tend to appraise on the high side; others are more conservative. Two separate appraisers working on the same property, with the same data can come up with two different values. This is important to remember if the appraised value comes out below the agreed upon purchase price. The appraiser will inspect and measure the home (although this is not considered a home inspection) and compare it with at least three comparable homes in the area that have sold within the past six months. They will then adjust the appraisal to account for difference in the properties.

After the Appraisal
The value of the appraisal will affect your loan. If the appraised value is different than the purchase price, the lender will base the loan on the lower of the two numbers. This may hinder your ability to purchase the house. If you get an appraisal that is lower than the asking price, there are some things you can do.

	First contact the appraiser and ask for a review of the appraisal. Go over the report with the appraiser, they may not be aware of some improvements or recent changes to the local market.
	If you are still unhappy with the appraisal, or disagree with the results, talk to your lender. They may be able to override the estimate or simply order another appraisal.
	Get a copy of your appraisal. Sometimes, if the mortgage lender orders the appraisal, the appraiser gives copies only to the lender. Be sure your lender and appraiser agree to give you a copy of the appraisal.
	Another option is to renegotiate the purchase price with the seller using the appraisal as a bargaining tool.
	You could also increase your down payment to the mortgage company. They may overlook the difference if you put more money down, thus lowering their risk.

Most importantly make sure you feel comfortable with your appraiser and with the final report. Remember, you can always get a second opinion.