Getting a home appraisal is always an important part of buying a home and a requirement for getting a mortgage. Major changes have taken place during the last decade to the way appraisals are ordered and performed. If you have any additional questions about the appraisal process, please ask here.
1. What’s the purpose of a home appraisal?
Home appraisals exist to determine the value of a specific residential property at a given period of time. Real estate appraisals are required if there is a mortgage involved but are optional for cash purchases. They are needed for a couple of very important reasons. The first is to protect lending institutions (Local Bank, Citi, Chase, Wells Fargo, etc.) and the insuring organization of the mortgage (FHA, Fannie Mae, Freddie Mac, VA, USDA, etc.) from getting stuck with losses on a property that’s worth less than their investment, should they be forced to take possession of the home. The second reason is to protect homebuyers from purchasing a home that’s worth less money than they are offering to pay.
2. When is a home appraisal required?
In the U.S., appraisals are required almost every time there is a property transaction where a mortgage is involved, with a few specific exceptions.
3. Who orders the home appraisal?
Appraisals are ordered by the lender through Appraisal Management Companies (AMC’s) or, for larger banks, separate, objective units within a lending institution using strict guidelines set forth by the respective mortgage program, FHFA and USPAP Appraisal Independence Code.
4. Who usually pays for the home appraisal?
The buyer almost always pays for the appraisal for a purchase and the homeowner almost always pays for the appraisal for refinance. The lending institution usually requires the buyer to send the appraisal money early in the origination process. This often signifies the “seriousness” of the borrower to complete the transaction.
5. How much do residential real estate appraisals cost?
Appraisals fees usually cost anywhere from $350 to $700 dollars, depending on the type of report, the property area and the fees charged by the AMC, if one is being used. The seller may choose to reimburse the buyer for the appraisal cost at closing through a concession.
6. What are the steps involved in the residential real estate appraisal process?
To begin the appraisal process, the buyer pays, the lender submits the order to the AMC who randomly chooses the appraiser and contacts them with the order. Once ordered, the turn time usually takes anywhere from 5 – 10 business days, depending on the appraiser workload, the number of available comparable properties in the area (“comps”), and the type of appraisal. Once the appraisal report is complete, it’s delivered to the lender.
7. How long does a residential real estate appraisal take to complete?
As previously states, home appraisals usual take between 5 – 10 business days to complete from the time it was ordered. In extreme cases, it may take a little longer depending on the appraiser’s workload.
8. What criteria is used by the appraiser to determine the value and condition of the property?
The value of the home is largely determined by the values of other similar “comps”, or comparable properties, as determined by the appraiser. The amount of work that an appraiser excerpts to find the best comparable home values for their report is extremely important in determining the value of the subject property. If a thorough search for “comps” isn’t completed, the appraised value will likely suffer. The condition of the subject property must meet the specific guidelines for the mortgage product that is being pursued. These guidelines can vary somewhat from program to program.
9. How long is a home appraisal good for?
In past years, residential appraisals were good for one year from the completion date but that’s no longer the case. Nowadays, how long the appraisal is good for is strictly up to the lender. Usually an appraisal will be good for at least 3 months.
10. What can buyers do to ensure that the home appraisal process goes smoothly?
Complete a home inspection before ordering an appraisal, if desired, to determine if any major repairs are needed. Any issues that arise must be addressed before the appraisal. It’s not wise to attempt to purchase a property that has questionable aspects of any kind such as not being in a completed state or in need of repairs. The buyer should use valuation tools available to them to online such as Trulia to determine if the sales price is reasonable when compared to other similar properties in the area.
11. Should buyers be concerned that the appraiser will undervalue their desired home?
The short answer is yes, they should be worried about the possibility that the appraisal will not come back as expected. All appraisers operate according to USPAP code and they are giving their opinions of value accordingly. These opinions can leave lots of room for interpretation.
12. What are the risks if the home’s appraised value comes in too low for the desired mortgage program?
The risks and repercussions for the buyer are both the deal falling through and being stuck with the appraisal costs.
13. What’s changed about the real estate appraisal process in recent years?
The appraiser’s job and the appraisal process were dramatically changed due to the adoption of new regulations following the financial crisis. Lenders and their underwriters are pickier about the process because strict regulations mandate that they have to be. Lenders are allowed very little, if any, direct contact with the appraisers themselves. One interesting aspect of the current random ordering systems is that if the lender does not feel that the appraiser did a good job, there is basically no recourse. The required randomness ensures that the certified appraisers perceived by lenders as not doing a good job will still receive the same amount of orders as appraisers perceived as doing a better job. Regardless of appraiser thoroughness, lenders today lack the ability to choose appraisers based on perceived quality of work.