Frequently Asked Questions
When is an appraisal needed?
There are several reasons to hire a professional appraiser. It seems perplexing when a several hundred thousand dollar investment is obtained without retaining the service of a professional appraiser. Typically, a lender will require an appraisal when buying or refinancing real estate and when removing private mortgage insurance (PMI), but in recent years the mortgage industry has introduced new loan products and do not always require an appraisal for all loan types. For more information regarding your specific loan product, lender’s requirements, and to find out if you will need an appraisal for your loan please contact the institution that is handling your mortgage needs.
Why do lenders require an appraisal?
The simple answer is as protection in the event that the loan granted goes into default. The lender will typically get an appraisal to establish a loan amount, decide what loan product suits the borrower’s needs the best, as well as to secure the loan for the secondary lending market in the event that the loan is subsequently sold to another institution or investor; this is sometimes referred to as a part of the “loan portfolio”.
Will I receive a copy of the appraisal?
When an appraisal is performed to obtain a mortgage loan product, the client is the lending institution, not the owner of the property or borrower. However, most lenders will supply a copy of the appraisal for the loan holder’s records. This does not, however, transfer the rights to the appraisal to the party it is released to. The appraisal (in these typical cases) is performed to aid a lender in the decision making process when deciding whether or not to provide a loan on a property (and/or for the loan amount); the lender is identified in the report as the client. The entity that orders an appraisal is the client. Because mortgage companies and banks will require their name on the report as the client, it is necessary for the lender to order the report directly.
How long is an appraisal good for?
An appraisal is an opinion of value that is estimated as of the effective date of the appraisal. The effective date is the day the appraiser performed the inspection on the appraised property. Most lending institutions can typically use appraisals with an effective date less than 90 days old, assuming a steady local real estate market. However, in a quickly appreciating or depreciating market, the actual usefulness of an appraisal will vary. In a rapidly changing market, an appraisal may only be useful for a short time.
How does an appraiser arrive at a value opinion?
In residential appraising, there are three approaches to value, the sales comparison approach (the most widely used and accepted approach by lenders), the cost approach (most reliable on new construction), and the income approach (for small investment properties, typically not relevant to single family housing appraisal). The sales comparison approach is typically the most reliable and widely accepted approach when appraising single family residential real estate. Many people are familiar with the term “comps”; this term is used to abbreviate the term “comparable sales”, which are the most similar, recent, proximate, and relevant sales near the appraised property. An appraiser researches the neighborhood where the property to be appraised is located and finds these sales. Then, the appraiser adjusts the sales prices to reflect the differences between the comps and the subject. The adjustments used reflect typical market reaction to these features, not the cost.
What about online home value sites?
In recent years, several online home valuation sites have popped up on the internet offering free home valuation. These are not recommended as an appraisal alternative. An appraiser actually visits the property to be appraised, performing a visual inspection and, when a full appraisal is ordered, measures all permanent structures, walks though the dwelling (or lot if vacant land), and takes note of quality, condition, improvements, and deficiencies. Many characteristics of a property will not be discovered unless a physical inspection of the home is performed by a qualified professional appraiser. These can include: street appeal, internal issues (like leaking roof, poor fenestration, access to rooms), external influences (like located next door to junk yard or located on busy street), “old world charm” (a term to describe period details that are intact from an era when a home was built), among others. Because the buying market takes these items into consideration when shopping for a home, these items are all considered contributors to the over-all value of the property. These items typically vary in levels of local acceptance that an online service would not discover. Furthermore, an appraiser uses actual sales data to arrive at adjustment values for the various differences in salient features that are rooted in the local market; an online valuation service does not come close to the level of detail, expertise, and local knowledge that a local state certified appraiser would to adequately arrive at a reliable estimate of value. Terrascope Appraisal urges property owners not to rely on any online value service. It is always safer to retain the services of a locally trusted professional.
Do the appraisal findings get reported to the county assessor?
Absolutely not. As a matter of fact, the appraiser has a confidential relationship with the client. The appraiser does not release any findings to any party other than the client unless specifically ordered by the client to do so.
How long does an appraisal usually take?
This depends on the scope of the assignment. For very complex properties (multi-million dollar, multi-acre, custom construction, waterfront, income producing, etc) the assignment would typically be larger in scope than a typical residential property located in a subdivision of similar properties. For the typical residential home, most appraisals can be provided within two to five work days, but it all depends on how much time the appraiser needs to perform due diligence and arrive at credible results. Feel free to ask the appraiser about the timeframe of a specific property if more information is needed.
Why can’t I order the appraisal for my mortgage directly?
To start with, the client that appears on the appraisal is the entity that orders the appraisal. Since lenders require the appraisal to have their institution’s name on the appraisal indicated as the client, an individual cannot order an appraisal for lending purposes. This also acts as a safety for the lender to be sure that a borrower has not obtained fraudulent appraisal and then brought it to the lender to try to secure a loan for more than a property’s worth.
I have an appraisal that was performed by your company, could it be retyped so I can use it for a different lender?
No. Once an appraisal has been performed for a client, it cannot be simply retyped to reflect another name as the client. Although this has been done in the past by other appraisal companies (due to ignorance or lender pressure) it is considered an unethical practice. The appraiser/client relationship is always established prior to performing an appraisal assignment. When a subsequent lender wants an appraisal on a previously appraised property, it is considered a new appraisal assignment and the appraiser must perform all of the necessary steps to create a credible report. The appraiser may also require a letter releasing the appraiser from the first assignment by the previous lender to be sure there is not a conflict of interest. The fee for this assignment may or may not be reduced, depending on the circumstances.