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An appraisal, no matter who it is from, is only a subjective opinion from the appraiser based on market data. This same market data could be interpreted differently by different people. This makes real estate appraisals more of an art than a science. |
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An appraisal is an opinion of value based on comparable market data. This means the appraiser is going to tell you what he or she thinks this property is worth based on what similar properties in the area have been selling for. |
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Up until May of 2008 the appraiser could be selected by the lender, the broker, or sometimes even the borrower. As you can imagine this is a slight conflict of interest if the borrower or the broker can call his buddy the appraiser and have him push the value up a little bit to make the deal work.
Since May of 2008 there are new rules which require appraiser independence. This means that the borrower, lender, and broker can have no input, influence, or even any contact with the appraiser other than letting him into view the property.
The benefit of this new policy is that it does provide more accurate valuations, and more appraiser independence. The negatives are that the appraisal costs have increased by 30%, the appraisers are actually getting less money, and the service from appraisers such as turn around time to receive the appraisal back has gotten worse.
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In order to answer that question we must actually answer another common question first. |
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Comps are short for comparable sales. From this point forward, the home being appraised will be called the "Subject Property" since it is the subject of our appraisal.
Comparable sales are comparable properties to the subject property that have sold recently and are located close to the subject property.
For example if the subject property is a 1400SQFT house, a 3800SQFT house a couple of streets away would not be considered a comparable property since they are not similar in size.
The appraiser will inspect the subject property and measure it. He will then search all of the records to determine the 4-6 most comparable properties that have sold recently.
He will then summarize the information and provide his opinion of value. From there the appraisal report is forwarded to the underwriter for review.
Previously sales could be considered comparable if they were within 2 miles and had sold in the last 12 months.
Since the market has tightened the appraisers can only use comparable sales that have sold within 0.5-1 mile and have sold in the last 3-6 months.
This has made the appraiser's job very difficult because as you probably know there have not been a lot of sales lately so the appraisers do not have a lot of data to work with.
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If you, or the seller do not agree with the value you do have an option to appeal the value. This can only be done if you can provide additional comparable sales that were not used that would support the higher value. These comparable sales must be within the time and distance guidelines set by the underwriter.
Once the appeal is submitted with the additional comparable sales it typically takes 24-72 hours to get a response.
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Appraisals must be paid for upfront at the time that the appraisal is ordered and after the appraiser inspects the property it is typically non-refundable for any reason including unacceptable value. There also may be a small cancellation fee if the appraisal has been ordered and is cancelled before the property is inspected.
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Each loan program will have its own requirements for property condition and for what the appraiser must check. The appraiser will typically check the major components such as heating and cooling to make sure they kick on but the appraiser is not a home inspector and will only catch obvious red flags. Most reliable advice suggests that you also get a home inspection as well if you are buying a home.
If the appraiser does mention any problems, the underwriter will typically require them to be addressed prior to closing and possibly re-inspected to confirm they are fixed.
If you have more appraisal related questions please contact us for a no cost consultation.
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