Inevitably there’s a point during my conversation with almost every new mortgage client that the talk turns to the property appraisal. If the client themself brings up the topic, it’s an indication to me that I’m speaking with an educated buyer. That buyer has already done some homework regarding mortgages already … and that’s good.
Typically, new home buyers and homeowners want to know the basics of the appraisal. Who is going to do the appraisal? Will they get to see it? Will they get a copy? What happens if the home doesn’t appraise out? Currently, many of my clients have read or heard that appraisals are presently a sticky issue when applying for a mortgage. They’re right.
Obviously for any buyer or present homeowner, of huge concern is the bottom-line value of the property. What does the appraiser think the property is worth? Much rests upon this final figure, including approval of the mortgage. But it’s not the only information contained within an appraisal that ultimately matters.
Lending underwriters are going to be looking for other “clues” and information regarding the property, it’s value, and its condition within the appraisal report. And that’s what I’m going to touch-upon here.
With well over 20 years of real estate appraising experience and expertise behind me, I’m hoping I can answer many of the questions that new buyers, present homeowners, and broker/agents have about today’s appraisals and appraising challenges. So hang on to your hat … there’s going to be ALOT of information that is supplied, both in Part 1 and Part 2 of this topic’s posts.
(I’ll remind anyone reading this, that I’m always available to answer questions. Please … just contact me, should something above not be clear or if you have a more specific question.)
I’ve already established that the property’s bottom-line value is very important. But what else, in addition to the value, is covered within the appraisal and considered important by lending underwriters?
Appraisals also address the following items, which may or may not affect YOUR loan approval and YOUR mortgage payments:
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Your appraisal confirms the amount of the Real Estate Taxes on your property. It is confirmed by the Title and County records.
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The appraisal will state if a Homeowners Association exists that includes your property. If an Association does exist, the amount of the Annual Dues paid should be noted/included in the report.
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Your appraisal should confirm the current contract price and any prior sales that have taken place on the property in the last three (3) years. * Note: This addresses or calls attention to the issue of “flipping” a property, which brings in another set of rules, etc., (should a sale have occurred).
- The appraisal identifies the property type you are purchasing, i.e. Single-family Detached, Townhouse or PUD, Attached Single-family (Duplex, etc.), or Condominium. * Note: Condominium appraisals command much more explanation and are a blog in-and-of-itself.
- Lot size, Zoning, Legality of property use, Flood Plain Determination are a high-priority focus of an appraisal. * Note: Zoning, non-conforming uses, properties in flood hazard areas COULD change the approval status, let alone the payments, of a mortgage.
- The condition of the property you are buying is detailed in the appraisal. The appraiser will also note if the appraisal is subject to repairs being completed on the property. If that occurs, WHO will make those repairs must be decided upon prior to Closing. I, and Chicago Bancorp, will coordinate that repair process for my clients to make sure that the repairs areinspected and approved so that a delay in closing does not occur.
As you can see, I have already touched upon many important features and considerations addressed within a property appraisal. In Part 2, I will write about what is found within the “guts” of an appraisal report. The “logic” used to support the appraiser’s findings is all important. In today’s challenging real estate market, this information definitely calls for a detailed explanation and blog post of its own.
Entering into a mortgage transaction with a thorough knowledge of what is contained on the appraisal report will calm nerves and better prepare a buyer/borrower for their transaction.