Appraisals

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What is an Appraisal?
‍An appraisal is an estimate of a property's fair market value. It's a document generally required (depending on the loan program) by a lender before loan approval to ensure that the mortgage loan amount is not more than the value of the property. The appraisal is performed by an "appraiser," typically a state-licensed professional who is trained to render expert opinions concerning property values, its location, amenities, and physical conditions.

Why Get an Appraisal?
‍Obtaining a loan is the most common reason for ordering an appraisal; however, there are other reasons to get one:

• Contesting high property taxes
• Establishing the replacement cost for insurance purposes
• Divorce settlement
• Estate settlement
• Negotiating tool in real estate transactions
• Determining a reasonable price when selling real estate
• Protecting your rights in an eminent domain case
• A government agency requirement
• A lawsuit

What are Appraisal Methods?
‍There are three common approaches, or appraisal methods, used by appraisers to establish property value. After thorough exercise of all three, a final value estimate is correlated. When evaluating single-family, owner-occupied properties, the Sales Comparison Approach is heavily weighted by an appraiser.

• Cost Approach – A formula is used to obtain the property value: Land value (vacant) added to the cost to reconstruct the appraised building as new on the date of value, less accrued depreciation the building suffers in comparison with a new building.
• Sales Comparison Approach – The appraiser identifies 3 to 4 comparable "comps"—recently sold properties in the neighborhood, ideally sold in the previous 6 months and within ½ mile of the subject property. A comparison is done between the recently sold properties and the subject property, including square footage, number of bedrooms and bathrooms, property age, lot size, view, and property condition.
• Income Approach – The potential net income of the property is capitalized to arrive at a property value. Capitalization is the process of converting a future income stream into a present value. This approach is suited to income-producing properties and is used in conjunction with other valuation methods.

Who Owns the Appraisal?
‍The mortgage company owns the appraisal even though the borrower paid for it. This is because the mortgage company orders the appraisal on the borrower's behalf, and the appraiser lists that mortgage company on the report. The borrower does have the right to receive a copy; however, it's at the mortgage company's discretion to give the borrower the original appraisal report.

Can Another Mortgage Company Be Used After the Completed Appraisal?
‍Yes. In most cases, you will not have to pay for another appraisal if you change your mortgage company, and depending on the loan program type, the first lender can transfer it to the new lender. Some appraisal firms may charge a small fee because additional clerical work is required to reflect the new mortgage company; this is called an "Appraisal Retype Fee." The original mortgage company has the right to refuse to transfer the appraisal to another lender. In this case, a new appraisal is needed.

How Can I Assist My Appraiser?
‍It's to your advantage to help the appraiser perform the assessment by providing additional information:

• What is the purpose of the appraisal?
• Is the property listed for sale, and if so, for what price and with whom?
• Is there a mortgage? If so, with whom, when was it placed, for how much and what type (FHA, VA, etc.), at what interest rate, or other type of financing?
• Are any personal properties or appliances included with the property?
• With an income-producing property, what is the income breakdown and expenses for the last year or two? A copy of the lease may be required.
• Provide a copy of the deed, survey, purchase agreement, or additional property papers.
• Provide a copy of the current real estate tax bill, statement of special assessments, or balance owed on anything (e.g., sewer, water, etc.).