The new mortgage rule announcement has spurred rumours of dropping property values. While I think there may be some price movement, I don’t think it will be as drastic as some articles portray. That being said, property appraisals are a valuable part of the real estate transaction and I believe lenders will be relying on them even more in their assessment for financing approval.
1. What is an appraisal?
An appraisal is an unbiased estimate of what a buyer might expect to pay (or a seller to receive) for a parcel of real estate. It is basically an analysis of sold properties around your area to determine the value of your home right now. Most lenders prefer that an appraisal is done within the last 30 days.
2. What do appraisers do?
An appraiser is the professional with recognized accreditation who will provide an educated opinion on quality, value and utility (use) of a specific property. They use their experience and knowledge of the local real estate market to arrive at a fair market value.
3. How are appraisers qualified to make valuation decisions?
Appraisers must complete a university course in order to obtain an appraisal designation. These courses can take up to 4 years to complete.
Appraisers must comply with rules set out by an associated governing body. The function of these associations is to provide professional standards and educational requirements that appraisers must meet and maintain in order to be in good standing.
4. Where does an appraiser get the information used to estimate home value?
There are basically 2 types of data they are looking for, specific and general.
Information specific to the property is gathered from the property itself; location, condition, amenities, and size. This information is collected when the appraiser views your property.
General Information is gathered from a number of sources and this data is used to compare to your homes data. Some sources appraisers use, but are not limited to:
-The local MLS data on current listings and recently sold homes that might be used as comparable sales and provide a sense of what the market is paying for similar homes in your neighbourhood;
-Tax records and other public documents for verification of actual sale prices in a market; and
In addition and most importantly, the appraiser leverages general data from his/her past experiences creating appraisals for other properties in the same market.
5. Who actually owns the appraisal report?
The appraisal report is owned by the Appraiser, and they allow a mortgage lender to rely on it for property valuation. While the borrower may pay for the report, the appraiser decides to whom the report can be released to.
6. What should I have available for the appraiser when they come?
- Recent Property Tax Assessment Bill
- A survey of your property; and
- If renovations have been completed, a list of renovations and costs to complete them
7. What are the steps of the appraisal process?
Step 1- Setting the appointment: Some mortgage lenders have an approved appraiser list, where they will only accept a report from a pre-approved individual or company. For this reason, it’s usually your mortgage professional who orders the report and provides the appraiser with your contact information to arrange payment for the report.
Step 2- Property inspection: The inspection of the property should take approximately 15 to 20 minutes to do. In most cases, the appraiser will be required to take photos of the interior and exterior of your home as well as your neighborhood. This includes all rooms of the home, so be prepared.
Step 3- Completing the report: Once the appraiser returns to their office, data collection regarding the subject property continues. Once all the information regarding the subject property and the most appropriate comparables is obtained, the appraiser reconciles the information in their report to arrive at a well-reasoned final value of your property.
8. When are appraisals required?
A lender can technically request an appraisal no matter what type of mortgage financing you’re looking for. Based on my experience, lenders almost always request an appraisal in the following scenarios;
– Private Sale (when property you’re purchasing is not MLS listed)
– Family-to- Family sale/purchase
– Purchases with at least a 20% downpayment
9. Are there alternatives to obtaining an appraisal?
Some lenders will use an “Automated Valuation System” to determine the property value in lieu of an appraisal. Also known as a desktop appraisal. This type of report pulls sale data from MLS and generates an approximate value, without an appraiser visiting the property.
10. How much do appraisals cost?
Residential appraisals can cost from $325 and higher depending on the location and type of property.
There have been instances where a lender will decline financing based on the appraisal results. Depending on the reason, you may still have other options. In this case, explore all avenues by working with a mortgage professional who has access to multiple mortgage lenders in order to find a lender match that loves the property as much as you do.
For all your mortgage needs or to get a referral to an experienced Appraiser, contact Jackie at 780.433.8412 or firstname.lastname@example.org. Stay in the loop by following on Twitter @Mortgagegirlca.