Any time you are requesting a loan for the purchase of property, the lender becomes a co-investor. They want to protect their investment (as do you) so a third party appraiser is hired to submit an appraisal.
The appraiser's job is to note every material aspect of the subject house, including the type and condition of the foundation, wall construction, condition and age of the siding and roof, whether the roof has guttering, type of heating and air conditioning, utilities, interior and exterior finishes, lot size and garage type. The appraiser will be looking for signs of damage and structural problems. They will measure the exterior of the house as well as the dimensions of all interior rooms. In order to formulate an accurate value the appraiser records every detail that might affect the value.
Once this information has been collected, the appraiser searches real estate records to find similar/comparable properties (called "comps") that sold within the past six months. These properties/houses provide a basis for determining the current market value.
If the appraiser is unable to locate comps that are close in location, age and style, he will make his selections based on as many similarities as possible. In small communities with only a handful of recent sales, the appraiser might have to include houses that sold up to a year ago to find comps.
The appraiser fills out a grid with the sales prices of the comps, how long they were on the market, and the same details noted from his inspection. The appraiser will adjust the value of each of the comps based on the house's features. For example, if the subject house has a new roof, but a comp had an old roof, the appraiser would add value to the comp to indicate what it might have sold for had its roof been in new condition. Other things the appraiser uses to assign value include the type of neighborhood, square footage, number of bedrooms and bathrooms, quality of interior and exterior finish, landscaping and lot size. As the appraiser goes through the list, he will adjust every comp value, either up or down, using the house's condition and amenities as references. After completing the adjustments, the appraiser averages the totals to determine the value of the subject house.
Appraisers are always third parties in the mortgage process and do not work directly for the mortgage broker/lender or real estate company although many professional appraisers have real estate sales or mortgage finance experience. Their objective is to supply a realistic judgment about a property's actual worth at the time of the appraisal. Often, these appraisal values will come in at or near the agreed upon purchase price since the true market value is what the buyer is willing to pay. Unfortunately, a changing housing market sometimes means a struggle with appraised values, especially when not many homes are selling in the local area or there are many distressed sales.
So here are tips to get a higher appraisal.
Professional appraisers must undergo initial training and testing before receiving a license. The Appraisal Standards Board sets minimum qualifications for appraisers, and individual states can adopt standards that are more stringent. Every two years, the appraiser must take additional courses to stay abreast of the latest rules but not all appraisers are created equal.
Just as there are varying abilities in doctors, mechanics, real estate agents, and other professional services, some appraisers are just better than others.
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