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 Knowing
the Guidelines Solves the Mystery
The appraisal process often baffles consumers. A homeowner may feel
their home is worth a higher dollar amount, and the appraised value
doesn't always make sense to them. It is important to know that
appraisal guidelines are dictated by the lenders, and in some states,
it is a requirement to also disclose what the appraisal will be
used for because there are different rules to follow depending on
the purpose.
Values Are Based on Comparable
Sales
In effect, lender guidelines force appraisers to put a fair market
value on homes based on comparable sales in the same area, and the
home must be bracketed in size and value. For example, there is
no set dollar figure associated with a great view, pool, spa, bathroom
upgrades, etc. If a homeowner installs a custom pool that cost them
$30,000, but the local marketplace supports the value of a pool
at $15,000, then that item will be bracketed as [$15,000] on the
appraisal.
The Value of Upgrades Differs Between Newer
Homes and Older Homes
Upgrades can usually be expressed at full value in newer homes,
because the only way to get those upgrades was to put more money
into the cost of building the home. On the other hand, the upgrading
or remodeling of an older home is rarely reflected in full in the
final appraisal. This is because the home had value in its original
condition, and again, the value of the upgrades must be supported
by comparable examples within the same marketplace.
Appraisers Must Follow Strict Guidelines
These comparisons must be drawn from current market activity within
the last six months, and some lenders will want to look at both
closed and pending sales, to see if there is any room for negotiation.
This is a safeguard to prevent appraisers from attaching too high
a value to the home in question. This guideline further states that
appraisers can only base their opinion on the value of homes that
have actually closed escrow. Any supporting comparison from pending
sales will reinforce the reference to the closed sale given.
However, when property values are increasing
drastically within a marketplace, the appraiser is generally permitted
to make a concession and put more weight on the evidence provided
by comparisons to pending sales and listings, allowing for a "real
time" appraisal.
Over-Valuing A Home Can Lead to Re-Evaluation
Although there is no formal standard to speak of, most lenders give
the appraiser a 5% margin of error. If the file is reviewed and
the appraiser is off by 8%, there is a good chance the value will
be cut by the full 8%. It is in the best interest of both the appraiser
and the homeowner not to try to push the value up higher than the
market will support, otherwise the property evaluation would then
be exposed to a severe appraisal review.
Contact us today to
talk with a loan officer about your home loan needs.
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Mortgage Master Service Corporation
24909 104th Ave. S.E., Suite 100,
Kent, WA 98030
Phone: 253-859-5300 Toll Free: 800-583-7200
Fax: 206-382-9612 (Seattle line)
Email:
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