Facts About Appraisals You Should Know

Home Appraisals

Part of my job as a Real Estate Broker is to provide sellers and buyers with a Comparison Market Analysis or CMA. This report is similar to an appraisal, but it is based on comparing similar type properties that have recently sold, properties that are currently active, and properties that have expired or failed to sell.  As an experienced and active broker, I have seen most of the homes in the area and am aware of the differences in condition and updates of the properties. The CMA is only one tool to help understand market value in order to determine the listing or purchase price.

Once a contract for sale has been accepted and signed, the buyers notify their lender who schedules the appraisal. This usually occurs after the home inspection but in Lincoln County, it should be ordered as soon as possible since the lead-time for getting the appraisal back to the lender can be 6 – 8 weeks from the date it is ordered.  Appraisals are an important part of the transaction in determining a property’s value and the mortgage company uses the appraisers evaluation in determining the amount they will loan.  In today’s market banks and mortgage companies want to make sure the property will be able to sell for the amount of the mortgage in case of default and they end up foreclosing on the property.

Oregon requires appraisers to be licensed and there are different levels of certification. The three basic requirements for obtaining a license and certification are: education, a written exam, and lots of experience. Most lenders do not contact appraisers directly but rather order the appraisal from a third party appraisal management company.  In fact the lender doesn’t even know who the appraiser is until they receive the appraisal.  The appraisal management company has a list of appraisers and post the jobs (appraisal requests) that are available and an appraiser will pick it up as their time and schedule allows.  Appraisals are paid for prior to ordering the appraisal and can be cancelled should the home inspection not be approved, but there is a small cancellation fee.

Appraisals are very detailed reports about the property. There needs to be at least three side-by-side recent comparisons of similar properties.  This is often a miss-guided point when looking at a CMA  because not all of the properties that are used on a CMA will be used by the appraiser.   It is important that an agent who is familiar with the appraisal process and has seen the properties in the area prepare the CMA so you can evaluate and determine the best listing or purchase price.  There are many factors that affect the valuation of a home. The appraisal will also include information about the overall real estate market in the area.  Factors that are considered and affect values are the number of homes in foreclosure, or short sale situations. Homes located in the areas with longer than the normal number of days on the market (DOM) also factor into the appraisal.  Poor access to the property such as flag lot or shared driveway will require additional information to be provided to the lender regarding the financial arrangement between all the parties for maintenance of the driveway. Obvious visual assessment and conditions about the property will also be noted as well as the type of surrounding homes.

The appraisal is vital to the bank providing the mortgage so if the property appraises less than the sales price, odds are the loan will be declined.  The appraiser might also call for some repairs or specify conditions that need to be met before the lender will approve the loan.  At that point it’s back to negotiating because the buyer is buying “subject to financing” and now the financing has additional conditions for the seller. Most often the issues can be resolved but it usually delays the loan process and closing dates have to be extended. I have some good ideas on how to avoid some of those problems so let me know if you need help or would like a market analysis.