Appraisal

What does an Appraisal consist of? The appraisal is the lenders valuation of a property to determine if the value is adequete collateral for the loan. The appraisal is based on the property you are looking to puchase/refinance, this is called the subject property. The main body of the appraisal is done in a grid form. The grid allows for adjustments to be made between various comps (comparable properties). The appraiser will grid a minimum of 3 sold properties and possibly pending comps (under contract but not closed yet) and homes currently listed. Comps should be as similar to the subject as possible, construction, style, square foot, age, amenaties, etc. The comps should be as close in proximity as possible and you should not skip a similar property in order to try to manipulate value. In a rural area it may be acceptable to the lender to go 5 miles away from the subject yet in a more urban area the lender may not accept a comp over 1 mile. The comps should also be as recent as possible and again you can’t skip a recent sale without reason to manipulate value. If no recent comps can be found an adjustment up or down will be made for time value. The lenders do not like to see comps older than 1 year.  This method is known as “market approach”  The appraisal will also include information about the area, the market, repairs needed and most times it will also include a breakdown of the cost to rebuild. This is known as the “cost approach”. A third method may also be used but is most common for income producing properties known as the “income approach”. The income approach may aslo require a schedule of rent which would grid other properties based on current rental income in the area.

NOTE: The lender does not have to accept the appraisal. They can ask for additional comps to support the appraisers opinion of value, reduce the value, make a counter offer or decline the loan.

My friend knows an appraiser? All residential appraisals must be ordered through a lenders AMC (appraisal managment company) and cannot be ordered direct with an appraiser to comply with the new appraisal rules of  HVCC (home valuation code of conduct) that require a separation from the appraiser and anyone connected with the transaction.

Are all appraisals the same? No.. we discussed the 3 approaches that are generally used but there are also various forms or levels of appraisals. The most common we will listed here:

PIW: (property inspection waiver) No Appraisal Needed. Still it’s not free. You will pay a waiver fee of about $75.00

Form 2055:  Exterior-Only Residential Appraisal Report

This report form is designed to report an appraisal of a one-unit property or a one-unit property with an accessory unit; including a unit in a planned unit development (PUD), based on an exterior-only inspection of the subject property from at least the street. This report form is not designed to report an appraisal of a manufactured home or a unit in a condominium or cooperative project.

Required Exhibits

• A street map that shows the location of the subject property and of all comparables that the appraiser used;
• Clear, descriptive photographs (either in black and white or color) that show the front of the subject property, and that are appropriately identified. (Photographs must be originals that are produced either by photography or electronic imaging);
• Any other data–as an attachment or addendum to the appraisal report form–that are necessary to provide an adequately supported opinion of market value

NOTE: This is an exterior with Value as opposed to the 2075 (accepted value). If the Comps are weak or your house has features inside that would increase value then you can’t get an adjustment and may be better to use the standard form 1004 for highest value.

Form 2075: Desktop Underwriter Property  Report

Desktop Underwriter’s enhanced risk assessment capability enables the use of the Desktop Underwriter® Property Inspection Report (Form 2075), which requires an exterior-only inspection of the subject property from the street by a state-licensed or state-certified appraiser without an estimate of market value for the property.

Form 2075 is not an appraisal report. When Desktop Underwriter recommends Form 2075, it has judged the reasonableness of the sales price as adequate collateral for the mortgage loan. Therefore, a property appraisal is not required for the specific transaction.

Form 1004:  Uniform Residential Appraisal Report

This is the standard: “blank form 1004 sample”

This report form is designed to report an appraisal of a one-unit property or a one-unit property with an accessory unit; including a unit in a planned unit development (PUD), based on an interior and exterior inspection of the subject property. This report form is not designed to report an appraisal of a manufactured home or a unit in a condominium or cooperative project.

Required Exhibits

• A street map that shows the location of the subject property and of all comparables that the appraiser used;
• An exterior building sketch of the improvements that indicates the dimensions. The appraiser must also include calculations to show how he or she arrived at the estimate for gross living area. A floor plan sketch that indicates the dimensions is required instead of the exterior building or unit sketch if the floor plan is atypical or functionally obsolete, thus limiting the market appeal for the property in comparison to competitive properties in the neighborhood;
• Clear, descriptive photographs (either in black and white or color) that show the front, back, and a street scene of the subject property, and that are appropriately identified. (Photographs must be originals that are produced either by photography or electronic imaging.);
• Clear, descriptive photographs (either in black and white or color) that show the front of each comparable sale and that are appropriately identified. Generally, photographs should be originals that are produced by photography or electronic imaging; however, copies of photographs from a multiple listing service or from the appraiser’s files are acceptable if they are clear and descriptive;
• Any other data–as an attachment or addendum to the appraisal report form–that are necessary to provide an adequately supported opinion of market value.

The Market Conditions Addendum (Form 1004MC) is designed to enhance the transparency of the market trends and conditions conclusions made by the appraiser. The Market Conditions Addendum will be required with all one- to four-unit property appraisals performed on or after April 1, 2009. This requirement applies to loans delivered to Fannie Mae, whether the loans are underwritten manually or through Desktop Underwriter®.

Form 1025:  Small Residential Income Property Appraisal

This report form is designed to report an appraisal of a two- to four-unit property, including a two- to four-unit property in a planned unit development (PUD). A two- to four-unit property located in either a condominium or cooperative project requires the appraiser to inspect the project and complete the project information section of the Individual Condominium Unit Appraisal Report or the Individual Cooperative Interest Appraisal Report and attach it as an addendum to this report.

There are other addendums and special forms sometimes used but these are the most widely used appraisal forms. You can find additional info about adjustments on the appraisal at: “Home Price vs Value” 

If we are good on price then congratulations you are ready to make and offer!

“Agreement of Sale”