What is an appraisal and who completes it?
To determine the value of the property you are purchasing or refinancing, an appraisal will be required. An appraisal report is a written description and estimate of the value of the property. National standards govern not only the format for the appraisal, they also specify the appraiser's qualifications and credentials. We require licensed Community National Bank approved appraisers.
After the appraiser inspects the property, they will compare the qualities of your home with other homes that have sold recently in the same neighborhood. These homes are called "comparables" and play a significant role in the appraisal process. Using industry guidelines, the appraiser will try to weigh the major components of these properties (i.e., design, square footage, number of rooms, lot size, age, etc.) to the components of your home to come up with an estimated value of your home. The appraiser adjusts the price of each comparable sale (up or down) depending on how it compares (better or worse) with your property.
If your home is a multi-unit home, the appraiser will also consider the rental income that will be generated by the property to help determine the value.
The appraiser uses judgment and experience to reconcile these differences and then assigns a final appraised value. The comparable sales approach is the most important valuation method in the appraisal because a property is worth only what a buyer is willing to pay and a seller is willing to accept.
It is not uncommon for the appraised value of a property to be exactly the same as the amount stated on your sales contract. This is not a coincidence, nor does it question the competence of the appraiser. Your purchase contract is the most valid sales transaction there is. It represents what a buyer is willing to offer for the property and what the seller is willing to accept. Only when the comparable sales differ greatly from your sales contract will the appraised value be very different.
What types of things will an underwriter look for when they review the appraisal?
In addition to verifying that your home's value supports your loan request, we'll also verify that your home is marketable. We'll want to be confident that if your home must be sold, it will be as easy to market as other homes in the area.
We'll review the features and the value of your home and compare them to the features of other homes. If the features of your home are significantly different, or the value is substantially more than other homes in the neighborhood, it could affect the market acceptance of your home if you decide to sell.
We'll also review the market statistics about your neighborhood. We'll look at the time on the market for homes that have sold recently and verify that values are steady or increasing.
Will I get a copy of the appraisal?
As soon as we receive and review your appraisal, we will forward a copy to you.
Are there any special requirements for condominiums?
Since the value and marketability of condominium properties is dependent on items that don't apply to single-family homes, there are some additional steps that must be taken to determine if condominiums meet our guidelines.
One of the most important factors is determining if the project that the condominium is in is complete. In many cases, it will be necessary for the project, or at least the phase that your unit is located in, to be complete before we can provide financing. The main reason for this is, until the project is complete, we can't be certain that the remaining units will be of the same quality as the existing units. This could affect the marketability of your home.
In addition, we'll consider the ratio of non-owner occupied units to owner-occupied units. This could also affect future marketability since many people would prefer to live in a project that is occupied by owners rather than renters.
We'll also carefully review the appraisal to insure that it includes preferably comparable sales of properties within the project, as well as some from outside the project. Our experience has found that using comparable sales from both the same project as well as other projects gives us a better idea of the condominium project's marketability.
Depending on the percentage of the property's value you'd like to finance, other items may also need to be reviewed.
I'm purchasing a home. Why do I need a home inspection AND an appraisal?
Generally a home inspection is preformed prior to the appraisal. We suggest you accompany the inspector during the home inspection. This is your opportunity to gain knowledge of major systems, appliances and fixtures, learn maintenance schedules and tips, and to ask questions about the condition of the home.
Generally perform a detailed inspection and can educate you about possible concerns or defects with the home.
The appraiser will make note of obvious construction problems such as termite damage, dry rot or leaking roofs or basements. Other obvious interior or exterior damage that could affect the salability of the property will also be reported. However, appraisers are not construction experts and won't find or report items that are not obvious. They won't turn on every light switch, run every faucet or inspect the attic or mechanicals.
Although they have totally different purposes, it makes the most sense to rely on each to help confirm that you've found the perfect home.
I've heard that some lenders require flood insurance on properties. Will you?
Federal Law requires all lenders to investigate whether or not each home they finance is in a special flood hazard area as defined by FEMA, the Federal Emergency Management Agency. The Flood Disaster Protection Act of 1973 and the National Flood Insurance Reform Act of 1994 help to ensure that you will be protected from financial losses caused by flooding.
We use a third party company who specializes in the reviewing of flood maps prepared by FEMA to determine if your home is located in a flood area. If it is, then flood insurance coverage will be required, since standard homeowner's insurance doesn't protect you against damages from flooding.
How long does it take for the property appraisal to be completed?
Licensed appraisers who are familiar with home values in your area perform appraisals. We order the appraisal as soon as the Appraisal, Credit and Flood fee is paid. Generally, it takes 14 days or less before the written report is sent to us. We follow up with the appraiser to insure that it is completed as soon as possible. If you are refinancing, and an interior inspection of the home is necessary, the appraiser should contact you to schedule a viewing appointment. If you don't hear from the appraiser within seven days of the order date, please inform your Mortgage Representative. If you are purchasing a new home, the appraiser will contact the real estate agent, if you are using one, or the seller to schedule an appointment to view the home.
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