What Makes a Good Appraisal?

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posted 4/6/2012 in Realtor News

To determine the value of the property your clients are purchasing an appraisal will be required for their Mortgage Loan. National standards govern not only the format for the appraisal; they also specify the appraiser's qualifications and credentials. In addition, most states now have licensing requirements for appraisers evaluating properties located within their states.

The appraiser will create a written report for Northwest Bank and your clients will be given a copy before their loan closing. After the appraiser inspects the property, they will compare the qualities of your client’s 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 the home to come up with an estimated value of the home. The appraiser adjusts the price of each comparable sale (up or down) depending on how it compares (better or worse) with the property.

As an additional check on the value of the property, the appraiser also estimates the replacement cost for the property. Replacement cost is determined by valuing an empty lot and estimating the cost to build a house of similar size and construction. Finally, the appraiser reduces this cost by an age factor to compensate for depreciation and deterioration.

Using these different methods, an appraiser will frequently come up with slightly different values for the property. The appraiser uses judgment and experience to reconcile these differences and then assigns a final appraised value.

It is not uncommon for the appraised value of a property to be exactly the same as the amount stated on your client’s sales contract. This is not a coincidence, nor does it question the competence of the appraiser. The 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 the sales contract will the appraised value be very different.

What types of things will our Northwest Bank underwriters look for when they review the appraisal?
We'll review the features of the home and compare them to the features of other homes in the neighborhood. For example, if your client's home is on a 20-acre lot, or has a large accessory building, we'll want to make sure that there are other homes in the area on similar size lots or with similar outbuildings.

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 customers get a copy of the appraisal?
As soon as we receive the appraisal, we'll update the mortgage loan with the estimated value of the home. As a standard practice we will provide a copy of the appraisal before the closing.

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 application deposit is paid. Generally, it takes 10-14 days before the written report is sent to us. We follow up with the appraiser to insure that it is completed as soon as possible.