Mention the words Appraisal and Underwriting together in the same sentence these days ... and you likely better stand back. The reaction you receive could be fast and furious!
In Mortgage Lending and Underwriting, nothing is taken
at face value. Verification of everything is called for. Re-checks and reviews are the norm. And the Appraisal (the collateral for the Mortgage financing) is certainly a key component and focus of today's Underwriting.
Most Chicagoland Mortgage Lenders and Agents will tell you that they suffer a bit of anxiety regarding Appraisals currently. That it's one thing to receive the Appraisal Report with a stated view of Value. It's quite another thing for that Appraisal Report to stand-up to an Underwriter's review of the data and narrative contained within the Report.
Agent and Mortgage Lender both worry ... will the data contained on the Appraisal Report prove accurate and trustworthy? Will the narratives and explanations make sense to the Underwriter? And will any adjustments shown within the Report survive the Underwriter's scrutiny?
While there are a number of important elements that make up an Appraisal Report, the heart of the Appraisal remains the Value Estimate. On any Appraisal, an Underwriter is going to want to review and know:
- Was the Value Estimate supported by factual sales data?
- Was that sales data relevant to the Subject Property?
- Were the "best" Comparables utilized?
- Were better or more relevant Comparables overlooked?
- Was the Appraiser "uninfluenced" by the transaction's Sales Price?
- Was there a market for the use of "unique" properties to be considered?
- And the list of considerations goes on and on ...
A Search for Chicagoland Comparables should include:
- Sold and Closed properties within the last 6 months. Some cases as recent as last 3 months.
- Stable or Increasing Value Markets are likely okay at 6 months out, sometimes even up to a year ... IF PROPERLY EXPLAINED OR JUSTIFIED BY THE APPRAISER.
- Declining Value Markets will require sales data within 3 months (possibly 6 months). Again this is subject to the local market activity and proper narrative as to the frequency of Comparable properties coming on the market.
A. Within a 1-Mile Radius of the Subject Property
B. In the same City, County (if rural), and School District, if at all possible.
C. Within the geographical boundaries of the Subject Property, as defined in the Appraisal Report by the Appraiser. (Boundaries are often Rivers, Highways, City Limits, School District lines, etc.)
D. Of the same or similar construction quality, design, style, age, and room counts.
E. Living areas (Square Feet) should be within a 300-500 square foot variation from the Subject. Bedroom counts should be similar (thoroughly explained when not). Amenities such as Basements, Garages, and options should be similar, as well.
F. Ownership Types should match. This is especially important when Condominiums and Townhomes are being Appraised. Comparisons should be apples to apples, not mixed. Example: Condos should be compared to Condos. Not Townhomes that are P.U.D.'s, and vice versa.
G. Comparables ideally will *"bracket" the estimated Value, before and after adjustments are made for differences between the Subject Property details and those Comparables used in the Appraisal Report. (* Bracketing, is defined as: “A process in which the an Appraiser determines a probable range of values for a property by applying qualitative techniques of comparative analysis to a group of comparable sales. The array of comparable sales may be divided into two groups – those superior to the subject and those inferior to the subject. The adjusted sales prices reflected by these two groups limit the probable range of value for the subject and identify a bracket in which the final value opinion will fall.”)
In other words, an Underwriter should see and clearly understand the information presented, along with any adjustments made, when viewing the Appraisal Report.
What helps promote that understanding? Properties that sold for less than the Subject Property should be inferior in size, quality, condition, room counts, amenities. If not, the reason must be clear and supportable as to why a Seller discounted a Sales Price.
Likewise, properties that sell for more than the Subject Property must possess superior features to the Subject. And ideally, the Comparables Sales utilized within the Appraisal Report must occur within a market of properties in the same price range as the property being Appraised has sold for, or is valued at.
H. Unique Properties create the biggest concern for Underwriters, Appraisers, Lenders, and Agents alike, and for mostly the very same reason because the question is raised: What's the property truly worth? Are there any like properties to conclude what the market is for the Subject Property, let alone its Value or Sales Price?
When in doubt, consider what defines a Comparable: "Is the Sale or Listing "like" your Property"? I add that 2 questions regarding this definition (and the thought process surrounding it) should be asked as well. #1. Has the Appraiser accounted for all factors that may affect the value of the Subject Property within their Appraisal Report? And, #2. Would the Comparable appeal to the same Buyer that is considering the Subject Property?
What Helps a Chicagoland Appraisal and its Comparables Survive the Scrutiny of Underwriting? If an Appraisal Report addresses and clearly makes the case supporting the facts and opinions it offers, Underwriters viewing the Report will raise fewer questions. And that is what we ultimately ALL seek, whether Buyer, Seller, Agent, Mortgage Lender, or Appraiser.
* Looking to Buy a Home or Refinance in the Lincoln-Way Region, Will County, DuPage County, or elsewhere in the Chicagoland area? Contact Me. I will put my 36 years of mortgage experience and appraisal background and expertise hard to work on your behalf. Both will help you find and realize the success you seek.
I can be easily found at the following:
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