Appraisal 101: The Year 2020 - 2021

 

Appraisal 101:  The Year 2020 - 2021

 

Many of my clients show deep interest in their upcoming appraisal and appraisal process at the time of their mortgage application.  Rightfully so, as their appraisal and value estimate arrived at on the appraisal could have a direct impact on their final loan amount ... and their Loan Approval too.

The two terms "appraisal" and "home inspection" are often used
incorrectly and interchangeably by my borrowers when we first speak.   Some are somewhat confused by the differences between a home inspection (seen on purchase transactions) and the real estate appraisal that will be performed during their mortgage process. 

As a loan officer that carried an IL Residential Real Estate Appraiser License for well over 20 years, these clients have stepped directly into my wheelhouse.  I'm very happy to address and discuss the differences between the two thoroughly so they're more fully educated before we move forward. 

FHA (Federal Housing Administration) provides a great explanation touching upon those differences via their "For Your Protection: Get a Home Inspection" form. 

 

In it they state ...

"The Appraisal is NOT a Home Inspection and does not replace an inspection.  An appraisal estimates the market value of the home to protect the lender.  An appraisal does not examine or evaluate the condition of the home to protect the homebuyer.  An appraisal only makes sure that the home meets FHA and/or your lender's minimum property standards.  A home inspection provides much more detail."

But my simpler, "boiled down" version of an explanation is:  The Appraiser is the Lender's "eyes" as it pertains to the overall condition of the home, its function, and marketability as a property ... as it translates to Market Value at that specific point in time.  

Ultimately, the Appraiser estimates value, as reflected by real-time data.  That real-time data includes recently closed sales (often referred to as "Comps" or "Comparable Sales").

The Appraiser typically is tasked to inspect the property, INSIDE AND OUTSIDE.  They are called upon to note:

• The Condition of the Property
• Property Features
• Room Sizes
• Number of Bedrooms
• Number of Baths
• Garage/ParkingSpace(s)
• Basement (and if finished)
• Heating and Cooling
• Functionality of Plumbing
• Functionality of Electrical
• Other Mechanical Systems
• Location of the Property & Lot Size/View must also be noted and addressed (as both have obvious impacts on the property/value)
• Noise Factors (from nearby highways, railroads, airports, industry, commercial uses should also be noted/addressed)
• More

*  All of the above should be noted and addressed just as any Buyer or Seller obviously would/does of any property.

Perhaps the most important function of the Appraiser is to accurately measure, observe, and describe the overall condition and appeal of the Subject Property.  The Appraiser measures the standard detached Single Family Residence from the OUTSIDE walls and calculates the overall living area square footage.

Basements ... and even partially below-ground areas ... are excluded from the square footage calculation.  These areas are described separately.

Now take a look at the attached Appraisal Grid/Worksheet ...

Please Note:  Separate categories for describing the Basement, Garage, Deck, Porches are recognized for their "contribution to value", but they are never included in the "Gross Living Area" (Square Footage) of a home.  

Ultimately, value rests upon the Comparison of a Subject Property's characteristics, as compared directly with other nearby properties in similar Market Areas, that have recently sold (in the last 3 months). 

If properties are unavailable from the last 3 months, the time period is expanded to 6 months ... or possibly up to one year.  This most often occurs in rural areas or areas considered very "stable".

It's this "Sales Comparison" method within their Appraisal Report that most all Appraisers ultimately complete and relies on most heavily. 

So when I'm asked, "What does an Appraiser look for when inspecting a home?", my short answer is:  "The minimum information required to complete the grid found within all appraisals".

It's important that Loan Officers read and understand the contents of the appraisals they receive on their transactions.  Those appraisals contain valuable info and insight into the Subject Property being considered for financing.  

Appraisals are viewed by Mortgage Underwriters as a portion of the Underwriting Process.  A successful Loan Approval relies on them. 

Any issues (such as those that might exist on an Appraisal Report) that can be found and addressed by a Lender early in the process ... and prior to entering Underwriting ... will speed the entire mortgage process along and potentially aid in receiving Loan Approval.

And that brings us back to the very beginning of this article ... as Lenders must, of course, be able to explain all this information (and the impact it has) to their clients too.  Any confusion they have must be cleared up.

People will tell you that an Appraisal is "just one person's opinion".  And while some of that is true, it's also important to point out that the Appraisal itself also has some absolutes on it.

Those absolutes are critical to both client and Lender and determine the success of the mortgage application at hand.  It's important that all parties involved in the transaction understand how the appraisal can affect them.

 

At a time when homebuyer demand is typically exceeding the supply of homes for sale, the appraisal and an understanding of how values are arrived at have become a key component of the mortgage loan process. 

* Are you dreaming of buying or refinancing a home or Investment Property in New Lenox - Will County - Chicagoland ... IL or WI?


Contact me today! I'll put my 40 years of mortgage experience and expertise to work on your behalf. I'm easily found at:

Gene Mundt

Mortgage Originator - NMLS #216987 - IL Lic. 031.0006220 - WI #216987

American Portfolio Mortgage Corp

NMLS #175656

Direct: 815.524.2280

Cell: 708.921.6331

eFax: 815.524.2281

gmundt@goapmc.com

www.genemundt.com

  

             

   

 

  

Gene Mundt, Mortgage Originator, an Originator with 40+ years of #mortgage experience, will offer you exemplary mortgage service and advice when seeking: 

#Conventional, #FHA, #VA, #Jumbo, #USDA, and Portfolio Loans in 

#Chicago and the greater Chicagoland region, including: 

The #LincolnWayArea, #WillCounty, (#NewLenox, #Frankfort, #Mokena, #Manhattan, #Joliet, #Shorewood, #Crest Hill, #Plainfield, #Bolingbrook, #Channahon, #Romeoville, #Elwood, #Lockport, #Naperville, #Wilmington, #Peotone, etc.), #DuPage County, the City of #Chicago, #CookCounty, and elsewhere within #IL & #Wisconsin. 

Your Referrals & Testimonials are Greatly Appreciated!