I recently attended a seminar called “Appraisal Update” sponsored by Sierra Pacific Mortgage and AXIS Appraisal Management. It was a pleasant enough setting, in a large air-conditioned conference hall at a Mission Valley hotel, where our business attire mixed well with the guests hanging by the pool in swimsuits. In attendance were REALTORS like myself as well as loan officers. In short, I will outline the relevance of this boring-sounding topic, and lay to rest the myths that are associated with appraisals.
The purpose of the appraisal is to satisfy the lender. Period. The lender assesses the degree of risk to issue a loan on the property based on the appraisal findings. The lender does not pay for this service, the buyer does. The cost can range from $350 to $650 per property, and is typically collected in advance of the report. The appraisal is required for refinancing an existing property, or a new purchase.
Seasonal trends in sales and pricing in a given neighborhood occur, and appraisers use this historical trending as a guideline. They will interject judgments based on conditions, location specific to the subject property.
If a real estate purchase is all cash, there is no logical reason for an appraisal. A buyer will have received comps from their REALTOR to allow the buyer to make a well-educated decision to purchase.
Foreclosures and distress sales (short sales) are used as comparable sales = based on = a percent of total foreclosures in that market or neighborhood.
The purchase price is viable market data: what is the market willing to bear? If a buyer is willing to pay ‘x’, that becomes vital information. As a result, the lender supplies the appraiser with the purchase contract so they become familiar with the price.
Lenders can chose which Appraisal Management Company to align with: the best AMC’s use only local appraisers. These are familiar with the neighborhood in which the subject property is located. This is huge, because if the appraiser is from Los Angeles County, how familiar can they be with San Diego neighborhoods?
Unpermitted space in the home can not be included in the total square footage of the property. Supply copies of permits to the appraiser.
These are the basics to all appraisals: comparable sales are within the past 90 days; no more than 20% difference in square footage and parcel size; within the neighborhood: no more than 1 mile (urban) and no more than 5 miles (rural) from the subject property. However, if there are no sales found within these parameters, adjustments are made.
It is helpful to provide the appraiser with a list of recent improvements to the property; permits for recent additions; HOA documents and budget; and recent neighborhood sales not on the MLS (i.e.: for sale by owner).
You can appeal the appraisal findings with the appraisal management company.The best influence is with factual data for review that may have been missed (condition; view, location, size).