An appraisal is a report that is created to give an opinion of value for a home taking into consideration the condition, age, location, and various features throughout the home such as bedrooms and square footage. That report is often used by banks and lenders to avoid lending more money than what the home is worth.
Some reports will also acknowledge any concerns that the appraiser has regarding the property. They may even provide commentary on the report suggesting the opinion of a licensed inspector in a particular field or even request that certain repairs be made before guaranteeing the suggested value given. It is important that the commentary be addressed.
If these items are not addressed, the report may not guarantee you the financing that you are looking to secure. The commentary may be suggesting that the home is worth $$$ if X, Y, and Z are completed. If the items are not addressed just as the appraiser has suggested, then there may be additional issues created. The best rule of thumb is to make sure all necessary parties understand just what is provided in the report and what actions are being requested.
What is the difference between an appraisal and a home inspection?
An appraisal report is going to address the value of the home based on a certain set of criteria. An inspection report is typically going to address the condition of the home or certain element of the home that may not meet requirements set forth by the loan product that you are trying to obtain financing for. It is not always necessary that both reports be ordered for your transaction. You will want to ask what all is needed and the cost for each.
How do I know what kind of report I need?
Whenever you are purchasing a home or refinancing one, there is a good chance that you will be working directly with a bank or lender. These institutions are held to a set of government guidelines that address just how the process is carried out. In this case, your bank or lender will be placing the order directly for you. So, there will not necessarily be a need for you to understand the industry terms for the appraisal types. However, you should have a detailed conversation addressing the cost of the type of appraisal required.
What is an appraisal order?
The appraisal order is exactly what it sounds like. This is the order being placed for a particular type of appraisal.
Are all reports the same?
The simplest way to answer this question is no.
While these reports will mimic each other aesthetically, the information that is given will differ based on the report needed and loan type that it is being used for.
What information is given in a purchase order?
When a report is created for a purchase transaction, the goal for the appraiser is to evaluate if the home’s valuation coincides with the purchase price. The appraiser will be using other homes on the market, known as comparables or comps, to compare their similarities and sales price.
If the valuation comes in at the purchase price or slightly above, you will be able to move forward with your transaction. If the valuation comes in lower than your purchase price, you may have the right to renegotiate with your seller.
What information is given in a refinance or home equity order?
When a report is created for a refinance or home equity order, the appraiser is evaluating the home to find the true value of the home. They will be looking at the upgrades that you have completed in the home since you’ve purchased it, sales in the area, similar home types, etc.
The important item to understand is that equity doesn’t actually have a number tied to it. This magical number isn’t the same as it was 5 years ago, and your number isn’t going to be the exact same as your neighbor. The numbers given to you are specific to your home in the current market. This is a big reason why banks and lenders rely on these reports to be as accurate as possible.
What is an appraisal 1004D?
This is only going to be important to you if your original report came back with repairs or concerning items on the original report.
Certain loan types require that there is an appraiser that signs off on the flagged items provided in the initial report. This is important to note, because these are often items that you don’t want corners cut on. They could be roof damage, water leaks, foundation repair, etc.
Once the items are addressed and completed, a new order will be placed to have the appraiser return to the property. (That order is called a 1004D.) If it is discovered that all of the necessary work has been completed, an updated report will be provided to the requesting parties. There is typically an additional trip fee required to be paid, so you will want to cover this with your bank or lender.
How long is my appraisal report good for?
Most banks and lenders are going to tell you the same answer. These reports are good for 4 months or 120 days. You will want to make sure that you close your loan within that time frame to avoid incurring more costs for another report.
Is my appraisal report transferable from lender to lender?
The simplest way to answer this question is by saying that you will want to talk to your contact with the bank or lender.
Depending on what loan program you are using there may be certain guidelines that will or will not let you transfer the report. Make sure that this is a conversation that you are having if you are considering switching institutions.
What if I don’t agree with the appraisal valuation given for my home?
First and foremost, let’s admit that appraisers are humans too. While they are not exempt from making mistakes, they typically have a pretty good idea of what they need to consider when creating an opinion of value for a home. However, if you truly feel that there is an error, your bank or lender may suggest a reconsideration of the value process.
This is tricky as you are essentially telling the appraiser that you don’t feel that they did their job correctly. Whether you feel that they aren’t considering all of your upgrades or the proper comps, you are asking them to readdress the work that they have already completed for you. In some cases, they will ask the suggestive party to provide the comps that they feel should be considered. They will then issue a response stating why they did or did not consider the newly provided comps.
You will want to rely heavily on the experts’ advice on how to approach this situation. Ultimately, you don’t want to put yourself in a situation where the governing mortgage bodies feel that you are fishing for an inflated value. This could flag your account for mortgage fraud and create unnecessary issues.
If my appraisal report comes back with a valuation that will not allow me to do what I want, will I get my money back?
While you might have a one-off YES! response to this question, but the answer is typically going to be no. The reason for this is that you are paying someone for a service to be completed. They have done what you have asked of them, and they must be paid. Just because you do not get the answer that you are looking for does not guarantee that you will be receiving a refund.
Understand that most people work for a living. You probably wouldn’t want to work for free, and appraisers don’t either. Real estate transactions require that you have some sweat in the game. That is why the government has created things like down payments and earnest money. All parties need to feel a bit of the weight of responsibility.
We realize that the appraising process is a lot to take in, and we want to be your trusted resource for knowledgeable information. If you are interested in a free quote, complete our free online request form or call us at 1-801-882-2292!