Appraisals

Appraisal for Wayne county homes, Oakland county homes, Livingston county homes, appraisals procedure,  appraisal cost, and appraisal basics

When to order an appraisal
You have completed the loan application, put in a purchase offer.  When do you order an appraisal?  You order an appraisal after the home inspection.  You don't want to order and pay for an appraisal until the house passes inspection.  If the house fails inspection you don't order the appraisal until you have a signed addendum stating the the seller will do the repairs, give you a lower price, or you accept the house as is.  Then you order the appraisal

 Appraisals are performed for the benefit of the lender. They are trying to justify the loan amount based on the appraised value. The appraiser will have a copy of the Purchase agreement. (contract). The typical cost of an appraisal is $275 - $350 and is normally paid to the lender upfront by the borrower.   Appraisers charge more for rental properties, FHA appraisals, and multi family properties.  Commercial appraisals start at $1500 and go up to $5000

An appraisal is subjective.  One appraiser may come up with one value and another may come up with a totally different value.  An appraisal is not what the house should sell for,  it is a educated estimate of value using different value approachs.

The most common way an appraisal is done is that the subject house ( the house being bought) is compared to 3-5 homes that are similar in style, size, and location that have sold in the last 6 months.  So your appraisal is based on homes that have sold recently that are like yours and near yours!

STYLE  By style I mean they compare ranches with ranches.  They will not compare a ranch to a colonial. ( or 2 story)

SIZE, AGE  By size I mean they compare square footage, number of bedrooms, bath rooms, age, garage, ammenities.  Your home may be 1200 sq ft 2 bedroom,1.5 bath, built in 1999, with a 2 car garage.  One of the ones that sold may be 1200 sq ft, 3 bedroom, 2 bath, built in 1952, with a 1 car garage.  The appraiser has a general formula that he uses to give value to a 3 bedroom versus a 2 bedroom,  A home built in 1999 is worth  more than one built in 1952 so more value is given to the 1999 home.  This gets very complex.  What the lender is looking for from the appraiser is that he is not giving some ridiculous value to say the garage or the age.   Remember very little value is given to updates.  Bigger value would be given to an addition or a garage.

Location  If it is in the city lenders like to see the comparable sold homes that the appraiser is using to be within a half a mile.  Without crossing main roads or railroad tracks.  This common sense,  because if you cross a main road the houses can be totally different.  The lender wants the appraiser to use the houses closest to the subject property. So if a similar house sold on the same street the appraiser is supposed to use it.

That is how many times appraisals are different.  Appraisers may be using different comparables (sold houses) and may be using a little different adjustments for the value of a three bedroom home versus a two bedroom home.  It gets even more difficult when homes are not selling, or there are very few comparables close by.  They sometimes have to go further away and futher back in time. Up to a year ago.

Appraisals are reviewed by the bank.  Sometimes the bank has a review department in house or they pay another appraiser to review  the appraisal.  So there are checks and balances in the system.

What happens is your house does not appraise for the sales price ?  Most houses do but every once in a great while one won't.

Either the appraiser appraised it for less than the sales price or sometimes the bank 
rejects the value of the appraisal and will come back with a lower value of the house.  What the means to you the buyer is that the sales price must be reduced or you have to bring more money to the table.  For example you bought a home for $200,000 and you are borrowing 100%.  The bank or the appraiser says it is only worth $190,000.  The bank is only going to loan $190,000.  You either have to go back to the seller and renegotiate the price or you have to come up with $10,000.

VA Appraisals: If you are getting either of these government mortgages, the appraiser will not only look at valuation but will also look at the condition. If defects are noted, they may require that they be fixed prior to closing. Since the borrower has such a low downpayment, Lenders want to make sure that Borrowers are not hit with any up-front maintenance expenses. The Seller is not obligated to make the repairs; consequently, they will have to be negotiated.

• Appraisals are not a guarantee of value. Most lenders will have a disclaimer to that effect. Remember, the appraiser has a copy of your fully negotiated contract BEFORE establishing the appraisal value. It is more of a confirmation of value.

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