When clients get a loan from a bank or other institutional lender, an appraisal is required in most situations. An appraisal is used by the lender to document that the real estate is appropriate collateral in determining whether the value of the property is sufficient to support the lending decision.
An appraisal is an opinion of value. When getting a loan on a property, the lender will order an appraisal through an Appraisal Management Company.
An appraiser will research records from both the county and the local municipality. The also use the Multiple Listing Service (MLS) records and other data points for information and documentation concerning the subject property and market area.
An appraiser will review recent sales and listings of comparable properties. These (comps) have similar utility, quality, age, and amenities as the subject property and are in the subject property’s market area. In markets where few sales have recently occurred, comps may be from similar or competing neighborhoods typically located within 1.0 to 2.0 miles of the subject property.
An appraiser will analyze and compare characteristics that include the living area of the home, land area, style, age, quality of construction, number of bedrooms and bathrooms and the presence or absence of a garage, etc.
After the data collection and analysis, the appraiser will develop an opinion of value. The appraisal is then sent to the Appraisal Management Company. The data is reviewed, questioned, and checked for accuracy. Once approved, it is sent to the lending company for review by the underwriter where it is again scrutinized, questioned, and finally approved.
If the value does not match the agreed upon contract price between the seller and buyer, the buyer has 5 days to cancel after receipt of the appraisal or negotiate with the seller a value that is acceptable to the buyer, seller, and lender.
For questions regarding how the an appraisal can affect your buy or sale reach out to The Lewis Team and we would love to walk you through the process.