Generally, when a property is sold, the mortgage lender requests a full appraisal by licensed appraisers such as Triangle Appraisal Group (TAG). An appraiser visits the property and assesses it inside and out.
Secondly, the appraiser does an exterior-only appraisal, often by driving past to gauge the property’s overall condition. Thirdly, a rental analysis appraisal estimates the potential rental value of an investment property. The final type is a broker price opinion (BPO), performed by a real estate professional.
Overview of Appraisal
Let’s start by defining a home appraisal:
A home appraisal is a valuation of a property, as estimated by an authorized, unbiased person.
It determines fair market value, based on its intrinsic worth, the worth of comparable properties in the area, the local amenities, and current market trends.
A home appraisal is usually necessary for a pending purchase, but may also be for marketing, mortgage, insurance, or refinancing purposes. Examples include a homeowner wanting to know the right asking price, or estimating the value of a deceased estate.
The appraisal can influence a potential sale significantly. This effect can be negative if the appraisal is lower than the sale price, or positive if the appraisal is higher than the sale price. An appraisal is a vital calculation that protects banks and other lenders. They can avoid incurring a loss on a loan, or the risk of the borrower defaulting on repayments.
How Are Home Appraisals Conducted?
In most circumstances, the mortgage lender will initiate a home appraisal. Under the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA), it’s up to the lender to select and contract an Appraisal Management Company (AMC), such as TAG. The AMC appoints a licensed, certified appraiser to perform an impartial assessment, without any undue influence from any of the parties involved in the transaction.
The actual appraisal may take anywhere between a few minutes and a few hours, depending on the details and extent of the property, the reasons for the appraisal, and the selected method of appraisal. The appraiser gathers and analyzes all the necessary information and data to complete their reasonable estimate of the home’s value. This includes values of comparable homes and recent sales in the area, called “comps”.
They prepare the appraisal report, which takes about 7–10 days. There are different forms to complete for each type of appraisal, which have been developed by Freddie Mac and Fannie Mae. These are the two large companies that guarantee most of the mortgages granted in the U.S. The final report is submitted to both the lender and the buyer. The seller may also request a copy.
What Are the Different Types of Home Appraisals?
Let’s examine the four types of home appraisals, their differences and uses, and the industry jargon for the forms:
1. Full Appraisal
- This is the most commonly requested appraisal by mortgage lenders.
- The appraiser schedules an appointment to view the property, usually within two days of receiving the instruction.
- They perform a thorough inspection of the interior and exterior. They take photos and measurements and make notes about the home’s condition and features.
- An important aspect is comparing the home to other residences in the vicinity.
- After the home visit, the appraiser completes a very detailed Form 1004: Uniform Residential Appraisal Report. It’s colloquially known as a “ten-o-four”.
2. Exterior-Only Appraisal
- These reports are typically used for appraisal reviews if there is a dispute, or for a first-lien mortgage to buy or refinance a home. It may be for a stand-only second-lien mortgage done by a small bank. There may also be a problem gaining access to the home.
- The appraiser drives by the property. They may take photos of the exterior, but do not go inside—they make an extraordinary appraisal of the unseen interior.
- This type of appraisal is written up on Form 2055: Exterior-Only Inspection Residential Appraisal Report. It’s known as a “twenty-fifty-five”.
3. Rental Analysis
- This is an addendum to a full appraisal for a loan on an investment property.
- The appraiser performs an analysis comparing the property’s potential rental income to other leased rental homes in the area. It’s similar to researching “comps”.
- The appraiser completes Form 1007: Single Family Comparable Rent Schedule called a “ten-o-seven”.
4. Broker Price Opinion (BPO)
- A real estate broker carries out this “appraisal lite”.
- It’s useful when you’re looking to sell a house, cancel mortgage insurance on a home loan, or apply for a stand-alone second-lien mortgage.
- BPOs are not accepted for any mortgages sold to Fannie Mae or Freddie Mac.
Average Price of a Home Appraisal
The cost of a home appraisal varies according to the type of appraisal, and the estimated value, location, and size of the property being appraised. For granting a mortgage loan, the lender organizes the appraisal, but the buyer is expected to pick up the tab. This is payable even if the loan isn’t granted.
- Full Appraisal: Expect to pay an average of $450–$500 for a moderately priced single-family home.
- Exterior-Only Appraisal: This will cost you about $300–$400.
- Rental Analysis: Add an extra $150–$200 to your appraisal bill.
- Broker Price Opinion: A real estate broker will charge you $150–$300.
Finding an Appraiser for Your Home
There are different appraisal types depending on whether you’re buying, selling, or refinancing your home. Obtaining a prompt, impartial appraisal that accurately reflects the fair market value is a critical part of the process. It affects the financing and transacting of the property and provides reassurance that you’re making a good investment.
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