7 Facts You Should Know About Home Appraisals

This unique house made with retired shipping containers would be difficult to appraise.
This unique house made with retired shipping containers would be difficult to appraise. Photo from http://www.OffGridWorld.com.

The main purpose of the home appraisal is to determine fair market value. Thus, it is a vital and necessary part of the home buying process. Here are seven facts you should know.

1) The appraisal report must be ordered by the mortgage company, never the home owner or the home buyer. Why? Because you might have a cousin or friend in the business who will not be impartial in determining the value.

2) The loan officer at the mortgage company cannot choose the appraiser.

Unique cottage.
Unique cottage home.

This has been law since 2009 after a lawsuit against Washington Mutual Bank about coercing values. Prior to that, loan officers chose the appraiser and often had a conversation about the property. No more! Many lenders use an appraisal management company as a neutral party. This, of course, creates another fee for the home owner. The fee can range from $19 to $200.

3) The appraised value is based on other home sales. The appraiser finds five to six similar homes that have sold in the past three months. The appraiser makes adjustments for size, age, and quality, then determines the value. The idea is that the true value of a home is “where buyer and seller meet.” (If it’s a refinance, the value is also determined by the comps.

4) Unusual homes are difficult to appraise. If you home is a geodome-style, a log home, isolated in the country, or other unique property, it is not easy for the appraiser to find comps and determine value. In this case, many appraisers err on the side of a conservative value.

5) With a purchase loan, the appraiser receives a copy of your purchase contract. The big complaint here is that the appraiser knows the purchase price; therefore, is the appraiser biased in the value determination? Appraisers will argue no, but some home buyers are skeptical. The appraisers are not going in “blind” as they are with a refinance.

6) You have the right to dispute the value. If you feel strongly that the

This house was built in the 1980s. The neighbor threatened to buy it just so he could bulldoze it.
This house was built in the 1980s. The neighbor threatened to buy it just so he could bulldoze it.

appraised value is inaccurate, you may provide other comps with a statement to your loan officer. The loan officer will then submit it to the appraisal management company who passes it on to the appraiser. The appraiser’s response will be the final answer. (Personally, I have seen only one instance in which an appraiser raised the value based on the borrower’s dispute.)

7) It is your legal right to receive a copy of the appraisal report before you sign loan documents. Federal lending law gives you three-days to review the report (unless you sign a waiver). In all cases, the lender must provide the report to you before you sign final documents.

I hope this information is helpful. Feel free to share it on Facebook and Twitter. Any questions, let me know.

2 thoughts on “7 Facts You Should Know About Home Appraisals

  1. By the same token,apprise and banks i.e. mortgage companies. Have used lesser homes to use as comps for better homes. And there by getting better homes for cheaper prices. Benifit in them. Square footage don’t match,years don’t match,home and property quality don’t match. Where is the protection in that system. I’ve been told by many players in the system. That we the home owners are now at the whim of the appraisers and mortgage companies.

    1. There are some incompetent appraisers out there who use bad comps and come up with inaccurate and unfair values. However, the mortgage company does not benefit when that happens. In fact, it is bad for the mortgage company when the appraiser values the property too low. Why? Because the mortgage company either loses the loan and makes no money or gets a smaller loan and makes less money.

      The “bad guy” in an under-valued appraisal report is the appraiser, not the mortgage company. Believe me, loan officers hate low appraised values as much as anyone!

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