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What is the Purpose of an Appraisal?

A mortgage has many specific pieces involved in it. Obviously there is the money supplied by the lender to pay the seller for their asking price. There are also many other items such as the title report and title insurance, a survey (sometimes), proof of homeowner insurance policy and an appraisal. An appraisal is actually one of the more important pieces and yet it still brings questions from buyers and sellers alike.

Required by the Lender

First and foremost, if a home is being purchased through the use of a mortgage then the lender will require a formal appraisal. A licensed appraiser works independently of the real estate agent and the lender to ensure that there is no undue influence on the process. The appraiser’s report will indicate if the home is worth the asking price.

Appraisal ordered after a Selling Price has been negotiated

The appraiser is contacted after the real estate agent(s) and all associated parties have worked out a price for the home. The appraiser will look at the contract along with a host of other items such as

* Square footage of the home

* Local property taxes for the home

* When the home was built

* General shape and condition of the property

* Average sales price of similar homes in the area

The price for the appraisal depends on the area of the country. Sometimes the appraisal fee is paid by the borrower up front and other times it may be paid as part of the closing costs.

Wise to Inspect First and Appraise Second

In an ideal world the buyer of a home would hire a home inspector to review a property before the home is appraised. The job of an inspector is to seek out any potential problems with the property. This can be as simple as finding a loose door knob to as complicated as finding out the entire heating and ventilation system needs replacing. Once the inspector has looked at the home the appraiser can approach the property with some idea of any possible short comings of the home and assign the correct value to the home. In a worst case scenario an inspection could lead a buyer to cancel a contract and look for a different home.

The Journey of the Appraisal

Once the appraiser has finished the report a copy will be sent to the mortgage lender and possibly the real estate agents. If the buyer paid for the appraisal up front then they too will get a copy when it is complete. Otherwise, the buyer will receive a copy at closing.

The lender, whether it is a bank or local mortgage company, will have their own process to review the appraisal and ensure the numbers look accurate. If the value of the home is much lower than expected then the lender may cancel the loan. On the flip side, if the home is determined to be worth more than the asking price then the buyer will have instant equity.

Is the new Fannie Mae Appraisal Program helping or hurting? What are the basics of the program? Well, the real estate giant is planning to offer mortgage lenders access to proprietary home valuation databases, so that they can use it to assess the “accuracy and risks posed by the reports submitted by appraisers.”

So this system will look closely at the work performed by the appraiser and flag any possible errors. This means the lender can ask for an appraisal to be looked at again, which could in turn lead the lender into reconsidering whether or not to go ahead with the loan.

This new step – to be added from January 26 – will mean the price a home is sold or bought at being determined more thoroughly and will undoubtedly add more time to the closing process and may ramp up the cost of the appraisal fees for doing all that extra work.

So why is this happening now? Well, Fannie Mae wants lenders to make more informed decisions when approving a loan to a home buyer for the mortgage. At present, a buyer will scour the internet and real estate listings and look for their dream home in the area of their choice. Then a buyer finds a home, makes an offer, agrees on a final price and then starts the home buying process.

The price is at the very high end of their budget but that doesn’t matter because this home is in the area they have always wanted to move into, It has a number of A-listed schools nearby, great shopping malls and restaurants at their doorstep and a place where the crime rates are very low – so it’s got to be well worth it! Right?

But from January 26, the lender will submit the appraisal report to the new Fannie Mae Program and they will come back with “lower risks comps” that could value the home at a higher rate. The lender could then ask the appraisal team to look at the loan again and reconsider, adding time and money to the buying process.

The fear of many real estate agents is that if appraisers become concerned they are constantly being told its assessments are inaccurate, they will automatically be more conservative in their assessments, resulting in lower house prices and stalling the housing market growth considerably.

Only time will show the affects of the New Fannie Mae Appraisal Program. Let us know if you see any drastic changes in your transactions and listings.

PamsVAS - Real Estate Virtual Assistant REO and BPO Services

Understanding Specific Requirements of Appraisal for FHA Loans in Wisconsin

The all-time low mortgage rates combined with affordable home prices have generated a huge growth in business for FHA mortgages. People considering their first home need to understand the specific appraisal requirements for FHA loans in Wisconsin.

Basics of FHA Appraisal

In a nutshell, an FHA appraisal is a conventional appraisal with additional requirements. The goal is to identify any potential repairs that would need to be completed within the next 24 months and have those items addressed before the loan is closed.

It is important to note that an appraiser does not review a home to the depth of a home inspector. A home inspection is still a good idea for a home, especially if it is 5+ years old.

FHA Appraisal Caveats

Only appraisers listed on the FHA approved roster are allowed to inspect homes and complete the evaluation. Before an appraiser is assigned to review a home a FHA case number will be assigned to the loan. The appraisal is valid for the next 90 days. The lender or borrower may change during that time period without the need for a new appraisal.

Any home that has undergone a conventional appraisal within the last 90 days will still need a FHA case number. In addition, the home must be re-inspected to verify FHA specific items. Here is a list of the items:

• Confirm no existence of drainage or water damage
• Ensure water pressure is adequate for the home without any leaks
• Any exterior and interior lead-based paint must be inspected to identify peeling, chipping or cracking
• Identify exterior access for each bedroom
• Insure the minimum 18” egress and ingress from the lot line to the building
• Test the heater to ensure proper working condition as well as air conditioner
• Ensure electrical outlets are in every room and in working order
• Test the fan/hood over the oven for proper working condition
• Ensure screens are present on roof vents and no more than three layers of roof material
• Determine that the electric box has at least 60 amp
• Properly note existing wiring that is exposed as well as cover plates missing from electrical boxes
• Do a brief inspection of crawl space and attic

Any issue found on the interior portion of the home needs to be either repaired or replaced. On the exterior part of the home any issue needs to be repaired or removed.

Specific Areas of Importance

Of the items mentioned above three seem to get the most attention; water problems or drainage issues, lead-based paint and the ingress/egress points. Concerning the ingress/egress points, common problems occur with homes that have a garage touching the lot line. This prevents the homeowner from accessing the exterior wall of the garage in order to paint. If this is the case the neighbor may be asked for an easement in order to grant the homeowner access.

Consultant Required for 203(k) mortgage

Buyers that are approved for a FHA 203(k) mortgage need to understand that the appraiser will be working with a consultant. The consultant must be approved by FHA. This individual will inspect the home and determine the necessary repairs and improvements and formulate an estimated cost. The appraiser will inspect the home and ensure that the consultant has properly identified all necessary repairs in order to conform to the FHA guidelines.

The real estate industry is just like any other major industry segment. The people that work within the industry use specific phrases and words that are not too common in other types of work. Understanding some of the common jargon will help first time buyers feel a little more comfortable with the process.

Mortgage – This is a loan that provides the financing for the purchase of a home. Buyers will sign a promissory note that explains the terms of the loan. The interest rate, amount borrowed and number of payments required to repay the debt are all laid out in this document. A mortgage is different from a car loan or a credit card since a piece of property is used as collateral for the loan.

Appraisal – This is a report that explains the home's value. A professional appraiser will inspect the home and then compare it to other similar homes in the nearby area. Based on common criteria such as location, square footage, age and amenities the appraiser assigns a market value to the property. This is slightly different from a home inspection. A home inspection is designed to point out any areas in need of repair or replacement. An appraisal simply decides how much a home is worth as it currently stands.

Contingency – These are requirements spelled out in the real estate contract that must be completed or met in order for the sale to go through.

For instance, most contracts will have a contingency concerning the appraisal. If the home is not worth the sales price then the buyer may be able to get out of the contract.

Escrow – This refers to the funds, assets or securities being held by a third party separate from the buyer and seller. The buyer will place funds in escrow as proof that they wish to go forward with the sale. Once the seller has met the conditions of the contract the funds will be released.

Disclosures – The buyer must be informed of various details by the seller prior to the purchase. Each area will have slightly different requirements for the disclosures in their location. An example would be the location of a home in a known flood zone. This would affect the homeowner's insurance and could affect the buyer's ability to pay.

Closing – This is the last phase of the property purchase. All parties involved in the transaction will meet at either an attorney's office or an escrow agent's office (title company). The seller, buyer, and any attorney will typically attend the closing. At the closing the seller will receive funds for the transaction and the buyer will sign the necessary documents for the loan. The deed will be transferred from seller to buyer. Finally, the closing costs will be paid based on the agreed terms in the contract.

This year I have been completing numerous BPO's for homes in my area. BPO is an acronym for Broker Price Opinion.  Broker price opinions are a valuation service that real estate brokers can offer to banks.  Performing these BPO's has only strengthened my ability to properly assess how much a property/home is worth in today's market conditions.  Completing BPO's in local cities like Janesville, Milton, Beloit, Evansville, Elkorn and Madison has given me a unique view into the intricacies related to each market.  I also have a better understanding of how the banks determine their home values when it comes to short sales, pre-foreclosure decisions and REO properties.  The article below explains in greater detail what a broker price opinion is.

Regards,
Michael Collins - Broker
Short Sale & Foreclosure Resource

What is a Broker Price Opinion?

When a bank or asset manager obtains a new foreclosed listing to sell, they immediately need to know the home's value. Typically a bank will assign one to three agents to evaluate the approximate selling value of a home. These banks expect each agent to submit three comparable sold listings and three comparable active listings as well as an estimate of what the agent thinks the home will sell for.

A Broker Price Opinion is not as detailed as an appraisal and does not entail as much work. BPOs differ from Appraisals in a number of ways:

• Appraisals typically cost over $300. Most BPOs pay brokers between $50 and $100.
• Appraisals require detailed square footage measurements. BPOs rely on county assessors' recorded measurements.
• Appraisals use a standard format recognized and used by lenders and mortgage professionals for precise property valuations. BPO's are prepared in different formats and are used simply as decision making tools for asset managers of each bank.
• Appraisals are typically 15-20 pages long with detailed information on each aspect of a property. BPO's are usually 2 pages long with information pertaining only to a final selling price.

Why Do Banks need Broker Price Opinions?

Asset managers and bank personnel make decisions on several properties every day. Reading through a lengthy 20 page appraisal and filtering out the critical information is a waste of their time. These asset managers need concise, financial documents that make their choices easier. That's why BPOs are so critical to their job. In addition, a BPO saves the bank over $200 per property compared with a standard appraisal. That money adds up quickly and saves the bank thousands and thousands of dollars a year.

Another reason BPOs are preferred by banks is that the turnaround time is much quicker than appraisals. BPOs can usually be performed by agents in under 48 hours. Many appraisers visit the property within 48 hours, but then require another day or two to process the information and create the full report.

Article Source: http://EzineArticles.com/1844386
Author: Brian Anthony