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The Truth About Appraisals - Knowing the Guidelines Solves the Mystery


 

Joe Gonzalez
Branch Manager
1st Metropolitan Mortgage
Phone: 610-351-7510
Fax: 610-351-7810
jgonzalez@1stmetro.net
http://www.1stmetropolitan.net/
 

The Truth About Appraisals
Knowing the Guidelines Solves the Mystery

The appraisal process often baffles consumers. They may feel that their home is worth a higher dollar amount, and so the appraised value doesn't always make sense to them. It is important to know that the appraiser is completely independent from lenders, buyers, sellers, and Real Estate Agents, and that the guidelines to which they adhere are dictated by the Uniform Standards of Professional Appraisal Practice (USPAP) and Fannie Mae. In most states, the mortgage lenders must also disclose the purpose of the appraisal, as each transaction carries its own set of rules.

In essence, these important guidelines help appraisers put a fair market value on homes based on comparable sales in the same area, and the home must be bracketed in size and value.

For example, there is no set dollar figure associated with a great view, pool, spa, bathroom upgrades, etc. If a homeowner installs a custom pool that cost them $30,000, but the local marketplace supports the value of a pool at $15,000, then that item will be bracketed as [$15,000] on the appraisal.

Upgrades can usually be expressed at a higher percentage of their value in newer homes because the only way to obtain those upgrades was to put more money into the cost of building the home. On the other hand, the upgrading or remodeling of an older home is rarely reflected in full in the final appraisal. This is because typically 25-40% of the project involves demolition and the fixing of issues that aren't uncovered until the project has already begun, such as plumbing or wiring that may need updating.

Ultimately, the value of the upgrades must be supported by comparable examples within the same marketplace. These comparisons must be drawn from current market activity within the last six months. This is a safeguard to prevent appraisers from attaching too high a value to the home in question, and opening up the appraisal for review. This guideline further states that appraisers can only base their opinion on the value of homes that have actually closed escrow.

As a loan professional, I make a point to follow the appropriate guidelines at all times. This promotes a good relationship with the lender, and helps to create easier and much smoother closings for my borrowers.

Call me if you or your clients would like more information on this subject. You can also visit me on the web at www.buyallentownhomes.com !!!


For help or questions contact:

Joe Gonzalez

Senior Loan Consultant -  NMLS #126036
GMH Mortgage Services, LLC
625 W. Ridge Pike, Building C, Suite 100 | Conshohocken, PA  19428 | Direct: 610-355-8039 |  Cell: 610-739-6563

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Comment balloon 3 commentsJoe Gonzalez • March 17 2008 08:01AM

Comments

This is very instructive -- often people do not understand that their home improvements do not get full value in many markets -- I try to make sure that I carefully look at comparable sales with buyers when they put in an offer.

Posted by Joan Whitebook, Consumer Focused Real Estate Services (BHG The Masiello Group) over 11 years ago
Joe - Thanks for the infomation, appraisals are definately becoming  an issue in more closings now days. Have a nice St. Patricks Day.
Posted by Pam Joffe (Solaris Realty) over 11 years ago

WE ALL have the client that says "my home is worth X!!" & we just sit there and think, you overimproved!! What can you do?  We can continue to educate!! Thanks for the comments!

Posted by Joe Gonzalez, NMLS# 126036 (610) 739-6563 (CrossCountry Mortgage, LLC NMLS #3029) over 11 years ago

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