Reading an Appraisal Like an Underwriter

Who owns the appraisal? The lender owns the appraisal; the borrower pays for it and is entitled to it after the loan funds or is declined.  Lenders have 90 day to furnish it to the borrower.  The waiver, accepted by the lender and borrower requires immediate access to the appraisal report.

Appraisals are opinions of value and limiting conditions of that value by a human being.  They are not an edict from the Almighty above.  They are folded, spindled, and mutilated by 1-3 people before the value is accepted (especially nowadays).  Underwriters disagree, alter, and guess about value after reading an appraisal report.

Here are the quick things you should look for on a residential appraisal:

Part One: check the certification of value and limiting conditions.

Part Two:  check the description of improvements.  Appraisers will comment on the "condition' of the property here.

Part Three:

a) Land Value shouldn't exceed 35% of the total value except in extreme locations. That's a red flag.   

b) Sales comparison approach. This is where the appraiser uses comparable sales or "comps".  Appraisers adjust comps for variations from the subject property.  Wild fluctuations or huge adjustments are red flags.

c) Lenders expect an appraiser to "bracket" the subject property with adjusted vales (one higher, one lower than the subject)

d) comps should be "closed" transactions within 6 months of the appraisal date and within one mile of the subject property.  Deviations should be well explained in the commentary.

e) The cost approach should be relatively close to the sales comparison approach in value.  Take note, the improvement value is what is used to determine fire insurance coverage.

f) Market analysis: declining values or declining areas always promulgate further review.  Stable or rising values is always a winner.

The final section (or addenda) should include the appraiser's license and Errors and Omissions policy.

Who owns the appraisal? The lender owns the appraisal; the borrower pays for it and is entitled to it after the loan funds or is declined.  Lenders have 90 day to furnish it to the borrower.  The waiver, accepted by the lender and borrower requires immediate access to the appraisal report.

Appraisals are opinions of value and limiting conditions of that value by a human being.  They are not an edict from the Almighty above.  They are folded, spindled, and mutilated by 1-3 people before the value is accepted (especially nowadays).  Underwriters disagree, alter, and guess about value after reading an appraisal report.

Here are the quick things you should look for on a residential appraisal:

Part One: check the certification of value and limiting conditions.

Part Two:  check the description of improvements.  Appraisers will comment on the "condition' of the property here.

Part Three:

a) Land Value shouldn't exceed 35% of the total value except in extreme locations. That's a red flag.   

b) Sales comparison approach. This is where the appraiser uses comparable sales or "comps".  Appraisers adjust comps for variations from the subject property.  Wild fluctuations or huge adjustments are red flags.

c) Lenders expect an appraiser to "bracket" the subject property with adjusted vales (one higher, one lower than the subject)

d) comps should be "closed" transactions within 6 months of the appraisal date and within one mile of the subject property.  Deviations should be well explained in the commentary.

e) The cost approach should be relatively close to the sales comparison approach in value.  Take note, the improvement value is what is used to determine fire insurance coverage.

f) Market analysis: declining values or declining areas always promulgate further review.  Stable or rising values is always a winner.

The final section (or addenda) should include the appraiser's license and Errors and Omissions policy.