A home appraisal is required for both a purchase mortgage loan as well as a refinance mortgage loan. A home appraisal is an appraiser’s opinion on the value of the subject home. The most common appraisal that is used by mortgage lenders is the comparable approach appraisal.
Comparable approach appraisals
Most mortgage lenders depend on the comparable approach appraisal. Comparable approach appraisals are based on similar and like properties that are similar to the subject property within a mile radius. An appraiser will look for homes that are similar to the subject property in square footage, style, number of bedrooms, number of bathrooms, and ammenities. The comparable properties need to be properties that are sold and recorded and not homes that are just listed. The comparable homes do not be exactly the same. Comparable homes used to compare the subject property can be larger or smaller. Adjustments will be made to substantiate the value of the subject property.
Comps Needs To Be Close By
Another important factor the appraiser considers is the distance of comparables compared to the subject property. The distance plays an important factor. Most appraisers will look for comparables within a mile radius of the subject property. However, if there are no comparables within a mile radius, the appraiser needs to go further out to find comparisons to the subject property. There are cases where an appraiser needs to go out several miles of the subject property to find comparables. To justify such comparables, the appraiser will justify his subject property value by positive or negative adjustments with the location of the comparables compared to the subject property.
Once the appraisal is completed, it is turned in to the mortgage lender’s appraisal review department. The home appraisal is then scrutinized and reviewed by the appraisal review underwriter. In the majority of the cases, there are no problems with appraisals. However, there are cases where appraisals come in lower than the purchase price of the home. In such cases, the home buyer can renegotiate the purchase price or they might have to put more money down because mortgage lenders will go by the appraised value of the home in determining loan to value. In the event the mortgage lender does not like the appraisal, a field review will be required which is charged to the mortgage loan borrower.
If the mortgage lender does not feel comfortable with the home appraisal, he or she can request a field review appraisal. A field review is normally a drive by and is a second opinion of the first home appraisal. In order for the underwriter to issue a clear to close, the appraisal needs to be signed off and in cases of field reviews, the field review needs to justify the first appraisal.