Step #5 Appraisal has been received
Congratulations. Your appraisal has now been received. Here are some things to look at when reviewing your appraisal.
What to expect:
The appraiser will give two valuations of the home. Comparison Approach and Cost Approach. These will be different valuations and can sometimes be thousands of dollars different from each other. Here are the different valuation approaches and what it means to you:
- The comparison approach is the value that the lender will use for the purchase or refinance of your home. The value is given based on the other sales with in a certain radius of the home. The appraisers job is to find the most similar property in age, square footage, lot size exc that is closest to the property and that has sold most recently. The appraiser will find 3 – 4 homes that match the subject property and will compare them. You can review each comparable on page 2 of the report. Additional comps will be on page 7 of the report.
- The cost approach is the valuation the appraiser will use based on the cost to rebuild the home plus the cost of the land. This valuation is not used from the lender. This is only for the lender to understand the valuation of the land compared to the Comparison Value. Normally the land value can not be valued more than 30% of the overall comparison value of the property.
- The cost approach is also used by your Insurance Agent to determine how much to insure your property. They will want to know how much is possibly needed to rebuild the home.
Things to look for on the appraisal:
- Repairs required: Sometimes the appraiser will notice items that need to be repaired or items that are health and safety hazards. The appraiser will note these items on page 2 of the report at the bottom of the page. These are items that need to be fixed or repaired prior to closing the loan. We will also note these items and send a separate email with the items that are required.
- Comparison Value vs Purchase Price: If the value of the home comes in less than the purchase price of the home we will need to contact the seller and renegotiate the purchase price of the home. If the seller does not reduce the purchase price of the home the buyer will have the option to back out of the agreement and get their earnest money deposit back.
- Depending on the repairs this could cause a delay in closing. Sometime the seller will not want to do the repairs until the buyer has full underwriting approval.
- Value Disagreement
- Sometimes the underwriter disagrees with the appraisers value. The underwriter has a few different options when they disagree:
- Request we have the Investor prior approve the appraisal and the loan prior to Megastar Funding the loan. This causes a delay because we are subject to the investors waiting periods
- Request an Appraisal Review by another appraiser. The underwriter will want to hear another appraisers opinion of value based on the current appraisal.
- Additional Comments from Appraiser
- Sometimes we are subject to the appraiser getting back to us on requested information. If the appraiser is out of town or is not able to get to our request in a timely manner this can cause a delay in your closing