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Do you need an appraisal for your mortgage?

An appraisal involves the evaluation of the market value of real property including mobile home. It gives an estimate of the price that can be obtained by selling the property in a competitive real estate market. Appraisal is required when you intend to buy a property with the help of a mortgage loan taken against the same property. An appraisal is also necessary when you [url=http://www.mortgagefit.com/refinance.html]refinance[/url] your existing mortgage with a new home loan.

Your lender may need an appraisal in order to ensure that the property will sell at least at the amount which he will be offering as loan. The lender or the bank offering the loan needs an assurance that in case of default they can make up for the amount of cash they have invested in making the loan. This is why an appraisal is carried out on the property that is kept as security for a home loan.

A home appraisal is different from that of home inspection. The appraisers take notice of the various problems in the property but they never test appliances or inspect different areas in the property.

A [b:4855e6375d]residential appraisal report[/b:4855e6375d] generally consists of the following information:
[list:4855e6375d][*:4855e6375d]Details of the property under appraisal.

[*:4855e6375d]A comparison of the property with 3 similar properties in the neighborhood.

[*:4855e6375d]Evaluation of the real estate market in the area where the property is located.

[*:4855e6375d]The type of area where the property is situated.

[*:4855e6375d]Estimate of the average sales time required for the property.

[*:4855e6375d]The appraiser's comments and remarks on the issues that may affect the property value.

[*:4855e6375d]Instructions regarding the defects in the property including the foundation.[/list:u:4855e6375d]Appraisers who are licensed by their respective states can evaluate your property value. Your lender may appoint an independent appraiser or else he may use his staff for conducting an appraisal. In both cases, the lender charges an appraisal fee which is included within the closing costs paid for your mortgage.

You may also select an appraiser, but in such a case, the results of appraisal will be reviewed before they are accepted. It is always better if the appraisal is done by a third party who has no financial dealing with either of the parties involved in home-buying or refinancing.

Your final approval in the loan process depends on a satisfactory appraisal of the property against which you have taken the mortgage loan. If the appraised home value does not support the loan amount, then the loan is never originated. The appraisal determines the loan-to-value ratio in mortgage loan, and if the loan amount exceeds the appraised property-value, then it is the borrower who has to pay higher costs and interest for getting a higher loan amount.

Related References:

[list:4855e6375d][*:4855e6375d]Appraisal Institute[/list:u:4855e6375d]

Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

I am into buying a home. The lender said I should have an appraisal done on my home. I am having talks with some appraisers and each of them speaks about different ways of doing the appraisal. I am really confused. Can u help with some details, as my lender is out of town, so I cannot ask him?

Like | Dislike | Share | Posted: Thu, 02/04/2016 - 23:55 | Post subject:

Caron's picture
Caron | Joined: July 19, 2005 08:37 pm | Posts: 0 | Location: New Jersey | 00 Dollars($)

Hi Blake,

What the appraisers told you is not incorrect. Actually, there are many ways of doing an appraisal and the process varies from one lender to another.

Most appraisers use the following methods for a property appraisal.
[list:2ce204d103][*:2ce204d103]Cost Approach to Value includes the cost of replacing or reproducing the improvements as of the date of appraisal excluding the physical deterioration, functional obsolescence and economic obsolescence. The remaining portion is added to the Land Value.

[*:2ce204d103]Comparison Approach to Value makes use of other properties of similar size, quality, and location that have been recently sold and helps in comparing these properties along with the property to be appraised.

[*:2ce204d103]Income Approach to Value is very important in determining the value of properties which generate income. This approach helps to provide an estimate of what a wise investor should pay based upon the net income of the property producers or owners.[/list:u:2ce204d103]

Thanks,
Caron

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lisa.scherzer's picture
lisa.scherzer | Joined: January 4, 2008 08:48 pm | Posts: 0 | Location: New Jersey | 00 Dollars($)

Hi Blake,

Usually the lender orders the appraisal for you. I would just take a look at a couple different lenders that might handle this for you better. Especially if you are being quoted a rate that is over 5.625% fixed. There are many lenders that will handle all of this for you and have rates that are in the mid 5's.

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jbarto65's picture
jbarto65 | Joined: November 4, 2007 04:09 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

I wanted to comment on the original posters post, another great work, thank you for sharing your vast knowledge with us here.

Blake,

Our lender set up the appraisal for us, even when we used the house as collateral on smaller loans, the appraisal was done by someone that the lender got, they are way more familiar with this process than the common everyday citizen.

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john6's picture
john6 | Joined: June 23, 2008 02:46 pm | Posts: 0 | Location: New Jersey | 00 Dollars($)

An appraisal is needed on most home loans unless the lender is giong off of online data which is not usually the case unless you have 55% or more equity left in your home after the new closing costs etc etc. most times the online appraisals or market anaylis comes in low as well.. just so you know.

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

I am so worried that my condo will not appraise out as what is needed to get my mortgage re-financed. I don't have any more money to "add" so I really would like to know what my options might be. I will have to wait till Monday---the entire weekend no less, to find out what the actual amount is, and it is driving me nuts! Please try to calm me down.

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

i really understand everyones situation im in one too i need an appraisal but if it is not high enough we wont get enough $ to do the improvements me need to do and then we are stuck with the $4oo appraisal fee and no refinance i am looking for an appraisal co that will fiqure in the improvements with the appraisal i heard it can be done but can not find one please let me know if anyone knows about this thanks

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apexoffice's picture
apexoffice | Joined: July 9, 2008 08:04 pm | Posts: 0 | Location: New Jersey | 00 Dollars($)

Hi Mary,
The appraisal product you are looking for is a very common practice and most all appraisers are willing to do it. It is most common on construction loans in which the appraisal is based on the hypothetical condition that the house is already constructed. The problem is that most lenders will not loan money based on the future value of your home. They want to know the "as is" value. A few years ago there were lenders that would use the future value, hold a portion of the money in escrow, and then filter it out as your renovations progress. Since so many lenders have become much more conservative in thier lending practices, those programs are much harder to come by.

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manoj_gopale's picture
manoj_gopale | Joined: February 16, 2009 10:31 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

[quote:a60ff50016]Since so many lenders have become much more conservative in thier lending practices, those programs are much harder to come by.
[/quote:a60ff50016]

it is more because of subprime i suppose.

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mtgfixit's picture
mtgfixit | Joined: April 13, 2009 02:11 pm | Posts: 0 | Location: New Jersey | 00 Dollars($)

Hi Mary,

You might want to look into a 203K loan.

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gmakerley's picture
gmakerley | Joined: November 9, 2007 07:36 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

karla, you got caught in the trap of seeing an old post and responding to it (from september of last year). don't feel bad, as we've all done it at some point or another.

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mtgfixit's picture
mtgfixit | Joined: April 13, 2009 02:11 pm | Posts: 0 | Location: New Jersey | 00 Dollars($)

George,

Thanks for looking out for me...lol

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

why would a lender order a second appraisal?

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gmakerley's picture
gmakerley | Joined: November 9, 2007 07:36 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

mabel, there are times when an appraisal is reviewed and a determination is made that the report is inadequate somehow. that generally wouldn't mean a second appraisal is required, but it could happen that way.

there are some types of products and types of properties that require two appraisals - that would be an explanation also. in another scenario, the lender may feel that the first appraisal is fair, but requires the second report to validate the first.

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manoj_gopale's picture
manoj_gopale | Joined: February 16, 2009 10:31 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

[quote:ca3e849ade]why would a lender order a second appraisal?[/quote:ca3e849ade]

Whenever there are two appraisals involved most of the time the loan amount is high enough and thus require validation from two different agencies/entities.

So many of the lenders get it done through third party agencies.and if they found any discrepancy in both the report then it may hamper the loan proceedings itself.

keep in touch...........
:arrow: :arrow: :arrow:

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

No, I do not. we commit for that

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gmakerley's picture
gmakerley | Joined: November 9, 2007 07:36 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

sw, you've brought nothing to the table. why not leave it and depart?

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jk.9999's picture
jk.9999 | Joined: July 15, 2009 09:19 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

hello ,Mable, i think that is because the lender will only trust the appraisal they ordered rather than from anybody else' .

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gmakerley's picture
gmakerley | Joined: November 9, 2007 07:36 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

jk...not only is your post untimely (4 months late) but the "second appraisal" would have been ordered by the lender who ordered the "first appraisal." second appraisals are not uncommon for odd types of property. we never did get a definitive answer on why the lender requested a second appraisal in this case.

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srinuadipudi's picture
srinuadipudi | Joined: January 11, 2010 09:06 pm | Posts: 0 | Location: New Jersey | 00 Dollars($)

PAPA stands for Property Appraiser Public Access. We designed PAPA to make your research quick and easy, and even fun. As your Property Appraiser, I believe you have the right to know how your property is appraised and PAPA is the fastest way to access your property information. PAPA also provides quick links to other government agencies in Palm Beach County, such as taxing authorities, the Tax Collector's Office and the Clerk of Courts.

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gmakerley's picture
gmakerley | Joined: November 9, 2007 07:36 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

are we to assume that PAPA is exclusive to Palm Beach County in Florida? is this a tool for appraisers only, for the general public only, for me and my friends? please elaborate on these questions. your post came out of the blue, srinuadipudi, so we don't know what the overall meaning of it is.

thanks.

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

In most cases your Appraisal that you get on your own is worthless to the lender. The HVCC that impacts most lenders, forbids that to happen. The lender has to chose the Appraiser or in some cases an AMC, but never, never the borrower or the seller. FIRREA also forbids that as well - the Savings and Loan Bail Out bill from 1989, you know the one that was supposed to prevent a repeatt that we are going through more severely now

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gmakerley's picture
gmakerley | Joined: November 9, 2007 07:36 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

"Worthless to the lender" in my opinion extends to all appraisal reports that a borrower (or potential borrower) would obtain.

The report generated must be independent - a borrower who hires his or her own appraiser isn't going to be obtaining an independent report. The borrower is the appraiser's client in that situation, and no lender operating under the law would allow such a thing.

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eworld331361's picture
eworld331361 | Joined: January 16, 2013 06:13 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

I was preapproved to purchase a new constructed home for $141,000. However, new constructed home was appraisal for $87,000. Why the low appraisal?

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jameshogg's picture
jameshogg | Joined: December 20, 2005 02:58 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Hi eworld,

The appraised value of the property depends on various factors. So, it's difficult to say why your property appraisal came so low. You can read through the appraisal report and check out if the appraiser has mentioned any particular reason for a low appraisal.

Thanks

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