The Appraisal Process
Posted by: Greg Fischer Post date: September 6th, 2009In most mortgage transactions, an appraisal is ordered as part of the process. The appraiser inspects the property, taking basic measurements and noting and safety or security concerns.
But the primary function of the appraisal is to determine at what price would this house be most likely to sell. They get to that value by comparing the subject property to other homes in the area that have sold recently. Ideally, the comparable homes are very similar in style and size, sold less than 6 months ago, and are within a mile of the subject house. By comparing what these other homes actually sold for, the appraiser determines what the value of the subject should be.
As of May 1 2009, all conforming appraisals (meaning all but FHA, VA and USRDA insured loans) must be ordered through an Appraisal Management Company (AMC). The loan originator is STRICTLY forbidden from having any contact with the appraiser, at any part of the process. We order an appraisal through an AMC, who assigns the request to an appraiser they select from their approved list. The appraiser inspects the property and returns the report to the AMC. The AMC then makes the report available to the lender whom it was ordered through, and provides a copy to the loan originator and the borrower.
This report sets the “fair market value” of the property, which is used to determine Loan to Value of the mortgage (5% downpayment is a 95% LTV loan). On a purchase, the LTV is the lessor of the sales price or the appraised value. On a refinance, the loan is a simple percentage of the appraised value.
- Tags: Appraisal, Loan Process