The Appraisal

The appraisal is one of the four main parts of a loan application. Because the property to be financed will be the security for the loan, the lender must be certain that the home has sufficient value. The loan amount is based on the lesser of the sales price or appraised value.

Guidelines
The art of appraising residential property has evolved over time into a sophisticated, yet subjective science. The secondary market has developed guidelines with which it expects the appraiser to come up with a fair and reasonably certain value. They are also looking for assurance that it is marketable property.

What Is The Risk?
Lenders are interested in whether the property is in an area that is growing, stable, or declining. Is it in a predominantly residential area or are there commercial elements as well? Is the house in good state of repair? Does it have the minimum number of bedrooms and bathrooms to give it marketability in the area? In short, what is the lender's risk in making a loan on the property?

Responsibility
The appraiser�s obligation is to provide the lender with the necessary information to make an educated decision. A good appraiser will make an independent judgment, uninfluenced by any parties to the transaction. Although the borrower usually pays for the appraisal, it is done for the lender.

Maximum Value
Most important of all, the appraiser must establish the value of the property. In the Market Value method of establishing value, the appraiser compares the property in question with three or more recent comparable sales. The comparable sales must be within a reasonable distance of the subject property, be similar in size and features, and have sold within the last six months, twelve months at the very latest.

The amount of the appraisal is the highest value on which the loan will be based. For example, if the appraisal is $100,000 and the lender will loan 80 percent of the value, the highest mortgage you would receive would be $80,000.

Cost
An appraisal is a necessary part of the mortgage lending process and it is customary for the borrower to pay for it. The cost of an appraisal can vary tremendously ranging anywhere from $175 to $350 or more depending on the location, value and size of the property.

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