With all the changes we keep telling you about you have likely concluded that it is much harder than ever before to get a mortgage. One area which has really increased is the number of appraisals which are required by mortgage providers. This week we will take a look at the appraisal process and what you should expect. Given that the mortgage default insurers are requiring them more and more often, this information applies equally to home buyers and those looking to sell.
Becoming an appraiser takes a significant amount of time. They go to school for two years. After that they join a firm at which time they are not yet determined to be a fully-designated appraiser. They must complete a certain number of appraisal reports which are scrutinized carefully before they attain the full designation. They must also maintain their license with the Real Estate Council of Alberta which requires additional ongoing training regularly.
Appraisers are an unbiased source of the value of each home which is invaluable to a bank. Over the last couple of years more banks are opting to increasingly preserve the neutrality by requiring appraisals to be ordered through third party websites. If you think of the mortgage fraud stories where the mortgage professional, lawyer and appraiser were in cahoots and the banks ended up lending too much and suffered financial losses you can see why this is the case.
How does the process work:
1. Appointment is set for the viewing. They visit the home, take pictures, assess the condition and take measurements. This generally takes about 30 minutes. Feel free to provide them a complete list of all upgrades to the home in the last five years.
2. Once they are back in the office the real work begins. They look to your area for comparable properties which have sold recently. The key word here is sold. They will assess your property against the others to determine where the value falls. Things they are assessing are style, age, condition, location, utility, and overall quality of the home.
3. The appraisal report is prepared and provided to the mortgage lender for review. The lenders are not just looking the dollar value on the report. They are also carefully reviewing both the effective age and the economic life of the property. Reading for any signs of immediately needed repairs such as a new roof or hot water heater. There is a lot of info in that report.
What else should you know?
– If there is a difference of more than 20% on the comparable properties or if foreclosed properties were used as comparable feel free to ask why. This should be clearly documented in the notes.
– There is not always a correlation between the tax assessed value and the appraised value. Two homes on the same block will appraise very differently if one has been renovated.
– Appraisal reports are generally only good for 90 days.
– If you plan to sell in the next few years consider that curb appeal upgrades will give you the best bang for your buck. Kitchen, bathrooms, paint, flooring, lighting are likely to increase you value the most. Furnace, windows, roof and basement do not return a dollar for dollar increase. Decide what your long-term plan is for the property.
– Do not order the appraisal yourself. The banks are very selective as to who they will accept the reports from.
– If you are doing a renovation have a list of the upgrades and copies of the quotes from the contractors so they can assess the new value.
– If it is a rental then have a copy of the lease agreement for their review.
The most important thing to remember is that an appraiser’s only job is to offer an unbiased valuation of a property. Imagine if you had an offer on a house at $300,000 and the appraiser went in and determined that it was only worth $275,000. As people we have a tendency to become emotionally attached to the house we envision as our home but we need to step back a reassess at this time. The bank will not lend you the money to purchase the home for $300,000 once they have the report. That means you have the opportunity to renegotiate with the seller or to walk away if you cannot. The appraiser has just saved you $25,000!
Pam Pikkert is a mortgage broker with Dominion Lending Centres – Regional Mortgage Group in Red Deer.