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Understanding The Real Estate Property Appraisal Process for Mortgages

In the world of real estate transactions, one important step that often remains unclear is the property appraisal process for mortgages. The appraisal plays a key role in determining the fair market value of a property at a given time, influencing the mortgage amount a buyer can get loaned to them. Understanding the real estate property appraisal process for mortgages is so important to making good choices when it comes to selecting a type of mortgage or even making an offer on a home. Lets take a look at what this all entails.


The Initial Phase of Understanding The Real Estate Property Appraisal Process for Mortgages: Requesting an Appraisal

The process starts when a potential homebuyer applies for a mortgage. To kickstart the appraisal process, the lender typically reaches out to an appraisal management company (third party "AMC") who contracts with and arranges a licensed and certified real estate appraiser to contact the borrower. This ensures that the appraisal is conducted by a qualified professional with detailed knowledge of the local real estate market and property values. Using an AMC also mitigates any risk from property value manipulation or tampering. It is typically also reviewed by an AMC's quality control department.


Property Visit: Exploring the Details

Once chosen by the AMC, the appraiser schedules a visit with the current homeowner to appraise the property. During the inspection, the appraiser thoroughly assesses different aspects of the property, including its size/measurements, the condition, layout, and any unique features or upgrades. In addition, the appraiser takes into account the property's location, considering factors such as proximity to schools, views, public services, and the overall neighborhood quality. The appraiser is also checking for property deficiencies or major repairs or hazards to note. This is all so important for the mortgage company, as they are lending you money based on your collateral - the home.


Comparable Sales Assessment: How To Justify Market Value

After the inspection, the appraiser engages in a detailed analysis of comparable sales (comps) in the local area. By adjusting the values of recently sold properties with similar characteristics, the appraiser determines the fair market value of the subject property at a given time. This comparative approach ensures that the property is valued in line with current market trends and most recent transactions. There are many different appraisal approaches and they are typically used for various properties and scenarios. The sales comparison or market data approach is usually most common when it comes to mortgage for a single family home.


Various Factors Impacting Property Value

Several factors can influence the appraised value of a property. The condition of the home, recent renovations or upgrades, and the overall state of the local real estate market are all taken into consideration. The appraiser also takes into consideration any external elements such as economic conditions, neighborhood zoning regulations, and environmental considerations that may impact the property's overall value.


The Detailed Report

Once the adjustments are complete, the appraiser compiles the data into a very detailed report. This report shows the homeowner/buyer and mortgage lender an overview of the property value, the method used for valuation of the property, and explains how the appraiser arrived at the ending appraised value. The document acts as a crucial point of reference for the lender, assisting them in how much of a mortgage they are willing and able to extend to the buyer or homeowner.


Lender's Point-of-view: Limiting Risks

From a mortgage lender's view, the appraisal process serves to limit their risk while lending on the collateral - your home. By ensuring that the mortgage that they lend is in-line with an accurate current property's true market value, lenders will minimize the risk of overvaluing a property and dealing with any potential losses or even worse - default.


Conclusion: Understanding The Real Estate Property Appraisal Process for Mortgages

In the end, the real estate property appraisal process for mortgages is a very detailed process that combines precision and analysis. There is the detailed comparison of the property, a thorough breakdown of comparable sales, and the details of a comprehensive report. This process not only brings full transparency to real estate transactions but also puts confidence in both the buyers and mortgage lenders, establishing a secure and less risky mortgage lending environment. Understanding the steps and stages of this process educates homebuyers/homeowner's and makes the details of the transaction clear to them and the mortgage broker or lenders. Reach out to Ross Varahrami if you want to ask any further questions. He is highly experienced and has helped close over 1,000 escrows.


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