There are many reasons lenders request a residential appraisal. The two most common are home purchasing and home re-financing.
In both cases, lending institutions rely on comprehensive appraisals to help them determine their Loan-To-Value Ratio (LTV) percentage when underwriting mortgages. This figure will have a direct impact on the interest rate they offer on the loan.
Since there’s a lot riding on the accuracy of a residential appraisal for everyone involved, knowing what to look for is important. Here are a few pointers.
Two Approaches to Residential Appraisals
Generally, appraising a residential property is done by either the sales comparison method, or the cost method.
The cost method essentially determines replacement cost if the property is ruined. This is best for new construction homes, as building costs are known, and there is no depreciation to assess.
The sales comparison method is used for resales. It compares the home (subject) to others that have sold in the area that are similar. To accurately compare these properties (comps) with the subject, certain adjustments are made to accommodate for differences in features.
Knowledge of the local market is critical to getting an accurate appraisal. This is such an important element to professional valuation that the Appraisal Foundation has included a provision for it in their Uniform Standards of Professional Appraisal Practice (USPAP).
As the Competency Rule in the USPAP indicates, appraisers must have geographic competency before performing any valuation. Any member of the Appraisal Foundation that does not comply will face disciplinary action.
What To Expect
A professional appraiser will give you a report that details the real estate market in the area, provides a thorough synopsis of the property with a comparison to similar comps, and an estimated timeframe for the home to be sold.
The appraiser will also include their professional opinion about any problems with the property, as well as other issues that may affect its value.
All appraisers must be licensed or certified. However, those who reach the highest standards of education, ethics and experience are recognized with MAI designation from the Appraisal Institute. Additionally, an elite 1% of appraisers in the United States will achieve SRA designation.
The Total Package
Just as in any region, an accurate residential appraisal in North Jersey is possible if provided by a valuation professional with the highest level of geographic competency, experience and ethics.