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USPAP - "Uniform Standards of Professional Appraisal Practice" defines an appraisal as "The act or process of developing an opinion of value."
An appraisal is an unbiased estimate of what a buyer might expect to pay - or a seller receive - for a parcel of real estate, where both buyer and seller are informed parties. To be an informed party, most people turn to a licensed, certified, professional appraiser to provide them with the most accurate estimate of the true value of their property. The appraisal is a detailed report that examines such items as the condition of the home, the neighborhood, and comparable properties.
An appraisal starts with the inspection of the site, the appraiser then uses two or three approaches to determine the value of real property. The three approaches to determine value include: Sales Comparison Approach, Cost Approach and Income Approach. The three approaches are then reconciled and the appraiser then estimates market value for the subject property based on the most applicable approach.
Lenders use the appraisal to determine the appropriate loan amount. Because home values can vary considerably, even in the same neighborhood, it's important for the lender to have an objective opinion of the value of a home before making a loan that will be secured by the property. A lender will not lend more than the value of the home, and the appraised value is used to determine common loan ratios that factor into the loan approval process, such as loan to value (LTV).
When a consumer is purchasing or refinancing their home, their lending institution will require an appraisal of the house in order to obtain an updated value of the property to be mortgaged. Many lending institutions use an Appraisal Management Company (AMC), to manage the appraisal process.
Federal guidelines now require banks to have a "firewall" between lenders and appraisers. Most banks fulfill this requirement by employing an appraisal management company, rather than directly hiring an appraiser. To an average consumer, this may seem unnecessarily complicated. Why involve an appraisal management company?
The answer is that AMC appraisals add an important layer of oversight to the appraisal process. After our most recent housing market crash, federal laws regulating lending institutions and mortgages changed and began requiring oversight between lending institutions and appraisers. The law required a firewall between loan production staff and those selecting appraisers and ordering appraisals. Appraisal management companies have existed for decades, but for the first time their role of adding a buffer between lender and appraisers is now a legally required part of the mortgage process. These appraisal management companies help consumers obtain unbiased reports for financing and loan servicing.
In order to provide appraisals, an appraisal management company maintains a pool of qualified appraisers. When appraisal requests come in from the lending institution, the AMC assigns an appraiser to provide an appraisal report for the property. The appraiser does not receive any prior indication of the property value and may not have direct communication with the lending institution. The appraiser will provide an appraisal report based on the Uniform Standards of Professional Appraisal Practice (USPAP) guidelines.
After the appraisal report is submitted, the AMC will perform quality assurance to verify that proper practices were followed throughout the process and that the data is accurate. If they encounter issues at this stage, they may ask the appraiser for clarification or corrections.
Once the report has met the AMC's standards, it is sent to the lending institution. The AMC appraisal must be used unless the bank can prove that it is inaccurate or that there was appraiser bias. These new federal regulations also prohibit the lending institution from obtaining multiple values and using the one they find more favorable.
During an interior inspection all rooms are inspected. We capture photos of every room in the house including bathrooms. The inspection often includes a sketch of the property, ensuring the proper square footage and the layout of the property. We are not home inspectors and do not inspect for termite damage, mold, or any issues your property may have. We do observe for any obvious defects that would affect the value of the property. For an FHA purpose inspection, the attic is inspected along with the utilities. The appliances and mechanicals are also tested to make sure that they are fully operational. It is the appraiser's duty to inspect the property being appraised to ascertain the true status of that property.
The physical inspection process highly depends on the size and complexity of the home being appraised. Inspections can take from approximately 30 minutes to a couple hours. We then take the measurements and information we obtained from the inspection and begin our research in the office. Completion of the report could take anywhere from 24 hours to over 48 hours depending on the type of appraisal, the complexity of the property and the investigative research.