A community bank in Tennessee has submitted a request to the Appraisal Subcommittee seeking a one-year waiver from appraisal regulation requirements to use a certified appraiser, the Appraisal Institute learned Nov. 29. If the waiver is approved, it would apply to all institutions, not just the requesting organization.
The party making the request must provide clear evidence of a shortage of appraisers, among other things, and demonstrate that the shortage is leading to significant delays in the performance of an appraisal.
Read more here:
https://www.appraisalinstitute.org/ano/bank-request-for-appraisal-waiver-has-huge-implications/
Understanding the measurements, calculations and room counts of your home on the appraisal
By Thomas Hardwick
At first glance, the concept of measuring a home, counting the rooms and reporting the results in the appraisal report appears to be fairly simple and straightforward. Can’t you just grab a tape measure, pencil and paper then measure all the sides of the house and calculate the size? If it is a box 2 story home, then you simply multiple times 2 and that’s your total square footage, right?
It is important to understand that when it comes to measuring a property, there is no one size fits all method employed by every appraiser, real estate agent, lender or governmental unit. As nearly all appraisers soon realize after entering the business, this means measuring a home and counting rooms can be as clear as mud.
There are generally recognized guidelines (including the Fannie Mae Selling Guide, FHA/HUD Handbook 4150.2, Employee Relocation Council (ERC) Appraisal Guide, American National Standards Institute (ANSI) Z765-2003, etc.). To varying degrees, these guidelines define Gross Living Area, Basements/Below Grade Floor Areas, Attics/Lofts/Low Ceilings, and Detached Buildings. Many of the guidelines are similar; however, some guidelines do not specifically address some aspects of measuring, while others have very detailed guidance.
Ultimately, as with other aspects of a valuation assignment, the appraiser and the lender should determine the level of detail necessary in calculating the homes square footage. The generally recognized guidelines may be excellent in communicating the square footage of a home in a flat to rolling subdivision neighborhood, while standardized guidelines may simply not be effective in an area of multi-level homes built into the side of a mountain.
Understand that the guidelines are meant to be applicable in all states and may be appropriate for the vast majority of appraisal assignments, yet, due the diversity of housing throughout the country, one guideline simply can’t account for every situation imaginable. Fannie Mae Selling Guide October 2013 recognizes their guideline does not fit all assignments when it notes: Appraisers may deviate from this approach (being Appropriate Above-Grade and Below-Grade Comparisons) if the style of the subject property or any of the comparables does not lend itself to such comparisons.
While usually not specifically required, to understand how the square footage is calculated, the appraiser should comment in the appraisal report on:
· The method(s) employed in developing the square footage of the home.
· The type of measuring device (metal or fiberglass tape measure, digital laser or ultrasonic unit, measuring wheel, etc.)
· The level of rounding (to the inch, to the tenth of a foot, to the half foot, to the nearest foot, etc.).
· Any limitations such as the inability to measure a side of a house due to not having sufficient access due to obstructions (trees, shrubbery, etc.)
What is Gross Living Area?
Fannie Mae, HUD/FHA, ERC and ANSI all state that dimensions are based on an exterior measurement of each floor of the home. To varying degrees, the different guidelines describe the modification of areas to remove unfinished or unheated sections of the interior.
Fannie Mae, HUD/FHA and ERC guidelines are also similar in not counting basements, regardless of finish, in Gross Living Area. ANSI, however, only notes a distinction between above-grade and below-grade areas.
Fannie Mae Selling Guide October 2013 (B4-1.4-14 Appraisal Report Review; Layout, Floor Plans and Gross Building and Living Areas) states: the appraiser must use the exterior building dimensions per floor to calculate the above-grade gross living area of a property. The following must be observed when calculating and reporting above-grade room count and square footage for the gross living area: • Only finished above-grade areas can be used in calculating and reporting of above-grade room count and square footage for the gross living area. • Garages and basements, including those that are partially above-grade, must not be included in the above-grade room count.
FHA/HUD guideline (Handbook 4150.2) states: Gross Living Area is the total area of finished, above-grade residential space. It is calculated by measuring the outside perimeter of the structure and includes only finished, habitable, above-grade living space. Finished basements and unfinished attic areas are not included in total gross living area. The appraiser must match the measurement techniques used for the subject to the comparable sales. It is important to apply this measurement technique and report the building dimensions consistently because failure to do so can impair the quality of the appraisal report.
Employee Relocation Council (ERC) guideline (#5) states: Gross Living Area (GLA) is the calculation of the total living area in the residence expressed in square footage. This is calculated using exterior measurements (except condominiums and cooperatives), and is generally limited to the habitable above-grade living area only. Basements and attic areas (finished or unfinished) are not included in GLA, room and bath counts. However, they may make a valuable and significant contribution to the property value, and should be calculated and shown separately in the report.
American National Standards Institute (ANSI) guideline (Z765-2003) states: For detached single-family houses, the finished square footage of each level is the sum of finished areas on that level measured at floor level to the exterior finished surface of the outside walls.
The above-grade finished square footage of a house is the sum of finished areas on levels that are entirely above grade. The below-grade finished square footage of a house is the sum of finished areas on levels that are wholly or partly below grade.
Garages and unfinished areas cannot be included in the calculation of finished square footage. Chimneys, windows, and other finished areas that protrude beyond the exterior finished surface of the outside walls and do not have a floor on the same level cannot be included in the calculation of square footage.
Determining Exterior Dimensions
The square footage used in a single family residential appraisal is based on measurements of the exterior dimensions of the home. The appraiser selects a measurement starting point of the home, usually a corner. Some appraisers find it helpful to create a rough sketch of the entire structure before measuring, while others prefer to sketch and measure at the same time. From the starting point, then proceeding around the entire home, a recording of all measurements of exterior walls to the inch, including angled walls, is made. It is important to note, that terrain, landscaping or obstacles, can affect the ability of the appraiser to access direct measurement of all sides.
Each floor should be measured from the exterior, making sure all overhangs and cantilevered sections are added. Most lenders also require the appraisal report’s building drawing to include measuring any porches, decks, patios and outbuildings. Since measurements are taken at ground level, multi-story homes are based on reference points on the ground floor and supplemented by interior measurements.
One of the reasons that the appraiser should measure all the sides to the inch precision level, even on simple rectangular homes, is to verify the accuracy of the measuring. The sum of parallel sides (accounting for any angles or bays) should be equal. Considering all four sides of a home, if the both sets of parallel sides are equal, then the building is said to be “square”.
Modifying the Measurements from the Inside
Once inside the home the appraiser should modify the measurements to remove the garage space, multi-story open areas (such as vaulted, cathedral or volume ceilings), unfinished/unheated bonus rooms, enclosed porches, etc.
ANSI has specific guidelines on how to properly remove the garage or enclosed porch square footage and which wall to use for such purpose. ANSI also has guidance on areas, such as a 2 story open foyer or living room, stating: Openings to the floor below cannot be included in the square footage calculation. However, the area of both stair treads and landings proceeding to the floor below is included in the finished area of the floor from which the stairs descend, not to exceed the area of the opening in the floor.
ERC’s guidelines are very similar to ANSI stating: ERC guidelines specify that the contribution to gross living area of any “open two-story” area should be calculated on the basis of floor area only. However, the area of stairways and landings is included in the GLA calculation for each level.
Attics, Lofts & Low Ceilings
The ANSI guideline states: To be included in finished square footage calculations, finished areas must have a ceiling heightof at least 7 feet (2.13 meters) except under beams, ducts, and other obstructions where the height may be 6 feet 4 inches (1.93 meters); under stairs where there is no specified height requirement; or where the ceiling is sloped. If a room's ceiling is sloped, at least one-half of the finished square footage in that room must have a vertical ceiling height of at least 7 feet (2.13 meters); no portion of the finished area that has a height of less than 5 feet (1.52meters) may be included in finished square footage.
The Fannie Mae Selling Guide does not specifically identify any requirements for inclusion of finished attic spaces or ceiling heights.
The ERC guideline also states: If a room, which meets Guideline #5 and should be included in GLA, has a sloping ceiling, the appraiser should consider the 5-foot height rule for calculating livable space. Included in the calculation would be only that floor area for which there is a vertical distance of 5 or more feet between floor and ceiling. It is noted however, that ERC #5 also states: The utility of finished attic areas frequently differs from that of main-level living areas due to differences in accessibility and energy efficiency. Thus, the contributory value can differ substantially from that of main-level living areas. In order to deal with this situation more effectively, this guideline states that attic areas (finished or unfinished) are not to be included in gross living area calculations.
Basements and Below Grade Finished Areas
An area of large disagreement in the real estate community particularly between real estate agents/homeowners and real estate appraisal professionals is what is or is not considered a basement. Some real estate agents will report a ranch style home with a finished walkout basement on a listing grid as being a 2 level home and include both levels of square footage in “Gross Living Area”. How a real estate agent enters square footage using its local or regional Multiple Listing Service (MLS) is usually defined by that MLS through bylaws or is entered by local custom of the market. In the appraisal report, the appraiser is using defined industry standardization methods and is not based on how a real estate agent reports a property for marketing purposes.
It is important to understand that one reason for the guidelines on appraisals is for consistent reporting of the square footage of the property.
ANSI simply states: The below-grade finished square footage of a house is the sum of finished areas on levels that are wholly or partly below grade.
FHA/HUD guideline also succinctly states: Finished basements and unfinished attic areas are not included in total gross living area.
The Fannie Mae Selling Guide is very clear on what is a basement or below grade stating: A level is considered below-grade if any portion of it is below-grade—regardless of the quality of its finish or the window area of any room. A walk-out basement with finished rooms would not be included in the above-grade room count.
Fannie Mae also specifically recognizes that all basements are not created equal and states: Rooms that are not included in the above-grade room count may add substantially to the value of a property—particularly when the quality of the finish is high. The appraiser must report the basement or other partially below-grade areas separately and make appropriate adjustments for them on the “basement and finished areas below-grade” line in the “sales comparison analysis” grid.
The ERC guideline is more nuanced than Fannie Mae, FHA/HUD and ANSI in below grade living areas as it states: When areas that are 50 percent or more above grade are fully finished and equipped with a design and arrangement of windows adequate to provide the “look and feel” of an above-grade-living area, the appraiser can opt to include these areas in the gross living area calculation.
Room Counts, Bedrooms & Baths, Garage Sizes
The Fannie Mae/Freddie Mac form appraisal report, used by conventional mortgage lenders as well as FHA & VA, describes a house by the total room count, the number of bedrooms and the number of bathrooms it contains. For example, reported above grade room count on the form of 6/3/1.1 describes a house with 6 rooms, 3 bedrooms, 1 full and 1 half bathroom. (A 1.2 baths would be 1 full bath and 2 half baths). Like basement square footage, the finished rooms in a basement are identified separately from the above grade room count.
In general, a room is a kitchen, a bedroom, a living room, a dining room, a family room, an office, a study or a den. Rooms do not have to be divided by walls as long as there is space for the intended function. In many markets, an open concept design or floor plan has been used, which typically encompasses a kitchen, dining room and living room. In such situations, the open area, sometimes referred to as a “Great Room”, would usually be counted as three rooms even though there are no walls to separate those areas. Bathrooms, breakfast nooks, storage rooms, mudrooms, laundry rooms, foyers and closets are not usually considered in the total room counts.
If you ask a group of real estate industry professionals (appraisers, real estate agents or lenders) what is considered a bedroom or what is the difference between a den and a bedroom, it would not be uncommon to get differing opinions.
Some industry professionals will say that a bedroom must have a closet to be “counted” as a bedroom. Fannie Mae Selling Guide does not specifically address a bedroom closet. The Dictionary of Real Estate Appraisal (Third Edition) published by the Appraisal Institute states: No national standard exists on what constitutes a room. Local codes may specifically define a bedroom.
The HUD Handbook states: Bedroom Egress- All bedrooms must have adequate egress to the exterior of the home. If an enclosed patio (solid walls) covers the bedroom window, it is possible that the bedroom won't qualify as a habitable bedroom. Security bars are acceptable if they comply with local fire codes. Occupants of a bedroom must be able to get outside the home if there is a fire. HUD further elaborates specifically on basement bedrooms that: As a rule basement space does not count as habitable space. If the bedroom does not have proper light and ventilation, the room can not be included in the gross living area. The following requirements apply to the valuation of below-grade rooms:
· The windowsill may not be higher than 44 inches from the floor.
· The windowsill must have a net clear opening (width x height) of at least 24 inches by 36 inches.
· The window should be at ground level; however, compensating factors may allow less.
Generally, a bedroom is considered a room that a conventional bed will fit in with either a closet or space for a closet or wardrobe cabinet and also has a window which provides an emergency exit, natural light and ventilation.
A home built in the 1880’s may not have built-in closets in the rooms designed for sleeping, while it is standard to have a bedroom closet in a home built in the 1980’s. The appraiser must consider the intended use or function of the room. A room off the foyer with a closet may technically be able to be counted as a bedroom, however, if the intended to be used as a den, then it should be counted as a den in the appraisal report.
Bedrooms should have direct access to a hallway, living room or other common area. You should not have to walk through one bedroom to get to another.
Occasionally, you may read where a real estate professional describes a property as having a “non-conforming” bedroom, particularly in rooms below grade. Quite simply, a bedroom that is not conforming to the recognized standards, including proper window egress, of a bedroom should not be called a bedroom.
Industry Standardization of Fannie Mae/Freddie Mac Form Reports
For many years, appraisers completing assignments for the majority of lenders have used form reports created jointly by Fannie Mae & Freddie Mac. In an effort at standardization and to provide consistency to the reports, Fannie Mae & Freddie Mac established guidelines called the Uniform Appraisal Dataset (UAD) that became effective in 2011. Essentially, the UAD guidelines mandate the way many individual fields in the appraisal form reports are entered. Besides the format requirement of full baths/half baths (1.1, 1.2, 2.2, etc.), another example of UAD mandates is regarding the number of garage car storage.
Fannie Mae and Freddie Mac Uniform Appraisal Dataset (Specification Appendix D: Field-Specific Standardization Requirements Document Version 1.6) states the reporting format for garage or carport car storage is: # of Cars - Numeric to 2 digits, whole numbers only. In practical terms that means, what a real estate agent, homeowner or buyer would call a 2.5-car garage is reported on the appraisal form as either a 2-car or 3-car garage. Of course, if the report stated a 3 car garage on what is generally accepted as a 2.5-car garage by other market participants, then the report should contain a detailed explanation by the appraiser.
Inherent Flaws & Possible Errors In Measuring
With the lack of one nationally required or universally used measuring standard, it is not difficult to imagine that with tens of thousands of appraisers, of varying skill level and expertise, combined with the ambiguity of guidelines from some of the largest industry groups or even differing measurement requirements between some guidelines, that two appraisers can arrive at different square footages on the same property.
Even with a basic rectangular home measuring exactly 24’4” x 40’10” totaling 991.58 square feet (which would be entered as 992), reported values can vary simply due to rounding either to the nearest foot, half foot or quarter foot or from 984, 1,005, or 988 square feet respectively. The complexity of multiple corners, angled walls, and multiple story homes with varying wall lines can all contribute to differences between an appraisal measurement, an architectural blueprint, a tax assessor’s square footage amount or a comparable sale data record.
Additionally, devices used for measuring can create some possible errors. Examples of things that can cause inaccurate measurements of a side of a home can include:
· A fiberglass tape stretched too tight or left with slack in the line;
· A measuring wheel used on a sloped ground (instead of run along the home itself)
Effects on the Valuation Process
As this article demonstrates, there can be a range of possible reasons why the square footage of the home on the appraisal report can differ from other sources a home owner or buyer may have. It is important to remember also that the level of accuracy necessary is determined by the lender and appraiser. It is also imperative to know the level of accuracy is the square footage data of the comparable properties. If real estate agents report in available sales databases the homes square footage mostly based on tax assessor records and the tax assessor records use a rounding to the nearest foot, then measuring the home to the nearest inch may create an inaccurate adjustment.
To help account for small variances generally caused by rounding, the complexity of home design combined with the measuring device used as well as the level of accuracy of the comparable data, it is common for appraisers in the valuation process to adjust comparables that exceed a percentage or absolute difference. For example, it may make sense to not adjust the square footage between a 1,800 and 1,900 square foot homes. However, in larger homes making no adjustment for a difference between a home of 5,000 and 5,300 square feet may be appropriate. Other appraisers prefer to use a percentage different (such as ±5%, ±10% of the subject) rather than an absolute difference (±50 SF, ±100 SF, ±500 SF).
Summary
It is easy to see that how differing square footages can result for the same property, based upon many factors including but not limited to: the definition used, the accuracy of the measurement tool used, inclusion/exclusion of unheated/unfinished areas and dimension rounding.
Understanding the level of detail and definition required by the lender, the methodology & tools used by the appraiser as well as the relevant accuracy of square footage of the comparable data is crucial to determining the accuracy of the appraisal sketch and, therefore, the reliability of the reported square footage.
Until there is one national standard required for use by real estate agents, tax assessors, appraisers and others in the real estate industry, there will certainly continue to be some variations of a home’s square footage.
References:
Federal National Mortgage Association (Fannie Mae)
Fannie Mae Selling Guide October 2013 (B4-1.4-14 Appraisal Report Review; Layout, Floor Plans and Gross Building and Living Areas)
Fannie Mae and Freddie Mac Uniform Appraisal Dataset (Specification Appendix D: Field-Specific Standardization Requirements Document Version 1.6)
National Association of Home Builders (NAHB) Research Center
The American National Standards Institute (ANSI) Z765-2003
The Employee Relocation Council (ERC)
Employee Relocation Council (ERC) guideline (#5)
The Department of Housing & Urban Development
FHA/HUD guideline (Handbook 4150.2)
The Appraisal Institute
The Dictionary of Real Estate Appraisal- Third Edition
The Basics of the Residential Home Mortgage Appraisal Process
Determine if a property valuation is necessary.
Most people know that if you are buying a new home or refinancing an existing home, a real estate appraisal will most likely be performed as a part of the loan approval process. But valuations for estate planning, tax appeal, divorce, foreclosure, insurance damage purposes (due to fire, water, weather, etc) are some other reasons for getting an opinion of value from a professional real estate appraiser. Simply put, once it is determined you need to answer the question: ‘What is my property worth?’ then the next step is to hire a professional real estate appraiser.
Engagement of the Appraiser by the lender/client
In residential mortgage financing transactions, the lender must be the one to hire the appraiser, either directly or through an Appraisal Management Company. An Appraisal Management Company (AMC) is a third party vendor contracted by a lender to oversee part of, or all of, the appraisal process. It can be as simple as the AMC ordering and forwarding the completed appraisal report to the lender. Full service AMCs can also approve appraisers for the lender panel and review completed reports for compliance with lender specific and general industry guidelines.
A homeowner (in a refinance) or a buyer (in a sale) cannot hire the appraiser directly and is not considered a client of the appraiser, regardless of who pays for the appraisal. In the Uniform Standards of Professional Appraisal Practice (USPAP), the client is defined as “the party or parties who engage, by employment or contract, an appraiser in a specific assignment” (USPAP 2014-2015 Edition Page U2 Line 49). Consistent with USPAP rules, since the lender engages the appraiser, the lender is the client. Furthermore, Fannie Mae & Freddie Mac form reports, used by conventional lenders, FHA & VA, specifically state the intended user is the lender/client and that it is not permitted to modify, add, or delete an intended user. The appraiser-client relationship is not established based on the person or persons paying for the appraisal service.
The appraiser has confidentiality obligations under USPAP and “must not disclose: (1) confidential information or (2) assignment results to anyone other than: the client; persons specifically authorized by the client; state appraiser regulatory agencies; third parties as may be authorized by due process of law; or a duly authorized professional peer review committee except when such disclosure to a committee would violate applicable law or regulation.” (USPAP 2014-2015 Edition Page U9 Lines 297-304). Therefore, the appraiser may not be able to discuss with the homeowner, borrower or even the real estate agent(s), certain aspects of the appraisal or report that could be considered confidential or any information that is specifically identified as confidential by the client.
Determine the type (and definition) of value needed.
Aside from hiring a qualified professional appraiser, determining the type and definition of value is an essential step in the appraisal process. What is value? According to the Merriam Webster Dictionary, value is: “the amount of money that something is worth; the price or cost of something”. In appraising, there are many different types of value;therefore, it is imperative to know what type of valuation solution is needed. In the lending universe, market value is, by far, the most requested value type. Other types of value can include: insurable value, replacement value, investment value, liquidation value, going concern value, business value, retrospective value and prospective value. One example of a prospective valuation is for a new construction home that is to be built but at the time of the appraisal does not currently exist on the property site. During the engagement process between the appraiser and the client, the scope of work is established including the type of value that is to be used.
An Appraisal is not a Home Inspection
The terms inspection and inspector have been used in the appraising world with various meanings and interpretations. An appraisal inspection is different than a home inspection.
For lending purposes, an appraisal is for the lender/client; home inspections are for the buyer or home owner. The appraiser is tasked with providing a professional opinion of value, most often a market value, for a property. An appraisal and its report do not guarantee that the property is free of defects or environmental problems. In a home inspection, a qualified inspector takes an in-depth look at the home to evaluate the physical improvements (structure, construction, mechanical/electrical/plumbing systems); identifies components that need to be repaired or replaced; and estimates the remaining useful life of the major systems, equipment, structure and finishes.
Preparing for the Appraiser’s site visit
If you are selling your home, the real estate professional marketing your property should have discussed the benefits of giving your home the best possible presentation. On the exterior, this is typically called “curb appeal”. On the interior, it is generally referred to as “staging”.
Particularly, if the loan is being guaranteed by FHA, VA or most other government backed/guaranteed loans, when possible, any known safety repairs should be completed prior to the appraisers visit. Check out FHA & VA Repairs and Other Related Issues- A Checklist that can be easily completed.
Overgrown bushes or other larger objects next to the house can make it difficult to accurately measure the structure. Therefore, you can help the appraiser by making sure there is easy access to the exterior walls of the house. Also make sure that the appraiser can easily access items like furnaces, water heaters, attic scuttles and crawl spaces.
(In winter months, make sure snow is removed from the driveway, sidewalks, patios, decks, etc. Remember these items affect value and should be observable by the appraiser for accuracy. If you have recent pictures of the exterior patio, in-ground pool, deck, etc. without snow cover, they can be handy references for the appraiser.)
Setting up a time for the Appraiser’s site visit
If you are selling your home, the appraiser generally will contact the real estate agent or their office to schedule the site visit. If you are refinancing your home, the appraiser should contact you directly to schedule the appointment time. Most all lenders have a defined timeframe for the delivery of the completed appraisal report, so it is not uncommon to get very short notice in the appointment request from the appraiser. Flexibility in providing access to the appraiser will help to ensure timely delivery of the appraisal report to the client.
On the day of the site visit
Another critical step in most valuation assignments is the home visit by the appraiser. During this process, the appraiser will come to your home and complete an interior walk-though, taking notes on individual aspects of the each room as well as the general condition and quality of the home, create a room layout drawing, and take numerous photos of your house for inclusion in the report. The appraiser will also measure the home as well as makes observations of the neighboring houses and the neighborhood in general.
Fannie Mae, Freddie Mac, FHA& VA require that appraisers take interior photographs of, at least, the kitchen, all bathrooms, the main living area, examples of physical deterioration and any recent updates. Often, individual lenders require interior photos of all rooms and the interiors of all outbuildings (pole barns, sheds, etc).
If you are home when the appraiser arrives, do not be afraid to request identification. Chances are you have never met the appraiser before and they will be entering your home, so request seeing their driver’s license, their pocket real estate appraiser license and a name-specific business card.
It is the appraiser’s job to report on the condition and other aspects of the property, so make sure all occupants are up (not sleeping in bedrooms) and not showering in bathrooms. Appraisers are at your home only a short period of time, and access to all rooms is imperative to a complete and accurate valuation process.
Whether you are home at the time the appraiser shows up or your real estate agent has requested you leave prior to the visit, several things you can do to prepare your home for the appraiser are:
· Open all window shades or drapery
· Turn on lights in all rooms
· Make sure any outbuildings (garages, sheds, pole barns, workshops, etc) are open and accessible
· General housekeeping (don’t have piles of dirty dishes from a week ago in the sink, vacuum the floors, clean up any dirty laundry, flush toilets, etc)
· Remove all offensive odors (garbage, clean the cat litter box, etc)
· Remove any pets (While your dog or cat may be your best friend, please remove them during the appraisers site visit. NEVER LEAVE A LOOSE DOG IN THE HOUSE, PARTICULARLY, IF YOU WILL NOT BE HOME WITH THE APPRAISER. Remember, to your dog, the appraiser is a stranger in the house)
· Don’t simply throw stuff in the closets to prep the house, as the appraiser should open every door! One never knows where a homeowner may have hidden a half bath or a mechanical system.
· If the home has a scuttle or drop stairs to the attic, make sure the attic area is accessible. If there is a scuttle, make sure it is not painted shut, is not covered by insulation and have an appropriately sized sturdy ladder available to the appraiser for a “head and shoulders” observation of the attic.
· If the home has a crawl space, make sure access is available to the appraiser, making sure an access panel is open and not obstructed.
· In winter months, make sure snow is removed from the driveway, sidewalks, patios, decks, etc.
You can help the appraiser to provide a more accurate appraisal in a less time, if you can provide the following, when possible:
· A survey of the house/property.
· A legal description of the property. If the property contains more than one parcel, make sure you provide the legal descriptions of the other parcels.
· The 2 most recent tax bills
· If any personal property is to be sold with the house, a list of the items.
· A list of any renovations or updating completed to the property (include approximate dates & costs). If known, provide dates on when kitchens and baths were updated or remodeled in the past 15 years.
· If the property has a private well or septic system, a drawing of the home and the approximate locations of the well head, the septic holding tank and drainfield.
While most residential real estate appraisers have access to a large amount of sales, through their local or regional Realtor® Multiple Listing Service (MLS), or through other private database organizations, some properties are sold as For Sale by Owner (FSBO). FSBOs are not usually entered into the local Realtor® MLS databases, therefore, if you or your real estate agent, are aware of any For Sale by Owner sales similar to your property, then you can, and should, provide this information to the appraiser for review. At a minimum, provide the full property address and the sale price, although, if possible, provide the tax assessor data information and a name of someone involved in the sale.
Often you may want to ask questions of the appraiser when they are conducting the site visit of your property. As was discussed above, the appraiser has certain confidentiality obligations to the lender client and may not be able to answer specific questions about the appraisal process, including whether the home will appraise for a certain dollar amount. In fact, in some lender engagement letters, appraisers are specifically informed to not discuss values or even when the report will be completed.
Awaiting the results of the process
The appraiser has left your home, now what happens? The home site visit is just the beginning of the appraisers work in providing an appraisal valuation. There are two components to the valuation process: developing the opinion of value and communicating the results. After gathering the information on the property and after the site visit, the appraiser is ready to get into the process of developing the opinion of value.
Basic steps to the appraisal process include:
· Gathering specific information on the property and general information on the area or neighborhood;
· Collecting and analyzing data, applying the most appropriate approach(es) to value. (Examples: Cost Approach, Income Approach and Sales Comparison Approach);
· Reconciling the data and developing a final opinion of value;
· Communicating the assignment results to the client. While results of the appraisal can be communicated orally, for mortgage transactions, this is typically done through a written appraisal form report;
· After submission to the client, a lender underwriter or other designated party reviews the appraisal report.
And the answer is...
So the appraiser has completed the appraisal process and the report is now with the lender. Finally, you learn the appraiser’s professional opinion of the (market) value of your home and whether your home did or did not appraise at or above the contracted sale price or the amount needed for a refinance. When the appraised value is less than is desired for a sale or refinance, some people believe or, in some cases, openly state that the appraiser is “killing the deal”. The appraiser is employed to provide an unbiased professional opinion of value, not to arrive at a predetermined value. Understand that, simply because the appraised value may be less than you need or believe your home should be valued at, this does not equate to a flawed, incompetent or inaccurate appraisal valuation.
Appeal process
The lender is required to provide you with a copy of the appraisal report. This is your opportunity to review the report for accuracy. Appraisers are human and appraisal reports are very technical documents, so minor errors do from time to time occur. If considering an appeal, what you need to look for and consider are factual inaccuracies that could affect the valuation analysis conducted. Omitting the pole barn, missing a half bath, indicating laminate countertops instead of granite, quartz or solid surface, and miscalculating the square footage of the home are examples of errors that could affect the valuation. Do you know of a very similar house one street away that recently sold and was not included in the appraisal? If you have concerns about the factual information in the report, contact your lender in writing and request any lender-specific process required for an appeal of the appraisal. Be prepared to provide detailed feedback on the errors you found in the appraisal report or additional information you feel is relevant for consideration. The lender should then forward your appeal request to the appraiser for comment or correction of the appraisal report or valuation.
Repairs for Government Loans (FHA, VA, etc)
Some people stress out thinking about dealing with a government guaranteed loan, such as FHA and VA. But this need not be the case. HUD/FHA states the home should be “Safe, Sound and Secure”, while VA varies slightly that the home should be “Safe, Sound and Sanitary”.
Both FHA and VA have written guidelines (HUD Handbooks 4910.1 & 4150.2 and VA Pamphlet 26-7) that provide specific requirements for most of the major components of a home and property. Often FHA and VA loan applicants are first time home buyers, and one of the rationales for both programs is to try to minimize the need for unexpected repairs soon after a home purchase. Both FHA and VA strongly recommend a buyer gets a home inspection from a qualified inspector.
If you are selling your home, your real estate professional should provide you with market data indicating whether FHA, VA or other government loans are common in homes similar to yours. If a majority of the homes similar to yours in market area are sold with FHA loans, then it stands to reason it is likely that you may receive a FHA loan offer. Before you even get to the point of looking over offers, you and your real estate professional should make an honest assessment of any potential repairs necessary and whether an issue appears to be cosmetic or is possibly a repair required to be completed for a government backed loan approval. Some repairs such as deteriorated roof shingles, an old furnace needing replacement or even a combination of multiple but small repairs can be costly.
For a reasonable fee, some FHA-approved appraisers will come to your home and provide an assessment on the repairs that would most likely be required.