The role of an appraisal for homebuying, refinancing, or selling your home. Understanding Property Appraisals
September 26, 2023
Whether you are buying a new home, refinancing your existing home loan, or selling your home, it is important to understand how an appraisal is used to assess the value of the property. A lender uses an appraisal not only to assess the value of the property, but also to determine such things as your interest rate, required down payment, and whether you will be approved for the loan.
This article provides important information about the home loan process, the role of an appraisal in determining the value of your property, and what you can do if you believe an appraisal is not accurate.
For a lender to fund your new purchase, refinance, or home equity loan, it will likely require an appraisal to assist in determining the value of your property as collateral to be held as security for the loan. Mortgage lenders typically work with an Appraisal Management Company (AMC) to order residential real estate valuation services for a potential residential mortgage loan. You will pay the cost of the appraisal as part of the financing process.
Although an appraisal is not an inspection, an appraiser may identify items that may need attention, such as water in a basement, wet spots on ceilings, or other visible issues that could impact the value assigned to the property. An appraiser is not qualified to give advice on these matters, but they will point them out as potential issues needing further review by a professional, and they can draw certain conclusions about the marketability of the property.
Because the lender uses an appraisal to determine the relationship between the property’s fair market value and amount of the loan for which you might be approved, an appraisal that is inaccurate can affect the amount of equity available to you or how much you might pay for a property.
Once the appraisal has been completed, a lender is required to provide you with a copy of the appraisal as soon as reasonably possible, but no later than three days prior to closing. Therefore, if you receive an appraisal that you suspect has inaccuracies that impact the resulting value, some initial work on your part may help to expedite a secondary review of the valuation and assist in closing on time.
Once you receive a copy of the appraisal, you should review it carefully, especially if the value determined in the appraisal does not match what you believe the property is worth. In some instances, the appraisal may contain errors, exclude significant information, or contain potentially biased information that impacts the final valuation. Most lenders have a process for re-analyzing an appraisal, known as a reconsideration of value.
If you feel it is warranted, work with your lender and follow the procedure for reconsideration of value, collecting and providing factual information that addresses your specific concerns in order to expedite the process. This information may include such items as a plat map to correct lot size; measurements of your home for square foot discrepancies; receipts for materials and labor to correct property condition; and, a list of similar homes near your property that sold within the past 12 months, including the corresponding sales prices, that may be more reasonable comparable property sales than those used in the valuation by an appraiser.
If you believe your property appraisal was not accurate, suspect any possible discrimination in the lending process, or have an appraisal-specific complaint, contact your lender to request reconsideration of value, if they have a process to do so, or file a complaint with the lender if they do not. Additionally, if you believe that the lender has not addressed your concerns, you can contact the lender’s primary federal regulator for guidance.
While the vast majority of appraised values do, in fact, accurately depict a current market value, it is helpful to understand what you should do in the rare instance you experience an appraisal valuation that you truly do not believe reflects the value of your property.
Like other community banks, ACNB Bank has a team of professionals ready to assist with the mortgage lending process when you are ready to take the important step of buying a new home, refinancing your existing home loan, or selling your home.
