PROCESSING: THE AP G: THE APPRAISAL
A crucial step in the loan approval process is the lender’s appraisal of the property. The lender will cause the appraiser to be hired on your behalf (you pay the fee as part of closing costs), through an Appraisal Managements Company (AMC). The lender cannot have any interactions with the appraiser and will not know their identity until the report is complete and delivered to them and to you. Access to the property for the appraisers visit will be arranged through the real estate agents and the current owner. Borrowers may not be involved in the process. An appraiser is a trained and licensed real estate professional who is regulated by state appraisal boards and must follow federal, state and local laws and regulations. Each appraiser is required to remain independent and objective—meaning they can’t be influenced by a buyer, seller, real estate agent or lender. There are two major processes that a home appraiser uses to create a valuation. First, there are the property’s physical attributes, including size, location, and condition, which an appraiser will evaluate during an on-site inspection. Second, the appraiser compares the property that you are buying (called the subject property) to similar, comparable properties (referred to as “comps”) that have recently sold, and makes price adjustments for differences like renovations, amount of garage space, views, and amenities that are perceived to contribute to the value. When the appraisal is delivered, your agent should review it to make sure there the comps seem appropriate based on their knowledge of the local market. They need to help ensure that the value is good and that the property was appraised appropriately. The lender will also thoroughly review the appraisal report to concur that the value can be defended.
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