Why Appraisals Are Important to Lenders

If you’re planning to finance a property, be it for a purchase or refinance, you will need an appraisal.

The appraisal is done to help your lender determine the value of the property compared to other similar properties in that area.

Knowing the value of a property will let the lender know if they are lending an appropriate amount of money for the property.

Similar homes are referred to as comparables. They’ll usually have been sold within the last 60 to 90 days.

As no two properties are completely identical, an appraiser, in his or her review, can make adjustments for differences such as square footage, number of bedrooms, number of bathrooms, lot size, etc.

An appraisal is ordered by the lender. The actual appraisal is done by an appraisal management company, or AMC.

AMCs were brought into existence several years ago with the purpose of separating lenders, particularly loan originators, from appraisers.

Much of the real estate meltdown was attributed to appraisers who were overly influenced by lenders, and the new process removes that influence.

As part of the appraisal process, the appraiser pulls comparable property information, usually before visiting the property. After arriving at the property, the appraiser will do both external and internal reviews.

While this review is much less thorough than, for example, what a home inspector would do, the job of the appraiser is to note and report obvious issues such as structural and safety concerns. These noteworthy items are important for the lender, both from a safety perspective and so the lender can address them with you before lending money.

Once the appraiser prepares a report, he or she will forward it to the lender. By law, the borrower must also receive a copy of the appraisal.