Getting a mortgage requires the work and cooperation of a fairly large number of people. From my experience, one of the least appreciated groups of people involved inthe process is appraisers.

If you want a mortgage loan the lender wants your home as collateral. The task of the appraiser is to estimate the market value of your home so that the lender can decide if it provides sufficient equity.

Appraisers are licensed by the states. They take classes and have to pass a test. They present their credentials to lenders and strive to be on the list of approved appraisers that many lenders have. This makes their appraisals more "portable" - a valuable asset to a mortgage broker who wants to take the loan to the lender with the best rate.

Appraisers are divisible into several sets. There are commercial appraisers - they appraise large commercial properties such as office buildings, shopping centers, mobile home parks and other sorts of commercial properties. The appraisers that we are concerned with are those who do residential properties. These are 1-4 family homes.

Some appraisers work for lending institutions. Others work for themselves and serve the lending community in general andare usually called "fee appraisals" as they charge a fee for each appraisal.

Work between the loan officer and an appraiser may begin soon after the borrower contacts the loan officer seeking a loan. If the transaction is a purchase, the buyer is helping to set the market and, in general, the appraisal will come in at almost exactly the purchase price. Exceptions may occur if the buyer is paying much more or much less than other comparable sales would indicate. If the transaction is a refinance, the loan officer will usually seek an appraisers estimate as to whether the property is worth enough to support the loan.

Appraisers start with the specifics of the property: location, lot size, size of the gross living area, number of bedrooms, size of the garage and any amenities. Generally, the appraiser has access to an online data base or perhaps CD ROM's with data on recent sales in the area. The greater number of recent sales there are of similar properties in area, the easier the task. Homes in newer subdivisions, having identical plans are easier to appraise than, say, homes of the block where I live in San Francisco where no 2 houses are the same.

Appraisals in rural areas are generally more difficult thatthose in urban areas. One of the more difficult situations are areas when a number of new homes have been custom built, are probably very expensive, totally different one from another and - because it is a new area - there have been no sales. In a situation such as this the appraiser may have to go to asimilar area miles away because it represents the most recent similar area in where there are some sales comparables.

What the Appraiser Does

Only a small portion of their work an appraiser does on a given appraisal is the inspection itself. When an appraiser schedules an inspection he will look in his data base and try to find, perhaps, 6 comparable sales. He will then come to your home, ring your doorbell, ask for a check, and then measure the size of the rooms and make a sketch. This is what solicits the gripe I often hear from borrowers: "Hey, this guy was here for less than 10 minutes and charged me $300 - what a rip off". This is unfair. At the point where he leave your home the appraiser's job is still in the early phase. He then photographs the outside of your home, a street scene, any views that may support his allegation that the house has "a view" and then drives around and photographs the other 6 potential comparables. At this point his thinking may change according as the perception that he formed in his office is tempered by reality. In this case, he may need a come up with a new set of comparables.

Strange things may be revealed when he inspects your home. I once has an appraiser call me the day after an inspection and say: "Did the borrower tell you about the nut next door to him?" I probably said something like: "doesn't everyone have a nut living nextdoor?". He continued: "No, I mean a real nut". The guy next door had recently decided to break all of the windows in his home. Needless,to say , this did not exactly enhance the salability of property on that street. Having chosen about 4 comparable recent sales the appraiser finds the prices that those homes sold for and makes adjustments for: lot size, gross living area, room count, location, view, modern kitchen and anything that would affect the value of your home relative to the comparable sales. A number is derived that is the estimate of value from the "sales comparison approach". This is, essentially, the bottom line. The appraisal will also include an economic estimate from the cost approach. The cost approach estimates the cost of the land and construction and diminishes it somewhat for age. This method of ascribing value has little use and represents a different era of appraisals.

Some Points

The perception that borrowers have about the value of their home often comes from mailings that they receive from Realtors in the area. Realtors send information about recent comparable sales with the intention of letting people know how valuable their homes are. This is sometimes biased toward the upside. Realtors are more likely to tell you about the homes that sold at higher prices then they are about the ones that sold at lower prices. From my experience, this gives borrowers a slightly higher than realistic estimate of the value of their property.

If you are doing a loan with a mortgage broker you are better served to let the broker pick an appraiser who is familiar with the area and is on the list of approved appraisers of the lender or lenders to whom the broker may be taking your loan.

Help Yourself

If you are contemplating refinancing, obtain and retain all the information that you can on recent sales of homes in the area. You may know of a sale that just took place that is not in the data base available to the appraiser. I have had cases where we have done a preliminary estimate, found that it was low and then had the borrower note a sale that was at a price that made the appraisal work. From a practical point of view, you - as the person in the neighborhood -are best able to track this. If you have any relationship with a Realtor in the area, they can do this also.

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