How is mortgage appraisal different from the estimated value from your realtor?
What goes into a mortgage appraisal? How will it affect your loan approval process?
Can the appraiser just really guess a number and just roll with it?
🤔In this video, I answer all these questions and more to help you learn everything need to know about the mortgage appraisal process.
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But what you can't do is say, "Nope, I wanna throw that one out and get another one." Doesn't work like that. You also can't choose who is gonna do the appraisal. It has to be ordered through basically a third party management company.
Welcome back. I am ecstatic that you're here. I love talking about all this stuff. Today's video is mortgage appraisal. We are gonna talk about how to understand the appraisal better when it comes to your mortgage appraisal.
Why might that be different than the value that your realtor gives you? Or what if you're refinancing and you call an appraiser and ask for a value versus your loan officer or mortgage company orders an appraisal, why might that be different, too?
We're gonna cover all that today because those are very, very common questions, and they are fantastic questions, because you're like, heck yeah, I wanna know, 'cause that doesn't make any sense. If that's you, you're in the right place today. That's the video, stay tuned.
My name is Stephanie Weeks, and I've helped thousands of customers with millions and millions and millions, maybe even billions at this point, of dollars in mortgage loans. I've been recognized in the top 1% of loan originators in loan production by Mortgage Executive magazine, and I've also been recognized in the Scotsman Guide for Top Originators. My goal for this channel is to help educate those who I can't help personally, and you've come to the right place because I've got 17 years of experience that I am sharing here.
I hope you're ready because today's video, it's kind of a lot. I'm actually gonna try to talk really quick because I don't wanna bore everybody to tears. The information is immense, it's immense. What am I gonna cover? I'm trying to desperately break it down to five things that I can hopefully cover quickly to keep your attention span going. 'Cause I don't know about you, but I have a very insanely short attention span.
All right, number one, we're gonna talk about the sales comparison approach versus the market approach.
Number two, we're gonna talk about the comparables and how they basically are taken into consideration in relation to the house that's being appraised.
Number three, we're gonna talk about the age of comparables.
Number four, we're gonna talk about what flood zone does the appraisal say in comparison to the flood certification and things that we audit with the appraisal.
And then number five, we talk about the address and we talk about, again, the auditing of the appraisal. So much goes into this. Let's dive right in, I am gonna try to talk quick here.
Number one, sales comparison approach. In the intro, I mentioned about how different values can come about. Like if you call an appraiser and say, "Hey, come appraise my property, I have no lender,"; if you call a realtor and say, "Hey, come tell me what my house is worth," versus maybe the house is being sold and the buyer's lender does an appraisal, or maybe you're doing a refinance and an appraisal's done, why do those numbers vary, or why can they vary? Number one is that an appraisal is subjective. I can walk into a house and I can think it's the best thing in the entire world, and so I'm looking for comparables that are the best thing in the entire world. You could walk into a house and you're like, "Uh, what?" Right, and so you might struggle more to find those types of comparables. That goes into it, and it's subjective, and there's always gonna be a variance, even from appraiser to appraiser, because I might think that these four comparables are perfect, and a different appraiser might think that those four comparables are more perfect, because it's subjective. Here's the thing, so don't worry. The lender, if you have one and you're doing an appraisal for that reason, we are gonna scrutinize the heck out of it. So they're not just making up a number from the sky. We're gonna talk about that more in one of the other sections.
Then you've got the fact that if you have a realtor pull comparables for you, the best rule of thumb, which, it makes sense, they have to figure out something, is a price per square foot. That's what most realtors work by, right? And well guess what? Appraisers don't care about price per square foot. They don't. I know that's a shocker, but they do not. The price per square foot is a byproduct of the report based on the details of the subject property in comparison to the appraisal, I'm sorry, in comparison to the comparables and then the adjustments that are then made to those comparables.
What does that mean? A real quick example. Your house is French country, it's five years old, it's on an acre. One of the comparables is also five years old, also French country, also on an acre, but has a pool. That's not gonna be a level-by-level comparison, so adjustments are made to kinda bring that house down to your house's level in that example, and try to figure out what the value might be based on that comparable. I know, it's a lot, right?
Okay, so we're diving into number two, which is talking more about comparables. You can not go, if you have a subdivision, you're living in a subdivision, and there are houses similar to you in that subdivision that have sold, you can't expect an appraiser to go to the subdivision that's two subdivisions away basically and try to appraise your home for more.
If there's comparables that are in close proximity to you, valid good comparables to be determined by an appraiser and then double- and triple-checked 10 steps behind them, they're gonna double-check that and they're gonna triple-check that. So if you even convince the appraiser, which you shouldn't be able to, to go outside that subdivision, guess what? We're gonna see that boom, boom, boom, boom, boom, why all these that sold, why didn't you use those? We need an explanation, because I'm not sure that this value is supported. 'Cause again, we're gonna double-check.
Not only do we care about the location of the comparables in relation to the subject, it also needs to be similar as much as possible in size, age, square footage, type of home, condo versus condo, townhome versus townhome, single-family versus single-family, multi-unit versus multi-unit, things like that. You can't just pick things. They're going to be double- and triple-checked and the appraiser's license is on the line.
Number three, how old can the comparables be? What do I even mean by that? It needs to be recent sales. It used to be, years ago, that we could use comparables that were 12 months old. Now in lending, they've got comparables that are as recent as possible, really strongly within six months, unless it's in a very odd circumstance, definitely not more than 12 months. Even 12 months is a stretch.
The time matters of those comparables. The location matters of those comparables. Are they validly comparable? That also matters.
If you're thinking your house is worth a lot more, it might not be worth that so much more, because you might not have had the house that you're talking about as a comparable sell in the last 12 months. If it sold 24 months ago, that does not count anymore. I know that's frustrating and surprising, but it's just the truth.
On to number four. We audit everything, and in some areas, we deal with things called flood zones. One of the ways that we check a flood zone is on the appraisal. The appraisal should reflect a flood zone that should also match the flood certification, and if flood insurance applies, then that flood insurance policy also has to match that same zone.That is part of some of the auditing.
Number five, and as I'm going through this, I'm realizing I've definitely got some bonus material, and I'm gonna go past the number five and give you some extra things, so stay tuned.
Number five, okay. Remember we talked about how we audit everything. Boy, do we audit everything.
An appraisal comes back, and the buyers and the sellers and the realtors, like, "Oh yeah, the appraisal's back, everything's done." No, we have to check these things. Even if it's 123 ABC Street, and the appraisal shows 123 ABC Drive accidentally, it has to be corrected. We talked about that flood zone in number four. Let's say the appraiser made an error, the flood zone's not correct, we show them and prove to them that it's not correct, they double-check us, they update it, that appraisal's not done, it's gotta be fixed if that's wrong. If the seller's name is wrong, typo, yep, happens all the time, gotta be fixed. If the buyer's name is listed wrong, gotta be fixed. If the taxes don't match what the tax assessor shows, guess what? It has to be fixed.
If the lender's not okay with the adjustments, that's way too complicated to get into today, but there's limitations on those adjustments. So if the lender's not okay with those adjustments, then guess what? Appraisal has to be fixed, has to be corrected. Everything has to match.
If the title commitment says a certain name and a certain address, the USPS Postal Service needs to match that. The contract written needs to match that. The appraisal needs to match that. The loan application needs to match that. And a lot of those things are having to be fixed through the loan process. Everything is crucial, every single detail is hugely crucial.
I promised some bonus stuff, and I'm gonna dive into that because I didn't plan on talking about it, but as I'm going through this, I'm thinking of things that are constantly coming up.
Years ago, the lender could choose the appraiser, the buyer or the person refinancing could choose the appraiser if they knew someone. It does not work like that anymore. There has been lots of compliance that's come in, and we have very little control over this. What they want to make sure is that you cannot, I'm air-quoting, value shop. You can't value shop. If an appraisal comes in and you don't like it, yes, you can dispute it. If you have information that you can look up and provide in detail, you can dispute it. Appraisers are human and it's subject to interpretation, right? So not everything's gonna always line up perfectly.
But you can dispute an appraisal. But what you can't do is say, "Nope, I wanna throw that one out and get another one." Doesn't work like that. You also can't choose who is gonna do the appraisal.
It has to be ordered through basically a third-party management company. And so the order goes in from Mr. Lender to the management company. That management company then assigns an appraiser on a round-robin system, sends the request out to the appraiser. The appraiser then can accept it or deny it. And then if they accept it, fine; if they deny it, it's gotta go back into the rotation until someone accepts it.
But let's say that they accept it, then they have time to go do the report, they have scheduled the appointment, go do the report, and guess what? Here's another bonus thing: Just because they did the report today doesn't mean I as the lender am getting the report today. What has to happen is, first of all, it's gotta go, or he or she, has to go back and actually do the report, which can take tons of time.
The inspection is probably a very, very small portion of the time that goes into getting that appraisal completed by that appraiser. When the report's done, it then goes into the management company, not to the lender. The management company scrubs it for things that they can find that are incorrect or don't look like will be acceptable, and they may have requests that go back to the appraiser to get corrected, then back to the management company, and then ultimately to the lender.
It could be that the report, the appraiser goes out that day, the report gets done that afternoon, the appraiser says, "I'm sending the report in." That does not mean your lender has it this afternoon. It could be a several-day delay sometimes, maybe drastically less, but before it actually ends up with the lender. The lender provides a copy of that appraisal. It's something that we have to do as part of our compliance. But it's provided to the buyer or the person refinancing. It's not provided to third parties.
So as soon as, well, every company is different, but for me, when the appraisal comes in to me, I go ahead and just share it with the borrowers, because I want you to know immediately it's there, because it's a big question and a big wonder that you're wondering, like, is it back, what happened, how does it look, so on and so forth.
Last bonus tip, don't forget, it still has to go through processing and underwriting. So just because that report is back and just because it went through the management company does not mean that box is checked. There might still be questions, concerns. They might need a field review, they might need a desk review. They might require more comparables. They might need things corrected, so on and so forth.
If you feel like you have a better understanding of the appraisal process, please type win in the comments below. I love hearing from you guys.
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