No matter how many times your bank or credit union handles home appraisals, there still may be a few myths you believe about the entire process. So to help you break down the in’s and out’s that will help you make a better valuation, we’ve compiled a list of the top 7 myths your financial institution needs to know before agreeing to loan terms. After all, when you do it often, it’s just easier to do it right.
7 Myths of Home Appraisals
MYTH #1: The borrower is responsible for hiring an appraiser.
Federal guidelines require that the appraiser is engaged by the lender. While the borrower may be responsible for the fee, the appraisal is for the lender’s use in determining the value of the property. The appraisal fee is listed on the Loan Estimate under “Services You Cannot Shop For.”
MYTH #2: It is the appraiser’s job to confirm the contract price and to set the value if it is reasonable.
Appraisers neither confirm “reasonable” contract prices or set values. The appraiser is tasked with independently developing a credible opinion of value that is most probable given the current market conditions.
MYTH #3: Lenders are required by law to use an appraisal management company (AMC) to order appraisals.
Lenders may engage appraisers directly. However, for many lenders utilizing an AMC as an agent in the appraisal process offers an efficient and effective way to ensure the integrity and independence of the valuation process, including selecting appraisers and reviewing their work. Independence is compromised when those approving or collecting loans select appraisers or review their work.
MYTH #4: Appraisal Management Companies (AMCs) always choose the cheapest, fastest appraiser.
While this might be true for some AMCs, it is not the norm. Not only are there laws governing payment of customary and reasonable appraisal fees, it is in the AMC’s and the lender’s best interest to engage appraisers based on qualifications, experience and appraisal quality—factors that historically have decreased rework and increased overall efficacy and efficiency of the appraisal process. While fee and delivery time may be a consideration, federal guidelines do prohibit lenders from allowing lower cost or the speed of delivery time to inappropriately influence appraisal ordering procedures or the appraiser’s determination of the scope of work for an appraisal.
MYTH #5: The appraiser should add the cost of my home renovations to the value of my home.
While renovations may add value to a home, rarely do renovations translate into dollar-for-dollar increase in value. Some renovations may add no value at all. The value of your property is based on what a buyer pays for similar houses with similar features, in similar condition—which may not necessarily correlate to the cost of your renovations.
MYTH #6: The appraised value of my home should match the tax assessment.
Appraised value and assessed value are not the same. Methodologies utilized to arrive at each often differ greatly from each other. For example, one major difference is how current the sales data utilized is. The appraised value is an opinion of value that is most probable given the current sales and market conditions, whereas many assessed values are based on sales and market conditions that are years old or combined over a number of years.
MYTH #7: Nothing can be done if a borrower, lender, or real estate broker has concerns regarding a completed appraisal.
If there are concerns with an appraisal, all of these parties are permitted to submit additional sales, request corrections, and ask for further detail regarding appraisal conclusions. Many times the lender or AMC will have an established “reconsideration” or “reassessment” process for just such request.
Whether you’ve got a lot of home appraisals coming up, or you’re looking to manage your appraisal review process more efficiently, we hope our “mythbusters” will make it easier for your financial institution to complete the process efficiently and economically.
Ready to offload your entire appraisal process? At MountainSeed we’ve got more than 30 years of experience in appraisal management so no matter what you’re looking for: supplemental help, seasonal management, or a total AMC takeover, we can help. Get in touch today!