Is a real-estate appraisal necessary?
April 24, 2009
One of the most frequent questions asked by a buyer is if an appraisal is necessary. And the answer to that simple question is yes and no. If the buyer is paying cash for the real estate only the one that controls the purse strings can make that determination. If there is a loan from a mortgage lender the answer to that question is Yes. Plain and simple, an appraisal by an independent licensed real estate appraiser is one the best ways for the mortgage investor to determine if the buyer got a good deal.
The real estate appraiser is a highly trained professional whose job is to provide the buyer a written report that details the property being purchased. The appraiser is schooled in how to determine the bottom line value of the property and to detail how they came to that dollar figure in a report that can be as many as one to two dozen pages.
Now this may seem to be a simple process but let me tell you from experience we have some very unique properties here in the High Country. As an example I recently financed a new home on thirty-five acres. The home has great views, a lot of land and is surrounded by National Forest Service land and another ranch that is in the thousands of acres. The appraisal was a real bear to pin down a value.
In this case the land is probably worth more than the value assigned by the real estate appraiser. The problem for the appraiser was to not only determine the value of this property but to back up their findings by supplying a list of what are known as Comparable properties. Comparable properties are properties that have sold in the past twelve months that have similar size structures and land. The other difficult fact that the appraiser has to deal with is the location of the comps.
The properties used as comps must be within a reasonable distance from the home being financed. If the home being financed is in northern Summit County a mortgage Underwriter is not going to accept a comparable property in Fairplay. Generally the comparable property must be within ten miles of the home being financed. If there is not one available the appraisal report must take the next step by providing the lender, as many as eight comparable properties, more than the three or four that is normally required. Now I do not run into this problem that often but even in the cases where a top end condo is unique in size and location the problem may occur.
Know that the mortgage investor wants to see, in writing, that both your and their money is being used to buy a property that is at least valued for the amount being spent on it. The investor wants to feel safe that if they ever have to repossess that property they hopefully will not be trying to sell a home that has a mortgage worth more than the property can bring on the open market. So know that the real estate appraisal is just another way to protect you, the borrower, and the investor.
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For answers to your mortgage related questions call Bob Kieber at (970) 262-1199 or e-mail him at email@example.com. Bob is a local mortgage lender and principal of Resort Lending. He has 30-plus years of professional experience in real estate, finance and investments, and is a longtime
resident of the High Country.