10 Things You Need to Know About Appraisals

1.  All appraisals are ordered through a third party appraisal management entity.  This went into effect on May 1, 2009 for Conventional loans and February 15, 2010 for FHA loans.  VA loans have always been ordered and assigned an appraiser directly though the VA.  In the "guidelines" the lenders are instructed to implement a process of "Appraiser Independence".  Specific guidelines have been outlined and must be followed.

2.  Mortgage personnel are not allowed to have direct communication with assigned appraisers prior to the valuation coming back.  This is to prevent "undue duress" to reach the needed or desired value.

3.  Realtors are allowed to speak to and/or have direct communication with the assigned appraisers.  However, appraisers have been instructed to report any "undue duress" or unprofessional behavior or trying to force an appraiser to reach the needed or desired value.

4.  Appraisers are open to seeing your comps.  Many realtors and builders are surprised to know this.  If you believe you may be tight on value, send the comps up front.  Most lenders (we will be glad to) should be able to upload your comps to the appraiser along with a copy of the sales contract.  An appraisal is an opinion and the more support available, the better.

5.  Mortgage statistics are showing that field or second reviews are currently being called for by underwriters in over 60% of appraisals across the country.  Reasons would include, but are not limited to:

• Flip property (purchased for less than the current sale price and owned for less than 12 months)
• Property values declining
• Marketing time over 6 months
• Comps are more than 1 mile from subject property (traditional properties) and 5 miles for rural property
• Comps are between 90 days and 6 months old, or older

6.  Specific "Red Flags" are reviewed by underwriters on every appraisal regardless of the buyer's credit, down payment, type of loan, etc.  "Red Flags" would include those listed above as well as:

• Health and safety issues
• Remaining economic life
• Land value/improvements (home) exceed typical ratio

7. Condition matters.  The condition of the property is no longer limited to just FHA or low down payment loans.  In fact, we find the property condition guidelines are more strict with PMI companies (conventional loans) than FHA right now.  It is impossible to get standard financing for any property that is designated by the appraiser as "Fair, Below Average or Poor".

8.  Everything that is in the MLS or in the contract is reviewed by the appraiser.  Examples of things I have seen which can kill a deal (or cause the agents to have to scramble to re-write a contract, etc.) include comments refering to repair issues (i.e., "seller agrees to contribute money toward buyers closing costs in lieu of inspection repairs"), or transfer of personal property in the contract (i.e., "Pool table, couches, big screens, lawn mower, etc. to be left in the house").  Call me to review any questions regarding acceptable wording for the purchase contract.

9.  If you cannot find comps to support the value, neither can the appraiser.  Check out the comps before a house is listed or a contract is written.  Most would think this is common sense but you would be surprised!

10.  Most investors no longer allow the contract sale price to go over the list price.  If you are planning to do this (to cover closing costs) then discuss with your lender first.  We have some investors that still allow it but others will not.

As always, feel free to let me know if you have any questions or if there's anything we can do to help you!

Best Wishes,

Michelle Coolidge

Sr. Loan Officer / Certified FHA Underwriter

Cobalt Mortgage / MLO #176580

(206) 909-3930