Since the appraised value of property is the foundation of the loan, appraisals can be a heated topic in the mortgage world.
Each section of an appraisal plays a role in helping underwriters fund your deal, but when it comes down to it, there are a few elements that carry more weight than others. We asked an underwriter to share which areas brokers should pay attention to when reviewing an appraisal.
Fair assessment: If any condition is marked as fair, in any section, it’s a cause for concern for underwriters; it suggests improvement is needed sooner rather than later.
Zoning: The location of the property is a major factor. If the property is not residentially zoned, remember to use your notes to support why it is still marketable.
Land use: If the property is used for commercial or agriculture use, it is more than likely going to be a no go – that means no farming, hobby farms or large plots of agricultural land where farming is assumed. Smaller plots of land zoned agriculture are reviewed on a case-to-case basis.
Improvements: This is a big section, and a critical one. Age of the home and the remaining economic life matter a great deal. It provides the underwriter with a baseline expectation of the home’s condition.Older homes were built with different materials than new ones are. That’s why an underwriter needs to know about the various types of utilities in the home such as heating and electrical. Homes containing Urea Formaldehyde Foam Insulation (UFFI), knob and tube wiring, and electric panels less than 100 amps will not make the cut.
Market overview and price trends: This section can help the underwriter determine how marketable the property is. Recent comparable sales nearby similar to the subject property also help paint a picture of value.
Pictures: It’s true what they say, a picture is worth a thousand words. The pictures provided help complete the full story. It offers the underwriter a point of reference and context to the appraiser’s perspective. Pictures also provide evidence of pride of ownership – is this home being taken care of?
Further, you really want to ensure the comments and adjustments provided make sense. Also, ensure that details are filled out properly.
Although you can’t control what an appraiser says about the property you can do your due diligence and add deal notes that provide context to the appraisal. If you anticipate questions the underwriter will have, you can help them see beyond the paperwork.