FDIC Consumer News - Winter 2018
The Home Mortgage Appraisal: How Consumers Can Benefit
A home appraisal is often required as an essential component of the mortgage financing process. Because the consumer pays the cost of the appraisal when applying for a mortgage to buy or refinance a home, it's worth learning more about what the consumer is getting for the money, and why lenders typically are required to obtain an appraisal or another type of property valuation. "What many people may not know is that an appraisal is one of the most important parts of the home mortgage process because it can help the buyer as well as the lender," said Elizabeth Ortiz, the FDIC's deputy director for consumer and community affairs.
First, the basics. The appraiser must provide an independent estimate of the "fair market" value of the property in comparison to similar homes in the area. This is one method the lender uses to avoid making a loan that is too large in relationship to the property's appraised value, commonly referred to as the "loan-to-value" or LTV ratio. According to Sandra Barker, a senior policy analyst at the FDIC, "The appraisal helps ensure that the loan can be paid off if the borrower doesn't make all the payments as agreed and the property needs to be sold at a later date."
The appraised value can play a role in the interest rate applicants are offered, too. If the appraised value of the home comes in significantly higher than the loan request, the lender may have guidelines that make it possible to offer a more favorable rate.
Appraisal rules require lenders to send applicants a copy of the full appraisal report or other written valuation "promptly" after receiving it but at least three days before the loan closes. What's good to know is that the information in an appraisal report may sometimes assist buyers in negotiating a lower price from the seller.
Here are the key things to look for in the appraisal report:
- Does the report show the correct number of bedrooms and baths, and contain references to a garage, a pool and so on?
- Is the square footage in the report relatively similar to what is in official records?
- Are the comparable home sales used to determine the value of the property located close to the house being purchased? Also, did those houses sell within the last six months?
- Is there something else the appraiser left out that might contribute to the home's value? For example, were all significant "improvements" to the home listed in the appraisal report and accounted for in the final value?
"If borrowers have concerns about their lender's appraisal report, they can provide additional information to the lender that could prompt the appraiser to reevaluate its determination of the home's value," said Susan Welsh, a senior consumer affairs specialist at the FDIC. "Some consumers decide to pay for another appraisal by a different company. While that second appraisal can't be accepted by the lender as proof of value, it may provide additional information that can be used to challenge the lender's appraisal."
For questions regarding home appraisals, a good place to start is with FHA Resource Center (call 1-800-225-5342 or send an email to email@example.com). To register a complaint about an appraiser or a lender, you can start by contacting the Appraisal Subcommittee of the Federal Financial Institutions Examination Council for a reference to the appropriate authorities (call 1- 877-739-0096 or go to https://refermyappraisalcomplaint.asc.gov/default.aspx).