Lenders require an appraiser to value a home before you purchase it and receive financing. This protects the lender from financing a house that may be worth less than the amount you intend to borrow and reveals if the home's worth more than you are planning to finance. Understanding the bank's requirements for the home appraisal whether you're a buyer or seller will allow you to navigate one of the most important pieces of the home buying and selling process.
The lender is required to use a licensed appraiser to value the house. The appraiser does not have to necessarily be familiar with the location of the property or neighborhood, but she must be competent enough to appraise the house. The lender can't influence the appraiser's opinion of value or have direct contact with the appraiser during the appraisal process. Additionally, the lender can't use an appraisal ordered by a mortgage broker
The lender will require the licensed appraiser to value the home using the Uniform Standards of Professional Appraisal Practice set by the Appraisal Foundation. These standards govern how different types of properties get appraised and require that each appraiser use the same methodology to analyze and value property. Additionally, the appraiser must have no personal interest in the appraisal outcome.
Unlike the lender, as the seller, you may be present during the appraisal process. You may also give the appraiser a list of home improvements you've completed and believe increase the home's value. Additionally, you may give the appraiser a list of suitable comparable properties, although the appraiser doesn't have to use them. As the seller, you will also receive a copy of the appraisal report from the lender. Review it to ensure the features of the property are accurately represented.
As the buyer, be prepared to pay for the appraisal upfront or as part of your closing costs. Either way, the bank requires you as the buyer to cover this cost. The lender is legally required to give you a copy of the final appraisal report within three days of closing on the house or sooner. Like the seller, you may also communicate with the appraiser or appeal the final appraisal with the lender if you find inaccuracies.
The lender will review the appraisal value to ultimately determine if it will fund your loan. If the value of the house as determined by the appraisal is less than the value of the loan, the lender may choose not to finance the entire purchase price. If the value of the house is more than the loan amount, how the sale of the home proceeds will depend on pre-determined contingencies in the purchase agreement or additional negotiations with the seller.
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