Appraisals

Requirements for appraisals

• Must be completed by a licensed appraiser

• Appraisals or valuations are professional opinions of value, based on market and other factors

Uniform residential appraisal report (URAR)

• Form 1004

• Most common appraisal form

• For single family home

• Ten-oh-four, di-no-saur, because U-rar

1004D

Certificate of completion for repairs needed for subject to appraisals

1007

Single-family homes intended for use as investment properties

1025

2 to 4 unit properties intended for use of investment properties

1073

Condos, townhomes, row-homes, etc, which are situated on common ground

Sales comparison approach

• AKA market approach

• Analysis of 3 closed similar sales, within 1 year, and within a 1 mile radius

• Properties are reviewed for similarities and differences and consider Date of sale, Distance from subject property, Seller concessions if applicable

Adjustments (Sales comparison approach)

• Line Adjustments up to 10%

• Net adjustments up to 15%

• Gross adjustments up to 25%

Cost approach

• Used for New construction with limited/no comparable sales

  • Considered cost of improvements and depreciation, as well as the value of the land

    • Improvements to the land are the actual structures and not the updates to the home

Income approach

• Assumes the home is intended for use as an investment property and considers the income potential

• May consider capitalization rate

  • Rate of return on investment

• Can also apply to commercial properties

• Income and investment both start with I

HPML Special rule

• With HPML purchases, lenders may require 2nd appraisal

• if the home was purchased by the seller 0-90 days prior, lenders will require a 2nd appraisal if the value has increased by 10% or more

  • purchase price / 1.1 = previous sale price

• If the home was purchased 91-180 days prior, lenders will require a 2nd appraisal if the value has increased by 20% or more

  • Purchase price/ 1.2 = previous sale price

• Rule intended to prevent property flipping