Appraisals

Requirements

• Must be completed by a licensed appraiser

  • Appraisers evaluating homes for government loans require additional certification and government approval

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

Forms

• Uniform residential appraisal report (URAR)

  • 1004

  • ten-oh-four, di-no-saur, because u-rar

  • Most common appraisal form

  • For single family homes (and row-homes held in fee-simple)

• 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

• Also known as market approach; never market comparison

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

  • 3-6 months is preferred but is market-dependent

• properties are reviewed for similarities and differences and consider:

  • Date of sale (to account for market changes w/ seasons)

  • Distance from subject property

  • If sales included seller concessions (for property condition or points)

  • Adjustments

    • Line adjustments up-to 10%

    • Net adjustments up-to 15%

    • Gross adjustments up-to 25%

• Parameters may be extended for properties in rural areas

  • Appraisers may use their best professional judgement regarding distance and other adjustments

• Predominant value may be considered

  • In most common sales price in the area (not median average)

Cost approach

• Used for new construction with limited/no comparable sales

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

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

  • Cost and construction both start with C

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

• When a buyer is purchasing a home using an HPML, lenders may require a 2nd appraisal

• If the home was purchased by the seller 0-90 days prior, lenders will require a 2nd appraisal if the value has been 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

• The 2 appraisal special rule is intended to prevent property flipping

  • The fraud scheme, not the kind they show on HGTV

  • Selling a property at an inflated value shortly after purchase with no improvement to substantiate the increased value