If you’re looking to buy or sell a home and don’t have much knowledge about the appraisal process, now is the time to learn more.
To help you understand the home appraisal industry, we’ve compiled some information on what a home appraisal is, what to expect from the process and why getting an appraisal in rural areas can sometimes take longer than in non-rural areas.
What’s an Appraisal?
A home appraisal is an estimate of your property’s value based on the location, condition and recent sales of similar homes in the surrounding area.
So an appraisal is an estimate of how much your property is worth – it sets the amount that lenders will let you borrow for a property.
If an appraiser determines that a home is worth $150,000, a mortgage company won’t lend someone more than $150,000 to purchase that property, and would probably lend less, as 100% financing is rare. The appraiser’s job is to let the lender and the potential buyer know how much the house is worth.
How Does the Appraisal Process Work?
When an appraiser comes to your property, they gather all the information about it, including taking pictures and measurements. Then they research the housing market and find comparable properties that are up for sale or recently sold.
A comparable property is one that is similar to the property you’re selling. So if your home has two bedrooms, then the appraiser is going to keep an eye out for two-bedroom homes to compare it to.
How exactly is an appraiser selected? A lender selects an appraisal management company (AMC) to work with. Your given AMC selects an appraiser for you. The AMC will assign an appraiser who has knowledge of your type of property within the market area. The appraiser will come to your house to make sure that the value they’re putting in the appraisal is accurate.
According to Tal Frank, who has worked in residential lending for 20 years and is the president of PhysicianLoans of Ohio, when the appraiser completes the report, it will be sent to the AMC for review. If there are mistakes, corrections are made by the appraiser. Once approved, the appraisal is sent to the lender, which then reviews the report. If there are any errors in the report, it will be sent back to the AMC for changes. If it’s good to go, the lender will deliver a copy of the report to you.
“Typically appraisals are required because the lender needs to have a value for the collateral-based loan that they are giving,” says Mike Brocker, a licensed real estate appraiser with Title Source. “Without that appraisal, the lender has no idea if the collateral is enough to secure that loan.”
Delayed Appraisals in Rural Areas
If you live in a rural area and want to get an appraisal, the process can take longer than you might expect. Since there aren’t as many appraisers in rural areas, it can take months to get an appraisal done because of a supply-and-demand issue. For example, in states such as Oregon, Colorado and Washington, there is unfortunately a lack of appraisers.
“There are just not enough appraisers to go around, and they have a big area to cover,” says Sam Heskel, president of Nadlan Valuation, an AMC. “This will have a real impact on the mortgage and home buying industries. Closings will be delayed, maybe by several weeks, depending on the area.”
If you live in a mountainous or rural state, getting an appraisal can also take longer because of the vastness. It’s difficult to find comparable properties since houses can be located far away from each other. And the appraiser needs to see the house, so their drive time could be longer!
Deb Tomaro, a broker associate at RE/MAX Acclaimed Properties, said that finding comparable homes is a challenge, especially since the recent sales also have to be within a certain radius.
Tomaro has even had lenders send the appraisal back and say that they need another comparable home of the same age or on the same side of the highway.
“It can be that specific. I have a deal right now that is delayed because the construction type is a berm home and the lender is requiring another comparison of a berm home style,” says Tomaro. “There just isn’t one. So the lender isn’t willing to do the loan.”
To offer advice on selling a unique home in a rural area, Tomaro recommends being ready to list when you know another similar property has recently sold. That way, you’ll know for sure there’s a recent comparison.
Causes of Appraisal Shortages
An appraisal management company doesn’t send just anyone with a camera and tape measure to your property.
“Becoming an appraiser today is a lot harder than it used to be. There’s more education and licensing required,” says Heskel. “Today, to become an appraiser, one needs a four-year degree, passing an exam, and an internship or apprenticeship of 2,500-3,000 hours. That works out to be about two years working as an apprentice.”
One shortage problem, Heskel explained, is that some lenders won’t accept work from appraisal apprentices because their appraisal reports can’t be submitted to a lender. This creates more work for the appraiser training the apprentice, and the apprentice could possibly become the appraiser’s competitor.
“The number of appraisers in the U.S. has decreased by 20% between 2007 and 2015, according to the Appraisal Institute,” says Frank.
What can home buyers or sellers do about this? The best thing you can do is to start your house hunt sooner and be prepared for some delays.
“The longer answer is that the professionals in a transaction, the real estate agents and the loan officer, need to be on the same page and set the proper expectations with their clients for the appraisal turn time,” says Frank. “Buyers should start their home search earlier if possible and sellers should allow for more time to close once under contract. As long as all parties anticipate the challenge in advance, it will really not be that big of an inconvenience.”