MORTGAGE PROCESS LINKS
LOAN PROCESSING : APPRAISALS...........
An appraisal of real estate is the valuation of the rights of ownership. The appraiser must define the rights to be appraised. The appraiser does not create value, the appraiser interprets the market to arrive at a value estimate. As the appraiser compiles data pertinent to a report, consideration must be given to the site and amenities as well as the physical condition of the property. Considerable research and collection of data must be completed prior to the appraiser arriving at a final opinion of value.
Using three common approaches, which are all derived from the market, derives the opinion, or estimate of value. The first approach to value is the COST APPROACH. This method derives what it would cost to replace the existing improvements as of the date of the appraisal, less any physical deterioration, functional obsolescence and economic obsolescence. The second method is the COMPARISON APPROACH, which uses other "bench mark" properties (comps) of similar size,quality and location that have recently sold to determine value. The INCOME APPROACH is use in the appraisal of rental properties and has little use in the valuation of single family dwellings. This approach provides an objective estimate of what a prudent investor would pay based on the net income the property produces.
The appraiser will need to know what the purpose of the appraisal is, when the appraisal needs to be completed and if the property is listed for sale. If the property is listed the appraiser will need to know for how much and with whom. The appraiser will also need to know if there is an existing mortgage and what personal property, such as appliances is included. The appraiser requires any pertinent papers pertaining to the property such as, deeds, surveys, purchase agreements, copies of utility and tax bills and, if income property, income and expenses for the past two years and a copy of the leases.