What you Need to Know Before the Appraisal
The appraisal process, like almost every element of the real estate industry, has shifted quite a bit in the last few years. The work load an appraiser takes on has changed , the amount they are paid has changed, and lending requirements have changed forcing appraisers to provide information in different ways. Someone who hasn't bought or sold real estate in recent years may be in for a surprise when it comes to the appraisal. Here are common issues people/property are having:
- Inflated/deflated appraisal values. Appraisals can be way off when it comes to value... it happens! This can result from a lack of recently sold comparable properties, or comps, in the subject area. A lack of comps can force an appraiser to use comps from across town, or comps with a lower or higher property value. Other possibilities for inflated/deflated appraised values could be that a comp used was sold cheap for a quick sale, needed foundation repairs, was in a highly regarded school district, or the property had an easement that wouldn't allow for expansion of the home.
- Outdated or incorrect information regarding HOAs in appraisals. If HOA information in an appraisal is even the slightest bit off it could result in the property being declined financing. The criteria most lenders have for property involving an HOA is strict. Lender's will only lend on HOAs that appear to be healthy in terms of a high owner occupied ratio to non owner occupied ratio (70%+ owner occupied), low delinquency (the majority of home owner's must be paying their HOA dues and assessments -- commonly an issue if there are foreclosures in the development), and a sufficient cash reserve in the event repairs are needed in the complex.
- Repairs needed prior to closing escrow. When the appraisal goes back to the lender and the lender sees repairs suggested by appraiser (or if the lender sees a pest inspection report indicating repairs are needed), the lender will require all repairs completed prior to closing escrow. No matter how petty or severe the repairs are -- it could be fumigating, replacing carpet, painting, or removing damaged wood siding and replacing with new, costing anywhere from $100-$100,000. This makes it challenging to sell a home today because the seller may not want to make repairs/have the means to make repairs and the buyer may not either or doesn't want to spend money on a home that they do not actually own yet.
See photos below for examples of items around the property your lender may require be repaired/replaced prior to closing escrow -- damaged wood siding, over grown weeds and dirty pool, dirty carpet, and peeling paint.