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Useful Information

 

Appraisals

A real estate appraisal is an opinion prepared by a licensed or certified appraiser as to the value of the property being appraised. With limited exceptions, lenders require an appraisal to qualify for a construction loan or a mortgage.

The appraisal process generally requires an inspection of the property and a comparison of the property to similar properties that recently sold in the area. The similar properties are called comparable sales or “comps”. The appraiser starts with the sales price of a comparable property and adjusts it upward or downward based upon the unique features of the property being appraised. For example, the value will be increased if the appraised property has an ocean view and the comparable property does not.

Loan amounts are determined by appraisals. Unlike appraisals for most loans, construction and remodeling loans are based upon the future or “finished” value of the property rather than its existing value. For example, the existing value of a home is $500,000 and there is a $480,000 mortgage on it. An extensive remodel will cost $50,000 and it will increase the value of the home to $575,000. The owner’s loan amount is not limited by his $20,000 in equity. Instead, he will be able to qualify for a $50,000 loan based upon the “finished value” of the home.

To calculate the “finished value”, an appraiser reviews the projected costs of construction/remodeling and the building plans. The appraiser then assumes that the home is fully constructed/remodeled and compares it to comparable homes that recently sold in the area. Adjustments are made for the unique features of the home being appraised and an opinion is prepared of its “finished” value.

Appraisals are usually completed within a few days and typically cost $300 - $800 depending upon the type of property being appraised. Most lenders have an approved list of appraisers or alternatively, a list of appraisers who are not approved.

If you would like to discuss your financing options based upon the “future value” of your property, call us today at 1-800-438-2704.