Business Booster, Home Values, Lending Guidelines, Real Estate

Confused About Your Home Appraisal – Know the Guidelines

December 1, 2010 by · 3 Comments 

2010-2011 Uniform Standards of Professional Appraisal Practice (USPAP)The home appraisal process often baffles home buyers and homeowners alike. You may feel that your home is worth a higher dollar amount, and so the appraised home value may not always make sense to you.

First, it is important to know that the home appraiser is completely independent from mortgage lenders, home buyers, home sellers, homeowners, and real estate agents.

Second, the guidelines to which they adhere are dictated by the Uniform Standards of Professional Appraisal Practice (USPAP) and Fannie Mae. In most states, mortgage lenders must also disclose the purpose of the home appraisal, as each mortgage transaction carries its own set of rules.

These important appraisal guidelines help home appraisers put a fair market value on homes based on comparable home sales in the same area, for instance the community of White Oak Estates located in Highland Indiana and/or Munster Indiana.

The home must also be bracketed in size and value. For example, there is no set dollar figure associated with a great view, pool, spa, bathroom upgrades, etc. If a homeowner installs a custom pool that cost them $30,000, but the local marketplace supports the value of a pool at $15,000, then that item will be bracketed as [$15,000] on the appraisal.

Upgrades can usually be expressed at a higher percentage of their value in newer homes because the only way to obtain those upgrades was to put more money into the cost of building the home.

On the other hand, the upgrading or remodeling of an older home is rarely reflected in full in the final appraisal. This is because typically 25-40% of the project involves demolition and the fixing of issues that aren’t uncovered until the project has already begun, such as plumbing or wiring that may need updating.

The value of the home upgrades must ultimately be supported by comparable home sales within the same marketplace such as home sales in Plum Creek in Schererville Indiana. These comparisons must be drawn from current real estate market activity within the last three to six months.

These guidelines further state that appraisers can only base their opinion on the value of home sales that have actually closed. This is a safeguard to prevent home appraisers from attaching too high a value to the home in question, and opening up the home appraisal for review.

Understanding and following the appropriate appraisal guidelines can help to create an easier and much smoother home loan transaction for you whether you are a home buyer or a homeowner.

Still confused about your home appraisal? Contact me for free review and explanation of your home appraisal.

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James K Barath, CMPS®

James K Barath is a Certified Mortgage Planning Specialist®, Certified FICO® Professional, Certified Military Housing Specialist® and your FHA Home Loan Expert. He is also a graduate of Purdue University, The CMPS Institute, Dale Carnegie Human Relations Course & Napoleon Hill Foundation's PMA Science of Success Class. It's your home and your future. It's his profession and his passion. He is ready to work for your best interest. Contact James for your FREE Home Loan Approval !  His Motto: I Facilitate the American Dream Through Responsible Mortgage Lending and Financial Literacy!

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3 Responses to “Confused About Your Home Appraisal – Know the Guidelines”
  1. Jim Sims says:

    Great information James! These guidelines are important to the real estate market, inside and outside of Northwest Indiana. They ensure that all appraisers are in sync and are comparing apples to apples and oranges to oranges instead of apples to oranges. For example, Chesterton Indiana 1900 square foot single residential home would not be compared to a condominium or another single residential home in Portage Indiana.

  2. One of the primary misconceptions on home appraisals is how far in the past that home appraisers are allowed to look for sold comps. Prior to the housing collapse, home appraisers could look back a full year and it was okay since home prices were rising.

    Due to falling home prices many banks want to see comps of home sales within the past 90 days with at least one home sold within the subject property subdivision without exception.

    When it comes to home financing just remember it is not what you think the home is worth, but how much risk banks are willing to accept since your home is their collateral.

  3. Steve Cardwell says:

    I have bookmarked this for future reference. All the appraisers I have met in Northwest Indiana have been highly professional. I give them a lot of credit for the work they do. It is good they have such extensive and technical guidelines to follow so they can perform their work on an impartial and factual basis. There will always be some room for interpretation but understanding these guidelines and adhering to high standards will help the real estate industry generally, and particularly the scapegoating that appraisers were getting after the sub-prime melt-down.

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