Does Appraisal Happen Before Underwriting? What are the Key Aspects of the Process?

A property appraisal is a valuation procedure carried out on the home that the lender is financing for a loan seeker. It is a standard procedure that establishes the ‘fair market value of the property which is vital for the lender. The idea here is to ensure that the loan amount that is being processed for the borrower does not exceed the actual value of the property. It is carried out before the underwriting process and the reason is that most underwriting decisions are based on the appraisal report.

An appraisal report is unbiased and meticulous. It is created by an official property appraiser, who is licensed by federal law, to perform the process on behalf of lenders. Once the lenders ordered for a property appraisal, a date and a time would be fixed for the appraiser to examine the property and determine its market value.

The Importance of Property Appraisal

Property appraisers make their decisions without any pressure from lenders or other individuals involved in the real estate business. Unlike a home inspector whose job is to give lenders an estimate of how much maintenance work is needed for a property, an appraiser, checks the prices of similar homes in the region, determines the price of the property and gives the lender a detailed report of how they arrived at the value of the home included in the report. 

A property appraiser’s work gives the lender a final idea of the value of the home. A professional evaluation protects the business interests of the lender, loan seeker, and owner since the price of the property is documented. There is no scope for miscommunication, underquoting or misrepresentation. All the finer details such as the physical condition of the property, ownership history and more, are included in the appraisal report that can be presented to any of the parties involved in the sale of the home, on-demand.

The Key Aspects of the Process

The level of detail that property appraisers delve into determines the quality of information that is dispatched to the underwriters. This makes it a very important component that closely influences loan underwriting. Although meticulous, it is not a very long procedure. The following are the key aspects of the process.

Property Examination:  Upon the scheduling of the process by a lender, the appraiser reaches the location of the home. Details such as the square footage, number of bedrooms, bathrooms, the physical condition of the property, an estimate of the amount of work needed to repair damages and the condition of systems such as heaters, plumbing, and electrical systems are finalized. 

Price Comparison: The appraiser checks the prices of similar homes in the neighborhood. Homes are compared based on age, size, architectural style, and design to arrive at the market value of the home. This step is important to arrive at the final value of the home and is a reliable point of reference for the appraiser. 

Preparation of Final Report: Based on the data from the property appraisal process, the appraisers create a detailed account of the evaluation. It would contain the market value of the property and the factors that influence the final price of the home.

A property appraisal is a very important consideration when a borrower’s loan file, reaches the loan underwriting stage. It is one of the final steps that the lender must complete before pushing the borrower’s profile to underwrite.

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