A version of this post originally appeared in the December edition of Scotsman Guide.
Loan officers and listing agents are familiar with homeowner anxiety about real estate appraisals. Questions arise, such as:
- Does the appraiser penalize me if my house isn’t spotless?
- Will worn carpeting hurt my value?
- Will the appraiser look in my closets?
- Should I follow the appraiser and point things out?
Real estate appraisals serve an important role in the mortgage lending process and many borrowers will have personal experience interacting with an appraiser during a refinance, and possibly even a purchase. The appraisal inspection is typically where such interactions occur, and this can be a stressful experience for the borrower. To relieve some of the stress, savvy loan officers educate their borrowers on what to expect from an appraisal inspection and how to prepare. Since appraisal inspections in the current environment may be in-person or virtual, there are many tips to help your borrower prepare for the appraisal.
Tips for an On-Site Appraisal Inspection
Even with the appraisal inspection flexibilities introduced to address concerns surrounding COVID-19, on-site appraisal inspections remain the dominant appraisal inspection level for residential real estate loans. As such, your borrower should prepare for the appraiser to visit the property and conduct an interior inspection of the dwelling.
In general, real estate appraisers conduct an inspection of the house comparable to that of a homebuyer. The appraiser will typically walk through each room, make notes about the condition/quality/features of the real estate (not the personal property), sketch the interior layout, take pictures of the rooms, measure the exterior, walk the site, and take exterior pictures. It’s common for the appraisal inspection to last 20-45 minutes, depending on the size and complexity of the property.
Preparing the Interior
Although the appraiser is not the “dirt police” and will not penalize your value because of dirty dishes in the sink, it’s helpful to prepare your house in a manner similar to preparing for a real estate showing. For example, if you were selling your house, how would you prepare the interior/exterior to maximize its appeal for prospective buyers? You may want to take a similar approach to staging your house for the appraiser. After-all, the visual appeal of the home is typically important to its value, and thus it’s a good idea to portray your home in the best possible light. Organizing furnishings and personal property to highlight the amount of space and layout; opening shades and curtains to allow natural light to illuminate the room; and ensuring the floors are decluttered are some ideas to help enhance the visual appeal.
Preparing the Exterior
Misconceptions abound regarding landscaping and whether it’s considered in an appraisal. With rare exception, landscaping matters to value because it reflects on the appeal of the property. As such, appraisers view the appeal of landscaping and exterior condition much the same as a typical buyer would. Like the interior comments mentioned earlier, manicuring your landscaping as you would for a real estate showing is helpful for increasing the curb appeal of the property. Also, ensuring that personal property items like yard toys, lawn care tools, and other items are stored or neatly arranged aids in the visual appeal of the property. Although an appraiser is appraising only the real estate, a disheveled yard may unintentionally detract from the appraiser’s impression of the property
Managing the Visit
The process for conducting an appraisal property inspection is non-standardized. Accordingly, the sequence of the inspection, including which areas are inspected first, when photographs are taken, and how the appraiser compiles notes may vary between appraisers.
Let the Appraiser Control the Inspection
Since many appraisers have a routine for property inspections that keeps them organized and efficient, it’s best to allow the appraiser to control the inspection process.
Ask for Some Q&A Time
When the appraiser arrives, it’s helpful for the borrower to ask the appraiser for a moment of their time at the end or the beginning of the inspection, whichever the appraiser prefers, to ask questions and provide some information. This will ensure the borrower is afforded time to provide information to the appraiser.
Accompany the Appraiser
The borrower may want to accompany the appraiser throughout the visit to answer questions and ensure that all rooms are accessed. Unfortunately, there are occasions where appraisers have missed lavatories because they assumed a door led to a closet. However, borrowers that distract the appraiser or interrupt the inspection process may become a source of frustration for the appraiser. As such, quiet accompaniment is typically appreciated.
Point Out Noteworthy Items
In advance of the appraisal inspection, the borrower should consider creating a list of noteworthy features, updates, improvements and amenities of the property. Even if the appraiser is likely to notice these items independently, it helps when the borrower knows it’s okay to provide such information to the appraiser. When the appraiser is ready for discussion, the borrower can briefly read through the list and provide a copy to the appraiser. This information may generate questions from the appraiser and will ensure that the appraiser has maximum information about the property.
Identify Competing Sales
The borrower may consider researching the area for recent sales that appear similar to their property. These sales can be provided to the appraiser along with the list of noteworthy items mentioned above. The borrower should look for sales that represent a market alternative to the borrower’s property – properties that would be a realistic competitive alternative. Considerations include similar characteristics such as: house size; age, lot size, location, view, quality, condition, design appeal, and location appeal. Although the appraiser will likely have access to this same information, such research may help the borrower in developing a reasonable perception of their house value. Also, the borrower may have inside knowledge about some of the sales – information the appraiser may find useful.
Competing sales may be found by searching the tax assessor website or by using one of the many property listing/sale websites. A catalog of links to tax assessor websites can be found at netronline.com.
Identify Competing Listings
The borrower can search for competing listings using free property listing websites. Similar to searching for competing sales on tax assessor websites, current property listings can help the borrower assess the market competition, which may serve as useful data points in the process of estimating a possible value range for the borrower’s property. Of course, property listings represent aspirational results and the actual sale prices may be higher or lower than the current list price. Regardless, listings indicate current competition in the marketplace and can be particularly useful when recent comparable sales are limited, or the market is experiencing rapid change. Hint: when using an internet search engine, type “property listings.”
Tips for a Virtual Appraisal Inspection
Virtual appraisal inspections and drive-by appraisals (i.e. the appraiser is not physically inspecting the interior) have become more frequent on forward first-mortgage loans in recent months due to appraisal flexibilities offered by Fannie Mae and Freddie Mac and other entities. With these flexibilities, appraisers may utilize third-party inspection applications or video chat to connect with the borrower and conduct a “virtual inspection” of the borrower’s home. Regardless of the technology used for a virtual inspection, the borrower should consider preparing for the inspection in the same manner as the aforementioned guidance for on-site inspections.
Although preparation for a virtual inspection is comparable to that of an on-site inspection, there are a few differences in managing the inspection that are helpful to note.
Managing the Inspection
If using a third-party technology application (“App”) to collect interior/exterior pictures for the appraiser, the App borrower may require the borrower to photograph specific rooms and angles. Additionally, many Apps allow the borrower to add extra photographs and include descriptive comments. The borrower should be encouraged to portray the property in a realistic manner – to ensure that the photographs capture the property in its overall true and complete condition. Supplying extra photographs and descriptions of updates, repairs, remodeling, key features, and amenities are helpful and important. This is a great opportunity to convey similar information to the appraiser as may occur during an on-site inspection.
If doing a virtual inspection via video tour, the appraiser will typically direct the sequence of the inspection, much as they would during an on-site inspection. During such an inspection, the borrower may consider pointing out key items during the inspection. Also, the borrower may request the appraiser’s e-mail address so the borrower can send a list of key items, such as: updates, repairs, remodeling, features, and amenities. Also, this is a good time to send a list of similar sales or listings they would like the appraiser to consider.
Although the borrower’s interaction with the appraiser is typically limited, this interaction can influence the borrower’s overall experience with their loan process. As such, providing these tips to prepare your borrower for the appraisal inspection can be useful in reducing surprises, empowering the borrower, and enhancing borrower satisfaction.