What is a home worth? This is a basic question a lender asks when considering a loan for a potential mortgage borrower, and it plays a fundamental role in the mortgage process. Determining the value of a home to be financed limits a lender’s risk, since that property provides the means of recovery for the lender should the borrower default.
For example, if a mortgage company loans $120,000 against a property worth $150,000 and the borrower defaults, the lender has to sell the property at foreclosure — a costly and time-consuming process. If the home sells for less than the remaining loan balance plus foreclosure expenses, the lender takes a loss. A solid, objective opinion of the home’s value helps the lender assess that risk and prevent a loss due to foreclosure.
A residential real estate appraisal is generally required for all mortgage transactions to help limit these risks. It’s a supportable estimate of property value, drawing its conclusions from data obtained from the market and the subject property. The mortgage company hires the appraiser — not the buyer or seller — to provide a clear and objective statement of a property’s value.
The Department of Housing and Urban Development (HUD) requires appraisals for all FHA-insured loans. HUD requires a minimum standard to be met by all FHA-approved appraisers, including additional education and training, state licensing or certification, and approval by the lender to conduct FHA appraisals.
FHA emphasizes that an appraisal is not a home inspection and doesn’t guarantee that a home is without flaws — this is called the “HUD No-Warranty” policy. However, FHA does take steps to help ensure the home is in safe, sound, and sanitary condition; the FHA appraiser is expected to require repair or replacement of anything that may affect the safe, sound, and sanitary habitation of the house. If repairs are required, the buyer receives a list from the lender, and the seller is typically responsible for seeing that repairs are completed according to local and FHA guidelines.
The value an FHA appraiser places on a property is more than just the value of bricks and mortar. If you’re using inexperienced FHA appraisers, or appraisers who haven’t kept current with recent changes to FHA guidelines, you may be exposing yourself to potential liability down the road. We have over twenty years of combined experience as FHA appraisers and stay current on the latest training — if you’re worried that your current appraisal vendor isn’t up to speed, give us a call.
Metro Real Estate Appraisal Services maintains corporate offices in Sea Isle City, NJ, with a branch office in Delran, NJ. Our primary service area for typical residential appraisals covers southern New Jersey; our commercial and industrial coverage extends across New Jersey, eastern Pennsylvania, and northern Delaware, with nationwide quotes available on larger commercial/industrial properties.