The appraisal process may appear subjective to many property owners but bank appraisers must use a specific formula to assess property value. A lender must obtain an appraisal prior to approving a mortgage loan in order to compare the property value to other recent transactions. Although there is choice about which properties the appraiser can use as comparison, the appraiser adjusts values based on these comparative data points.
Appraisers are also called in to compare the property value prior to approving a refinance loan. The process used in the outright sale and refinance are quite similar. The appraiser evaluates the contract for purchase and is apprised about the buyer’s purchase price. The appraiser uses market comparison data to support or reject the property price. Some buyers actually achieve prices below the market (a positive factor for the appraiser) while others place significantly higher prices relative to recent transactions. Refinancing a loan doesn’t require the appraisal in all cases, but the borrower is likely to order one. An appraisal of the home’s value is directly related to the rate the home owner will pay, and whether the home owner will need PMI.
Some appraisers aren’t affiliated with mortgage lenders and, in many instances, the home owner can utilize the services of an independent professional. For example, if the borrower has been rejected for a mortgage loan or property refinance, he or she may hire an independent appraiser to support comparative value or other items that have been brought to light by the lender’s appraisal process.
An independent appraiser may be called in when a refinance loan is denied because the property has appraised too low. The borrower can dispute the findings through an objective process. The independent appraiser should offer evidence of comparative property transaction data that wasn’t provided by the lender’s appraiser. This information is then provided to the lender’s underwriting staff.