Every time I receive the value of a property from the appraiser, I hold my breath. The result determines not only the value of the loan but also if the home has any issues/needs repairs before closing.
Basically, the appraisal is a big deal.
For more, read a recent piece in The Wall Street Journal called "When a Mortgage Hinges on Home Values."
Just to recap, the appraisal provides the market value for a particular property. The lender uses the value to determine how much to lend the borrower (ie. loan-to-value or LTV). The loan product determines the LTV (more information here).
Now, what you MUST understand about appraisals.
There are several unacceptable appraisal practices such as:
- provide a market value that's misleading
- misrepresent the physical characteristics of the property
- use data from parties with a financial interest in the sale or in the financing of the property without appraiser verification from a disinterested source
- Visit the Fannie Mae website for these and other unacceptable practices