Whenever you apply for a housing loan, your lender would usually need an appraisal of your property. The house appraisal would be required whether you are refinancing a mortgage or buying a home. Simply put, a house appraisal is the value of a home determined by a certified or licensed appraiser. It is based on analysis of the property, recent sales of comparable homes, and the judgment of the appraiser.
Your mortgage lender uses the house appraisal to gauge the risks involved in providing the loan. Property is used as collateral by a lender in case the borrower defaults. The lender needs to make sure that the loan is not too big compared to the property’s value.
The value of your house is its estimated worth in the current market. It also includes the future benefits that can be derived from owning the house. Of course, these benefits would come over a certain period of time. It is quite possible that the benefits would be gained over the loan’s full term.
The value of your house is influenced by several factors. Some of them are the economic trends, government regulations, and social factors impacting the real estate market. The value of your house is not equivalent to its cost. The latter is derived by considering the current expenditures.
They may include labour and material expenses incurred to build the house. If it cost $100,000 to build your home, its value would be lower if its foundation has major problems.
How lenders use AMCs
Many lenders use the services of appraisal management companies (AMCs). The AMCs employ licensed local appraisers to get the appraisals and determine the current value of properties. The lenders can thus eliminate the cost of maintaining a panel of investors.
The AMCs help lenders in providing unbiased values and make sure that they adhere to federal appraisal requirements. In this process, the lender is still responsible for reviewing the appraisal. The lender also has to monitor the AMCs for accuracy. A mortgage company must ensure that the value provided by the appraiser is supported by due diligence investigation.
In cases where the conclusion of an appraisal report does not have sufficient support, additional reviews are needed. Most lenders use tools for appraisal evaluation, which identify the appraisals that need additional reviews.
Asset valuation model (AVM)
Many mortgage companies use asset valuation models (AVMs) to find out property value for second mortgages. Values driven by technology are calculated by the AVMs based on mathematical modelling. It generally involves an analysis of tax assessor valuation, public record data, recent sales history, and comparable sales analysis.
A price based on the current market is determined as a result. This model does not take the actual condition of your house into consideration. AVMs are proprietary and thus prevents the owners of the models from sharing what data they use. They also do not share information about how the data is weighted. You would not have much insight into what exactly contributes to the value of your house.