An appraisal is used to determine the value of the property being purchased or refinanced. Appraisers and appraisal reports are subject to government regulations. These regulations are designed to ensure the competency of appraisers, reports are complete and accurate, and financial institutions act responsibly. Regulations require a copy of the appraisal be delivered to the borrower no less than three days prior to closing, but Centennial Lending provides a copy of the appraisal as soon as it has been received and reviewed.
Appraisers generally complete an interior and exterior inspection of the property. Once the inspection is completed the appraiser will compare the qualities of the subject property to recently sold “comparable” properties. Appraisers focus on square footage, location, lot size, number of rooms, design, etc., and adjust the value of the subject property based on how the quality compares to the comparable properties. In the case of an investment or multi-family property the appraiser will also consider potential rental income. Finally, the appraiser assigns a value.
The appraised value may match the contracted sales price. The contracted sales price is a great indicator of market value as it represents the amount a buyer is willing to pay, and a seller willing to accept, for the property. Alternatively, the appraiser’s evaluation may result in an appraised value greater or less than the contracted price.