A crucial facet of the mortgage application process is the appraisal report, but not enough brokers are paying attention to the details.
“There are things agents and brokers need to know before an appraisal goes to a lender because they’re managing the client relationship,” said John van Oosterhout, director of partnerships at Value Connect, an appraisals company.
“Lenders approve deals for pricing, but it’s not the only thing. The zoning could be off; the economic life could be off. It may not just be one thing, it may be a balance of probability; it may be a number of things on the appraisal report that on their own accord a lender may not decline, but together makes a lender nervous. Agents and brokers need to learn how to read the appraisal and understand what it is the appraiser is saying on the report before it goes to the lender.”
Property comparables and economic are among the most essential aspects of the appraisal report, and van Oosterhout advises brokers not to dismiss them.
“Appraisers go out and do a direct comparison so you’re getting like-properties in like-markets, and in like-neighbourhoods, to get a valuation, but the comparisons might not be as recent as they should be,” he said. “Agents and brokers need to look out for that. They need to know if the zoning is residential or agricultural and commercial. Lenders may not lend against a property if, in five years, the appraiser says the property won’t be worth anything because the economic life is low.”
On the issue of comparables, there are telltale signs about market fluctuations, and that’s why the dates of the comparables are decisive.
“How old are they?” asked Vickery. “We don’t expect brokers to go into fine, fine detail, but we expect them to go through them. If an appraiser can’t get a comparable that’s fairly close to the date of three to six months, it means maybe there isn’t one, which means the market is changing.”
In such cases, realtors become reliable resources because they can provide lenders with a current market analysis. Using the multiple listings service is also an option.
In addition to understanding what the appraiser is communicating through their report, it is helpful for lenders when brokers try to understand why the appraiser is asked to do certain things.
“One thing we ask for is pictures in every room and any outer building, like a garage,” said Joanne Vickery, Fisgard’s mortgage portfolio manager. “We want to ensure there’s nothing illegal or any paraphernalia in those houses. We’ve gotten appraisals back where the appraiser couldn’t get into a room, and that raises a red flag about why they couldn’t get into that room.”
Don’t overlook the zoning box on the report, either, because lenders will automatically decline the application if the right zoning category hasn’t been checked off.
van Oosterhout warns not to forget reading the appraiser’s comments.
“If there’s something funky about the property, the appraiser will likely comment on it and type in that something is off-base with this property,” said van Oosterhout. “A lot of agents don’t read that, but it’s one of the first things an underwriter looks for. Besides pictures, it’s the second-most viewed part of the appraisal report. I’ve seen pretty weird comments over the years that agents and brokers should have picked up on.”