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Appraisal Review Service          Banking/Finance                Lenders               Report Types

Appraisal Underwriting Considerations

In order for the lender to make a reliable determination as to whether a propertys value constitutes adequate security for a mortgage, substantial data must be analyzed. The appraisal must provide a complete description of the neighborhood, site, and improvements, and that information must lead to an accurate and adequately supported estimate of the propertys market value. Our lender clients love to do business with us because they know that they can rely on getting a quality appraisal report in a time frame that works for them. Our reports meet the high requirements that your underwriters and investors have and if there is ever a question or additional documentation required, we respond promptly to your needs.

"Lenders comprise a large part of our business and we are 100% committed to provide the best possible appraisal and service, in the shortest amount of time, for our lender clients."

Much of the information contained in an appraisal is based upon the appraisers comparison between the subject property and the comparable sales or comps.  Comparable sales are properties that are located in the same market area, or neighborhood, as the subject property and are as similar as possible in size and style.  In addition, the comps must have sold within the last 6 to 12 months.  If the comps are older an explanation from the appraiser must be included with the appraisal and be acceptable to the underwriter.

Quality Control - Appraisal Underwriting Checklist

The facts of the property

Subject property
Septic Tank
Private Road
Flood Hazard 
Room List

The calculation of value

Improvements & Comments
Cost Approach
Sales Comparison Analysis
Opinion of Market Value

The attachments

442 Complete Certificate


Other  Info

Subject property:          
They compare the property address and legal description with the preliminary title report, and purchase and sale agreement.  Any discrepancy must be resolved.

Neighborhood: (Market Area)         
The analysis of neighborhood should include stable ratings.  Any derogatory comments require an explanation from the appraiser.  Compare predominate value with the value of the subject property.  If the subjects value is the either end of the high/low value range, a comment by the appraiser should be included in the report. 

This section alerts the underwriter as to whether the utilities and site improvements are public or private.  Additional documentation may be required, per investor or lender guidelines.  The zoning compliance and flood hazard information is also noted in this section.  If public water, sewer, and road service property, no further documentation is required.  If private well, septic tank, or private road services property, the following documentation may be needed:

Private Well:
A copy of the water purity test by the County Health Department, dated within the last 6 months may be required.

Community Well:        
A copy of the water purity test may be required from the County Health Department, dated within the last 6 months, showing the State ID Number.

Septic Tank:
A septic certification may be needed from a licensed Septic Service company, dated within the last 90 days and stating that it is in good working order.

Private Road:            
A joint use and maintenance agreement may be required.  They will check the preliminary title report to see if one is currently in effect.  Sometimes provisions for private road maintenance are contained within the language of the community's convenants and restrictions.  If such language or a separate agreement does not exist, an agreement must be executed and recorded.  If the subject property is located in PUD, FNMA/FHLMC approval of the development may be required.

Planned Unit Development:  A real estate development of separately owned lots with common areas or recreational facilities, owned by a home owner's association.  In which the owners of the lots have a membership interest.  Each individual unit owner has title to the land under his/her dwelling.

Membership in the Owner's Association is mandatory.  When property is sold, the membership is automatically transferred to the new owner.  Typically, monthly dues are collected for the maintenance of any common elements.  These dues must be added to the borrower's housing debt.

Room List:
This section corresponds with the floor plan sketch done by the appraiser.

Improvements and Comments:        
The improvement analysis requires comments on the condition of improvements and/or construction materials used in the property.  These ratings should all be good/average.  Estimated remaining economic life should have at least five years remaining over the proposed loan term.

Cost Approach:
This approach is important when reviewing properties less then five years old.  The main point checked in this section is loan-to-value, which is the ratio of land value to total value.  It should not exceed 30% of the market value without comment.  In some cases, view or waterfront property may exceed 30%.  This may be considered common, and if this is so, a comment from the appraiser is required.

Sales Comparison Analysis:        
All comparables should be sales within the past 6 to 12 months and not over one or two miles from the subject property.  If an appraiser uses comps out of these basic guidelines, an explanation is required.  Excessive or extraordinary adjustments require explanation from the appraiser.  Additional comparable, listings or pending sales may be used to support the appraisal when a property has unique characteristics, or if recent comparable sales within the neighborhood are scarce.

This section must include whether the property appraisal is made as is, subject to repairs, or completion per plans and specs (new construction).  If subject to, the appraiser should list all repairs necessary to the property to support the appraisers opinion, including such items as complete exterior paint, repair railing on front porch, replace broken window.  A final inspection is required when the appraisal is subject to completion of repairs.  A 442 is required when the appraisal is subject to completion per plans and specs (new construction).

Opinion of Market Value:            
Valuation based upon appraisers interpretation of property analysis and comparable sales provided.   For lending purposes, market value must be equal to sales price on a purchase transaction or support required mortgage loan amount in the case of a refinance.

All appraisals must have photographs of the subject property that include front, rear and street scene.  In addition, photographs of the front scenes of the comparable sales must be provided.  (New construction property appraisals (rendered using plans and specs) contain photographs of the site (usually bare land), and front views of the comparable sales.)

The appraiser must sign and date the report as well as his license number.

442 Satisfactory Completion Certificate:
Commonly known as FHLMC form 442, the 442 is required if the appraisal had major repairs/completion conditions, and it must state that the repairs were done in a professional workmanlike manner.

New home requiring final inspection:  The 442 must state the value at completion and be accompanied by photos of the front view, rear view, and street scene.  In addition, a copy of the final signed-off occupancy permit, or evidence of code compliance is required on properties that are newly constructed or have had extensive remodeling.

Inspections (Pest, Dry Rot, Electrical, Building and Roof):        
Building, Electrical, Plumbing Permits:  may be required on all room additions or extensive remodels.  The county, or other appropriate jurisdiction issues these permits.  The permit is required to show that the structure can be rebuilt if damaged and to show that the subject property meets all current codes.  If the proper permits are not additions/conversions from the final value.

If any inspection is requested, it is the responsibility of the borrower and/or seller, and these are typically ordered and paid for outside of the loan process, unless required by the appraiser or lender.  A license/bonded individual must do the work and inspection, and any repairs noted must be completed and re-inspected prior to closing.

Termite/Pest Inspections:  are required whenever dampness wood-boring insects, or settlement is noted by the appraiser or if it is required by the purchase and sale agreement.  Evidence is required showing the condition or defect to have been satisfactorily corrected.  This may mean spraying for insect infestation, replacing rotted wood, correcting earth/wood contact, or replacing spongy bathroom flooring, and re-caulking the tub surround.  It is possible that an inspection will show no repairs or remedies are required.  In either case, the report cannot be more then 90 days old, and must be made a written by a licensed engineer or termite/pest company.

Roof Certification:  required when the appraiser recommends or requires one, when it is recommended in a pest or structural inspection, or when it is required in the purchase and sale agreement.  The inspection must be performed by a licensed contractor or roofer and have a remaining economic life of 3 to 5 years.

Flood Hazard Determination:            
If the property is in a flood hazard area, borrowers must be informed that they will be required to carry flood insurance, if the property is located in a community that participate in the FEMA flood insurance program.  Proof of flood hazard coverage will be required prior to closing.

Other Appraisal Information:                
If a borrower had an appraisal done by another lender and paid for the appraisal, the borrower is entitled to a "copy" of the appraisal.  However, in cases where BOTH the borrower and the lender pay for the appraisal, the lender may not be legally bound to turn over (reassign) the appraisal.  That does not mean that the borrower does not get a "copy", however, the original lender may not give their authorization to reassign.  IMPORTANT: Only the CLIENT can reassign an appraisal.  See:

Independent Appraisals 10-03.pdf

USPAP Unacceptable Assignment Conditions.pdf

Some of the problems that the Underwriter looks for in an appraisal is that the property is listed as highest and best use, that the zoning designation is acceptable, no excess acreage, not in a flood zone, private well and septic system (this might need a well water test and/or septic inspection and pumping.), they look for comparables to match the size and rooms of the primary house, does the appraiser have large adjustments to the comps, they look closely at the appraisers comments for damage or work orders or other problems,

"Operating Income Statement" (completed by the lender and/or appraiser) will be required when a borrower purchases an investment property to determine whether or not the property will have a positive (net income) or a negative (additional debt) operating expense.