House valuation checklist
Whether you are a homebuyer or a home seller, you have a legitimate interest in the valuation. As the buyer, you pay for the valuation on behalf of your lender, and the average cost is $ 337. Your main concern is that the estimate, without artificial inflation, accurately reflect the true value of the home you are planning to buy. If you are the seller, you also want an accurate, but not understated, review.
Both of you should know that the appraiser is legally independent and his job is to ensure that the lender receives the most accurate valuation of the home being valued.
Most of the time, however, buyers and sellers want to know what is being tested and what is not. This article will help answer these questions and many more when it comes to the evaluation process.
The central theses
- The evaluation process depends largely on the type of loan applied for.
- Appraisers are independent third parties when buying a home, regardless of who takes the account
- An appraisal appraises value and an inspection determines the condition.
- Knowing what to expect – whether to buy or sell – can help make the process more efficient.
- Your knowledge of the requirements of the different loan types can influence the type of loan you are looking for.
Time of evaluation
Typically, when selling a home, the valuation initiated by the buyer’s lender is done after the seller accepts the buyer’s offer. When you refinance your home, the appraisal is part of the loan processing and takes place before the final approval.
Expect the on-site assessment part to take anywhere from 20 minutes to a couple of hours depending on the size of your property. During this time, the appraiser takes photos of living spaces to document the condition of the house. The appraiser then prepares a written report that he submits to the lender. This process usually takes three to five days.
If you have an FHA loan and are doing a streamlined refinance, then usually no assessment is required.
The basic evaluation process
First, the appraiser conducts research to determine the selling price of at least three properties in the area that are similar in size and furnishings to the house to be valued. This process is known as “comparative values” or “comps” in industry jargon.
The appraiser then conducts an on-site tour of the home being valued, using forms approved by the lender and insurer depending on the type of loan requested: conventional, Federal Housing Administration (FHA), United States Department of Agriculture (USDA) or the US Department of Veterans Affairs (VA).
Something that might surprise homeowners is the fact that your household skills are not a huge issue for appraisers. The certified home appraiser Gynell Vestell puts it this way: “The reality is that the appraisers are trained to look beyond an unmade bed, dishes in the sink, opened laundry or children’s toys on the floor.”
Conventional credit rating checklist
With traditional loans, lenders expect the appraiser to review:
- Condition of the house, with a special focus on damage
- Condition of equipment, stove, air conditioning, water heater and other mechanics
- Size of the house and property
- Landscaping quality
- Quality of roof and foundation
- Number of rooms, bedrooms, closets, bathrooms and windows
- Light and sanitary quality
- Number of chimneys
- Condition of a swimming pool or sprinkler system
- Quality of the cellar, even if it is finished or unfinished
- Details like granite countertops, hardwood floors, and appliances
- Upgrades, remodeling, modernization
A valuation is not just a house inspection. A valuation report determines the value. An inspection determines the condition.
‘Subject to’ flags
One catch that sometimes appears in traditional (and other) credit ratings is the “subject” flag. It indicates adverse conditions or issues that need to be examined and / or corrected before a mortgage loan can be approved.
In many cases these articles are flagged because the reviewer is not an expert in the field and wants a more definitive opinion. Articles that fit into this category are:
- Signs of termites, moisture, or abnormal settlement of the foundation
- Additions or installations that do not require a permit
- Roof leak or roof damage
- Inadequate electrical or plumbing installations
- Environmental hazards
HUD assessment checklist
Both FHA and USDA loans require that appraisers perform additional inspections that are in line with US Department of Housing and Urban Development (HUD) guidelines. For these loans, the appraiser must also check the following:
- Property drainage moving away from the house, not towards it
- Handrails next to steps and stairs
- Essential foundation
- Adequate ventilation and working mechanical systems
- A roof without leaks that does not need to be replaced for at least two years
- Lead-based paint (usually found in homes built before 1978)
- Paint defects (chipping, peeling or peeling)
- Detection of termites
- Damage to the driveway or sidewalk
HUD Handbook 4000.1 and USDA Chapter 12: Real Estate and Valuation Requirements lists additional valuation requirements for FHA and USDA loans.
The FHA requires evaluators to look for signs of termite infestation, but does not require a full termite inspection unless the evaluator finds evidence of termites.
VA assessment checklist
A VA rating differs from other ratings in several ways:
- The appraiser is licensed by the VA.
- The VA elects the appraiser (not the lender).
- The rating must be reviewed by a VA appraiser or a lender’s Personal Appraisal Reviewer (SAR).
- Following the verification process, the appraiser issues a notification of valuation (NOV).
- The NOV displays the home’s value and lists any required repairs – marked with “subject to” flags – that must be completed before the loan can be completed.
As with FHA and USDA loans, VA loans, in addition to typical value-based judgments, require appraisers to conduct “inspection-like” reviews. VA reviewers are expected to review:
- Heating system that can heat the interior to 50 degrees Fahrenheit
- Sound canopy that lasts a “reasonable time”
- Functioning sewer system
- Working water heater
- Pure drinking water
- Safe foundation
- Work aids
- Required pest inspection
- Peeling or peeling paint
- Missing banisters
- Broken windows
- Rotting wood
- Water stains
- Exposed wiring and other electrical issues
How to use this information
Whether you are selling, refinancing, or buying a home, the information above can help you know what to expect in the valuation and use that knowledge to your advantage. For sellers and refinancers, use the information to find and fix problems, update and otherwise maximize the value of your home, and prevent disaster. If you are a buyer, use your knowledge of reviews to understand what to look for when evaluating your potential new home and use this as a lever to get a fair deal.