Prop­erty val­u­a­tion ex­pec­ta­tions

Ottawa Sun - New Homes - - FRONT PAGE - Dy­lan Nosé Dy­lan Nose is a mort­gage bro­ker with In­vis. For more in­for­ma­tion, visit www. dy­lan­nose­mort­

It’s been a while since we ad­dressed an of­ten for­got­ten or over­looked part of the mort­gage process: the ap­praisal. It’s not for the lack of their im­por­tance, but for the fact that they aren’t al­ways a re­quire­ment in mort­gage trans­ac­tions. Of­ten, they hap­pen be­hind the scenes with­out clients know­ing or pay­ing for them; even when there is no ap­praisal, the value of a given prop­erty is al­ways taken into con­sid­er­a­tion. It is a huge part of the risk fac­tor and thus the ap­praisal is re­quired to en­sure the lender’s po­si­tion is pro­tected. That may prompt you to ask, “what good is that for me?” and the an­swer to that is: if the lenders aren’t pro­tected through the proper steps, the in­tegrity of the en­tire mort­gage lend­ing in­dus­try could fal­ter and the con­se­quences of that could land in the laps of ev­ery­day con­sumers.

The ap­praisal i s cer­tainly some­thing which has in­creased in pop­u­lar­ity in the last five to seven years. It’s an­other step in the process and an­other ex­pense as well. It can amount to an­other three to five days of co­or­di­na­tion, ex­e­cu­tion and dis­tri­bu­tion which can create a tim­ing is­sue on im­pend­ing clos­ings; but the ex­pense isn’t go­ing to break the bank as most run about $300-$350. The more unique the prop­erty, the greater the ex­pense and of course com­mer­cial prop­er­ties can be con­sid­er­ably more.

In sim­ple terms there are ba­si­cally three types of ap­praisals: the elec­tronic ap­praisal, the drive by, and the full ap­praisal.

Each lender will have an ap­praisal pro­gram to de­ter­mine whether a full or just a drive-by ap­praisal is re­quired. This is known as an Au­to­mated Val­u­a­tion Model, or AVM. There is typ­i­cally not a fee for this; in fact, I be­lieve that there is only one lender who charges for the use of this sys­tem and it’s around $100 or less. De­pend­ing on the deal, most bro­kers would cover this cost for their client, es­pe­cially on five-year terms or mort­gages above the 300k range.

When the AVM fails to pro­duce a value that is rel­a­tive to the ac­tual pur­chase price a full ap­praisal will be re­quired. Some­times this can be re­duced to a drive by ap­praisal if other strengths of the ap­pli­ca­tion deem an ex­cep­tion.

What is con­fus­ing about the ap­praisal is when we ac­tu­ally need one. When it is an in­sured mort­gage (so those in­di­vid­u­als with less than 20 per cent down) there is al­ways an ap­praisal be it a full, drive by or AVM. The cli- ent rarely ever knows that this hap­pens since in­sured mort­gage ap­praisal fees are cov­ered by the in­surer.

Re­fi­nanc­ing a mort­gage or an eq­uity line or credit ap­pli- cation will al­most al­ways re­quire an ap­praisal. If the lender is a sub-prime lender, aka, a “B” lend­ing deal, there will al­ways be an ap­praisal re­gard­less of it be­ing a pur- chase or re­fi­nance. Typ­i­cally, on th­ese deals there is an is­sue with credit or in­come and the risk is in­her­ently higher, prompt­ing the ne­ces­sity for an ap­praisal to min­i­mize risk.

There is not al­ways an ap­praisal when it is a pur­chase, es­pe­cially if you have 20 per cent down. This is es­pe­cially the case in dense ur­ban ar­eas which have highly sought af­ter real es­tate pock­ets. In th­ese cases, the AVM will pro­duce an ex­pected value which is com­pa­ra­ble to the pur­chase price. There are typ­i­cally other sales within a rea­son­able time frame of the same or sim­i­lar prop­er­ties which help en­sure that the lender isn’t lend­ing be­yond their loan to value guide­lines.

In many cases, ru­ral prop­er­ties will re­quire ap­praisals re­gard­less of the down­pay­ment amount pro­vided or any other ap­pli­ca­tion de­tails. An­other unique ex­am­ple would be age re­stricted prop­er­ties, those that may be in age re­stricted com­mu­ni­ties, where the re­quired age of in­di­vid­u­als must be above a cer­tain thresh­old, such as 55+.

Man­age your ex­pec­ta­tions about an ap­praisal and keep in mind that it can or will be an ad­di­tional ex­pense and time con­straint in the mort­gage process. The pos­si­bil­ity of an ap­praisal should be dis­cussed in the pre­lim­i­nary stages and keep in mind that it doesn’t re­ally mat­ter which lender or mort­gage agent you use, the ap­praisal con­di­tion, if re­quired, will be there. It doesn’t hurt to push back on this con­di­tion to try and have it waived but in the end if the ap­peal for a waiver is de­clined you will have to cover th­ese costs.


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