The Appraisal Report

The appraisal report is completed by a licensed appraiser who determines what the value of the inspected property will be. There are three methods that the appraiser will use to validate his opinion in the appraisal report: Comprable sales approach, Cost approach, and Income approach.

The comparable sales approach is determined by recent sales of similar homes in the area of the subject property.

The appraisal report helps determine the value of a property, which in turn will help in determining the LTV, or Loan to Value, of a property. The LTV of a property is calculated by dividing the appraised value of a home and the amount being financed, or the loan amount, of a home. This will determine your LTV. Therefore, the appraisal report is a crucial part of financing a home.

When originating a mortgage loan, the lender looks at risk factors in two basic areas; the borrower and the collateral. The appraisal report is a very detailed document that provides the lender with almost all of the information that is needed to make a proper risk assesment of the loan's collateral.

On investment properties, the appraisal report will often use the income approach to determining value. This approach looks at comparable properties in the area, and compares the income each property produces to come up with a value.

Ask your mortgage professional what their appraisal review process is. Many lenders currently order an automated valuation model or AVM on a property. If there is a significant variance from the AVM to the appraised value, further appraisal review is required.

» DISCLAIMER: The information contained in this article on 'The Appraisal Report' is a collection of contributions by licensed mortgage professionals and is not the opinion of Broker Outpost LLC. Always consult a licensed professional before applying for a mortgage.