Top 5 Things to Know About Underwriting
By Elizabeth Dougherty
When buying a home, we all want to know
we are getting the best deal possible. We
want to know that spending our hard
earned money is worth it. In order to make
that determination, you need an appraisal.
Banks have specific guidelines when
reviewing appraisals for the purpose of
lending money on residential property.
Generally they like to order the appraisal
from their own list of approved companies.
Here are the top 5 things to know about
appraisals:
1 Comparable Properties
These are the other homes in your
neighborhood that have sold, normally
within the past six months. Banks want
to see recent sales of homes that are as
similar to your home as possible. In other
words, if you have a pool, they want to see
homes with pools. They want to see similar
lot sizes, square footage and amenities.
2 Description of the Subject
This is a detailed analysis of your home
(or prospective purchase) with details
that include price, square footage, lot
size, amenities, and every other important
aspect that contributes to your home’s
value.
3 Subject Area/Neighborhood
This portion details the value of homes
in the area, marketing time of other
properties and whether the area is
declining, increasing or remaining steady
in value.
4 The Cost Approach
This is a less relied upon method of
determining value. The Marshall and Swift
guide is generally used to calculate the
cost of building a property. The land value
is added to give the total cost. Banks
generally rely on Fair Market Value rather
than the Cost Approach.
5 Fair Market Value
This is the determination of what a buyer
would be willing to pay for a property at
a given moment in time. It is based upon
a number of factors, the market climate,
demand in the local area, and how
comparable properties are selling.
Whether you are using a bank for
financing or just considering putting your
home on the market, ordering a current
appraisal can give you an excellent
snapshot of how much your home is worth
in today’s market. It is money well spent.
Elizabeth Dougherty, a resident of
Auburn, is a former Real Estate Broker
and Mortage Broker. She can be
reached at EADougherty1@aol.com.
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