Property appraisals for mortgages are an essential process that ensures a fair transaction for all the parties involved, matching the actual property value to your loan. Ensuring this process doesn't become a hurdle should be a priority number 1.
Therefore, as you approach this part of the mortgage process, consulting with Moneysprite's experienced mortgage advisers can simplify it.
Property appraisals are often required and carried out by the lender to mitigate lending risks and, at the same time, to protect borrowers. By conducting an appraisal on the property subject to purchase, the lender can ensure that the property’s real market value does not exceed the loan amount.
If the loan amount were greater than the property’s real value, the homebuyer would be in negative equity, meaning they owe more debt on the property than what it’s worth. This is dangerous for all parties.
For example, if the homebuyer cannot keep up repayments, the property has to be seized and sold. If the sale raises less than the mortgage debt, there would be a shortfall, and the lender would not get all its money back easily. Furthermore, the lender would then pursue the homebuyer to repay this debt.
Property appraisals ensure an understanding of the property’s real market value, which is important for the lender and buyer when mitigating lending risk.
There isn’t just one type of property appraisal. There are different property appraisals or rather, different parts of the property appraisal process. This includes a condition report/building survey and a mortgage valuation. Both provide specific details required by the lender, buyer, or both.
A condition report, also known as a survey, is an in-person assessment of the property’s condition, including its structure. These are carried out by Chartered Surveyors who are members of the Royal Institute of Chartered Surveyors (RICS). The survey is ordered by prospective buyers of a property as part of their due diligence on the property and sometimes by the seller of a property to encourage a sale.
A mortgage valuation/property appraisal is carried out by the mortgage provider. They carry out checks to arrive at a market valuation of the property being purchased. Sometimes, this requires an in-person visit to the property, but more often than not, the lender can complete the valuation remotely, known as a desktop valuation. The lender will draw on existing information and recent data to uncover the property’s valuation.
A property appraisal can be completed within three or four steps, namely:
A wide range of factors must be considered as part of a home appraisal carried out by the lender. The size of the property and its location will be considered when comparing properties that have sold in the same or nearby areas. The condition of the property will also be considered when comparing similar properties that recently sold, including any unique features or home improvements that have been made before the sale.
The appraisal will heavily lean on market trends. For example, if property prices have recently declined, this would be considered when comparing historic sales of similar properties within the area. Overall, a wealth of data is accumulated and digested in order for appraisers to arrive at a real-time accurate market value.
A property appraisal carried out by a lender will often include a more detailed analysis of the property and relevant data to determine its value. On the other hand, a property valuation, usually carried out by estate agents, is generally quicker and based on less data, which can sometimes make them less accurate, setting unrealistic expectations.
The potential implication of a lender’s appraisal is that if the lender values the property at less than the sale figure, they may not provide the funds for completion, and the sale will fall through.
To avoid these somewhat rare situations, buyers need to complete their own due diligence when making an offer. Buyers should consider the sale price of similar properties that have sold in the area recently when making their offer. Moreover, it’s essential to prevent a bidding war between buyers from pushing up the sale price way beyond the property’s real value. Last but not least, buyers should renegotiate the sale price if they find issues after engaging a quantity surveyor.
Lender property appraisals can cause anxiety among buyers trying to get their mortgage over the line. Our team reduce angst and concern throughout the process by providing various supportive mortgage services and consistent clarity. Contact us now for more information on how we can help.
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