Appraisal Know How in a Lending Situation

1) What is an appraisal? (circle the correct answer)

a. a value based on what the lender needs

b.      an unbiased estimate of value by a disinterested third party

c.       worthless paper

2)  What is market value?

a.       the purchase price

b.      the cost of new construction

c.       a most probable sale price as of a particular point in time

3)  Why would a lender be concerned about market value or the condition of a property (check all that apply)

            ▪  collateral for a loan

            ▪  calculation of the mortgage amount

            ▪  calculation of points if the borrower wants to do a buydown to obtain a lower interest rate

            ▪  to prevent a buyer from purchasing a home in the wrong location

            ▪  to have the ability to re-sell the property in the case of a foreclosure situation

            ▪  to calculate PMI (private mortgage insurance)

            ▪  to determine when PMI payments can be eliminated

            ▪  so the mortgage can be sold on the secondary market and you, the borrower,

            can obtain a better interest rate

4)  Are appraisers certifying the condition of a home?

            ____Yes         ____No

5)  What the the four Cs in a mortgage situation?  (cross out the incorrect response)

a.       capacity

b.      clarity

c.       cash

d.      character

e.       collateral

6)  Which of the four Cs does the appraisal deal with?  ________________________

7)  Who orders the appraisal in a lending situation? (circle the correct answer)

a.       the borrower

b.      the seller

c.       the lender

d.      the realtor

8)  The lender will use the appraisal to determine the amount of the mortgage based on the loan-to-value ratio.  What would the mortgage amount be in the following scenario:

            $100,000 estimated value of property               $100,000 Value

            90% loan-to-value                                            (  10,000) Downpayment

            $10,000 downpayment                         $               Mtg. Amount

9)  What would the downpayment and mortgage amounts be in the following scenario?

            $200,000 estimated value of property

            90% loan-to-value

            _______________ Downpayment (hint:  downpayment & LTV typically equal 100%)

            _______________ Mortgage amount (hint: downpayment & mtg. amount equal value)

10)  Who receives a copy of the appraisal from the appraiser?  (circle all that apply)

a.       the borrower

b.      the seller

c.       the lender

d.      the realtor

11)  Will the appraisal affect the taxes on the subject property?  _____Yes     ____No

12)  What are the three most important aspects in purchasing a home?

            1.________________

            2.________________

            3.________________

13)  Do homes generally appreciate in value due to good maintenance?  ____Yes    ____No

14)  What type of background/abilities/skills do many appraisers use/need?  (check all that apply)

• background in construction and/or drafting
• real estate background
• appraisal license for the type of property being appraised
• continuing education to maintain an appraisal license
• familiarity with the geographic location in which the subject is located
• self-motivation
• strong sense of ethics, professionalism not easily swayed by public opinion
• research skills
• ability to communicate the research and conclusions in written and verbal formats
• detail-oriented
• ability to use logic
• ability to be creative
• ability to work with many different groups of people (government entities auditor, assessor, treasurer offices; as well as zoning personnel, highway departments, etc.; lenders; realtors; homeowners; attorneys;..)
• computer skills
• ability to teach classes
• sense of humor
• reliable vehicle
• ability to use many tools: measuring devices; 35mm or digital cameras; camcorders; and ability to change as technology changes
• common sense
• no end to this list

Answers:

1)  b, an unbaised estimate of value by a disinterested third party

2)  c, a most probable sale price as of a particular point in time in terms of US dollars

3)  the only "wrong answer" is:  to prevent a buyer from purchasing a home in the wrong location.  The lender would be concerned about all of the other answers

4)  No, the appraiser is not certifying the condition of the home

5)  b, clarity

6)  collateral

7)  c, the lender.  However, if a buyer wishes to use the appraisal to negotiate the sale price, as well as for lending purposes, the buyer may contact the lender and ask if the appraisal could be used for both purposes.  The buyer may then contact the appraiser and start the process rolling.

8)  $90,000

9)  $ 20,000 downpayment

    $180,000 mortgage amount

    $200,000 estimated value of property

10)  c, the lender (unless the lender gives written permission to the appraiser to forward a copy of the appraisal to another party)

11)  no, the appraisal will not affect the taxes on the property

12)  location, location, location

13)  yes, homes generally appreciate in value due to good maintenance (this is, of course, dependent on market conditions as well)

14)  appraisers need all of these -- other than maybe the sense of humor:)