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Selling 101: Appraisals and Underwriting

Appraisals

Once the purchase agreement is accepted and signed, and the inspection is removed, the mortgage process will start. The mortgage company will order an appraisal and collect any remaining paperwork they need.

The appraisal will get sent out to an appraisal company, where that company will assign a licensed appraiser to appraise the value of the property. The appraiser will schedule an appointment and go and view the property, take measurements, and some photos. They will use this information to compare it to other recent home sales to come up with a fair market value for your house. This usually happens through our automated showing system.

An appraiser will come up with their valuation and this may be different than the purchase price. If it is at or higher than the purchase price, that’s fine. If the appraisal comes in lower, then we have an issue. There are a couple of methods to resolve this issue. 1. The buyer can come up with more cash to cover the difference. 2. We can try to negotiate the price down to the appraised value with the buyer. 3. We can try to appeal the appraisal. #2 is often the goal, especially if the house is targeted primarily at FHA buyers, since an FHA appraisal stays with the property for 6 months. This means if we don’t adjust the price and we walk away, the property cannot be sold to anyone else for anything higher than the appraised value anyway. #3 almost never happens. Appraisers don't adjust their values.

Work orders

FHA requires certain health and safety standards to be met in a home before they will insure a mortgage on a home. These FHA appraisers may look for and note the following: missing hand rails, peeling paint (especially on the exterior), missing outlet covers, exposed wires, broken steps, non-functioning furnaces and water heaters, and more items.

If the appraiser calls an item out, this usually will end up in what’s called a work order. Work orders usually need to be done by the seller, and once it is done, have the appraiser come back out to verify that the work order was completed.

Underwriting

Underwriting is part of the mortgage process. The underwriter is the person that looks at the amount of risk involved in issuing the mortgage to the buyer. They take into account all the factors of the buyer as well as the various factors involved with the home itself (via the appraisal). They typically will analyze the buyers' credit report, your income statements, and the appraisal of the home. Their determination results in an approval of the loan, or the disapproval of the loan.

Underwriters can be asked to re-evaluate the file if something is amiss. This process can add a few days of delay to the closing date though.

Steven Hong - RE/MAX Results 
REALTOR, e-PRO, GREEN, Old Home Certified 
7700 France Ave S #230, Edina, MN, 55435 
612-990-9009 (cell) 
952-915-2252 (office)
Licensed in Minnesota. Disclaimer: Each office independently owned and operated. Privacy Policy
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