Today, one of the biggest bottlenecks to getting approved for financing by a lender is the time it takes for an appraiser to visit the property, submit the appraisal report and have it approved by the lender (aka “appraisal turn time”).
The purpose of this article is to explain how the appraisal process works, why appraisal turn times are slower today than ever before and to provide homebuyers with strategies for addressing this issue.
What is an Appraisal?
An appraisal is a report prepared by a professional appraiser that sets forth an unbiased opinion of value. This report is used by the lender to assure the market value of the property you are buying meets or exceeds the price you have agreed to pay.
The Appraisal Process
All lenders have an approved list of professional appraisers they work with, but the premier lenders restrict their list to those with an intimate knowledge of specific geographies and a proven track record of accurately appraising properties.
Here’s how the process works:
- The lender submits a request to a randomly selected appraiser on their list*
- The appraiser agrees to the request and schedules a home inspection
- The appraiser prepares the report and submits it to the lender**
- The lender reviews the appraisal for accuracy and compliance with guidelines
*Lenders are required by law to randomly select the appraiser to prevent them from influencing the appraiser’s opinion of value. However, the lender has the ability to sort their appraisers by town or county to ensure that the orders are only submitted to appraisers with expertise in that geography.
**To prepare the report, the appraiser researches sales in the subject property’s neighborhood and selects the sales that are most similar to the subject property. The appraiser then makes adjustments to those sales to account for the differences in features and condition as compared to the subject property. Finally, the appraiser factors in additional information regarding market conditions and housing trends.
Reasons for Slow Appraisal Turn Times
There are two reasons appraisals are taking longer than ever before. First, historically low interest rates have led to a record number of refinance transactions and appraisers cannot handle the volume of requests. Thus, it is taking longer just to visit the property and because appraisers are paid by the report, they are incentivized financially to take as many orders as possible during busy times.
Second, appraisal reports are being scrutinized more now than ever before. This stems from increased regulations put in place after the housing crisis and from demands set forth by investors who buy loans from lenders in the secondary market. This makes it harder for people to enter the field and thus there is a shortage of available appraisers, further exacerbating the problem.
To put things in perspective, a report that used to take an average of 3 hours to complete (1 hour to research — assuming the property is in an area where market data is kept current, 1.5 hours to produce and 0.5. hours to review and deliver) has now increased to an average of 5 hours per report. For appraisal firms that employ an in-house review system, another 24 hours of wait time can be expected.
Even after all this, there is a high likelihood that the investor who is set to purchase the loan from the lender after closing will require the appraiser to go back to the report and make additional revisions before buying the loan. This adds another 1–2 hours of work to a report that was completed weeks earlier.
What you can do
It is important that you evaluate your lender on the quality of their approved appraisers and their turn times. By doing so you will increase the likelihood that the appraised value is accurate and doesn’t create valuation issues or delays. The best way to do this is to ask your lender the following questions.
- What is the average number of days for an appraisal report to be completed in the town I am buying?
- Will a local appraiser be used to appraise my property or will it be an appraiser from a national Appraisal Management Company (AMCs)?
- Will the selection of the appraiser for my loan be filtered to only include appraisers with an expertise in the town I’m buying?
- Will the lender employ their own appraisal review to ensure accuracy?
While there is no way to assure yourself that you will get accurate answers to these questions, it will show your lender that you are an informed buyer with an expectation of excellent service.
Getting approved to finance a home can be a stressful experience, but the more information you have, the better equipped you are to deal with the inevitable obstacles. While this article cannot get appraisers to improve turn times, hopefully it helps you understand the reasons for the delays.