Foreclosure Appraisal Report
In general, appraisals accurately reflect market prices. However, many appraisers are affected by the neighboring home prices that were sold in the last six months. So, past has more impact the foreclosure home price more than what will happen in the very short future. The price of the foreclosure may go down on closing date (COE = Close of Escrow).
Know limitations of foreclosure home appraisal
You need to take into account the following limitations of home appraisal of foreclosure property:
- Appraisers do not guarantee or check legal boundaries of foreclosure properties.
- Appraisals focus on the physical conditions of foreclosure property that are visible. You cannot expect home appraiser to tell you that foreclosure house has foundation crack or wet basement.
- Many appraisers do not check interior of foreclosure property to make assessment. Remember that most foreclosures are neglected properties.
- Many appraisers rely on the market prices of comparable homes in the neighborhood. If foreclosure property is not similar to those in the neighborhood, then appraisal may not reflect the real market price.
What should you look for in foreclosure property appraisal report?
- Appraisal report must include if appraised property is within a flood zone as determined by Federal Emergency Management Agency (FEMA).
- Appraisal report must conform to Uniform Standards for Professional Appraisal Practice (USPAP) which is the standard for state licensed and certified appraisers.
Categories of appraisal reports
Appraisal reports are in two categories: Complete Appraisal and Limited Appraisal. Limited Appraisal may not have all specific requirements of USPAP.
In terms of their details, appraisal reports are at three levels:
- Self-contained appraisal report: It can be complete or limited appraisal report containing comprehensive details.
- Summary appraisal report: It can complete or limited appraisal report that has less comprehensive and in summary format.
- Restricted use appraisal report: Again, it can be complete or limited appraisal report containing minimum amount of details.
Required form of home appraisal report
Most commonly used appraisal report is Uniform Residential Appraisal Report (URAR) which is also known Freddie Mac Form 70 or 1004. Federal Home Mortgage Corporation, Federal National Mortgage Association (Fannie Mae), Federal Housing Administration (FHA), Veterans Administration (VA), and Housing and Urban Development (HUD) require URAR. As a result, practically all banks, credit unions, and other lenders require this type of appraisal report to be able to sell their loans to these agencies in the secondary home mortgage market.
More information on home appraisal, its coverage, and home appraisal methods and foreclosure appraisal. See also foreclosure home valuation for more specific valuation variables.