When you purchase a Scottsdale, AZ home or refinance your existing Arizona home, your Arizona mortgage lender will require an appraisal which tells them the appraised value of your home so that they know they are not loaning more money than your home is worth. Since you are using your home as collateral for your Arizona mortgage, the lender wants to make sure that if you default and they need to foreclosure, they can sell your home and the proceeds will pay off the loan balance that you owe so they don’t lose any money.

Unfortunately, no one has a crystal ball and there is never any guarantee that your home’s value won’t go down, so you should not over extend yourself when you by a home. Appraisal costs vary from around $250.00 to $500. Your lender orders the appraisal. It is one of the costs you are responsible for paying prior to closing.

What Information is Contained in the Appraisal?

The appraisal report is based upon a number of different values such as the square footage, lot size, number of bedrooms, baths, upgrades, whether the home has a pool, the location and the year built. The two most common types of appraisals used for residential property are the following:

• Sales Comparison Approach
• Cost Approach

The Sales Comparison Approach compares the property you are buying to other similar homes in the area and the appraiser makes value adjustments up or down based upon the home and its feature and amenities to come to an appraised value. This approach is used most often when appraising residential resale properties. The Cost Approach is mainly used for appraising new construction homes because costs for building the home are known. The appraiser makes an estimate on replacement costs if the home were destroyed or damaged.

Appraised Value

The appraised value of a home is important because your lender makes their determination on whether or not to loan you money based upon the results of the report. If the home does not appraise, the lender will ask you to come up with a larger down payment. Sometimes, it is necessary to renegotiate the sales price with the seller if the lender won’t approve the loan at the current sales price. You can also request and pay for a second appraisal. While borrowers don’t get to choose the appraiser, you may want to request that the lender only use an appraiser that is local and familiar with the Scottsdale area. Appraisers that are outside of the area may not understand unique market conditions and the surrounding area and under appraise a home’s value.

Sometimes, a home’s features are unique and the appraiser will not be able to find a comparable property in the area so they will look for one in a neighborhood close by to make the comparison. When market conditions are readjusting, home’s may not appraise based upon the last six months or the last year’s sales because prices may have gone down or up so the appraiser will need to use their expertise in arriving at a value based upon current market conditions. During the boom, homes were appraising so rapidly it was hard to find comparable sold homes and appraisers were looking at homes currently listed and in escrow to make value adjustments.

Understanding the appraisal and appraised value process is important when purchasing a home and looking for a lender to give you an Arizona mortgage at the best Arizona mortgage rates.

If you have any questions about this or if you have any questions you’d like us to answer on our podcast, you can email your questions to team@azmortgagebrothers.com or give us a call at (602) 535-2171. Be sure to ask us for a free quote on your next mortgage. We’ll personally work with you and help you through the whole process.

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Thanks for listening and reading the Mortgage Brothers Show. Let us know if you have any questions you’d like us to answer on this podcast. You can email your questions to Tom@AZMortgageBrothers.com or Eddie@AZMortgageBrothers.com.

Be sure to ask us for a free quote on your next mortgage. We’ll personally work with you and help you through the whole process.

Signature Home Loans LLC does not provide tax, legal, or accounting advice. This material has been prepared for informational purposes only. You should consult your own tax, legal, and accounting advisors before engaging in any transaction. Signature Home Loans NMLS 1007154, NMLS #210917 and 1618695. Equal housing lender.

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