How Lenders Handle Appraisals

For residential mortgage loan underwriters, appraisal reports normally have a shelf-life of three months. If the appraisal report is older than three months but less than twelve months old, most lenders will accept it as long as the appraiser can issue a re-certification letter, which states that the appraiser has reviewed current data and that the original value estimate is still valid.

When the appraisal report is completed, mortgage lenders will submit it to the underwriter. The underwriter will review the appraisal data to confirm that the property meets the program requirements. The underwriter will occasionally submit the report through a formal appraisal review, conducted by an in-house specialist or an independent appraiser. The goal of the appraisal review is to double-check the final value. If the appraisal review returns with a lower appraisal value, the underwriter must accept that lower value.

There are two types of appraisal reviews:

  • Desk review. Most lenders, especially for conforming loan programs, conduct simple desk reviews—nominally at their desk. Such reviews simply go through a checklist of items as they analyze he appraisal report for completeness and acceptable conclusions.
  • Field review. Many non-conforming lenders, especially when dealing with high-LTV loans, will order a field review of the appraisal. An independent third-party appraser will be contracted to review the appraisal report and then actually verify the accuracy of the data, elements and procedures used by the original appraiser.

Note that with larger jumbo loans and larger property sizes, many lenders will require a second appraisal report.

Lite Appraisals

Increasingly, many conforming lenders require and accept lighter versions of the standard appraisal report for their underwriting. Instead of a full-blown appraisal report, an exterior or "drive-by" appraisal is deemed acceptable. This exterior-only appraisals do not require the research and legwork of the standard appraisal report; so the costs are usually significantly lower.

Commercial Property Appraisals

Appraisal reports for commercial and industrial properties are more detailed and researched. As such, they tend to cost at least $1,000 for a small apartment building. They usually take a more narrative approach, unlike the residential property appraisal which uses a standard form to list the facts.

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