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Do Homebuyers in California Need An Appraisal For The Home They’re Buying?

Do Homebuyers in California Need An Appraisal For The Home They’re Buying?

The Short Answer:

Unless you plan on paying all cash for your new property, you will likely need a home appraisal in California.  But “appraisal waivers” are becoming increasingly common now for certain types of financing and we explain why below.

Why do I need an appraisal?

A home appraisal in California is used to estimate the current market value of a home for refinance and purchase transactions, as well as for divorce, probate and other property disposition situations. For purchases, lenders usually require appraisals to ensure that the estimated value of the property matches the contract price. This extremely important for lenders because the property represents the “collateral” for their mortgage loan, and lenders need to ensure that there is a sufficient “equity cushion” to keep the mortgage within acceptable risk parameters. Appraisals are required for all types of loans including Jumbo, Fannie Mae, Freddie Mac, FHA and Non-QM. But, as we discuss below, Fannie Mae and Freddie Mac are now offering appraisal waivers more and more frequently.

Do I get to choose my appraiser?

Neither borrowers nor lenders can choose a specific appraiser because of very tight regulations imposed after the 2008 mortgage meltdown. Every mortgage lender is required by law to order every appraisal through an Appraisal Management Company (AMC). AMCs maintain large pools of licensed appraisers who are randomly selected to appraise properties when appraisal orders are received by the AMC.

Many mortgage banks (like JVM) maintain their own internal pool of hand-picked appraisers who are not only skilled but local to the area and are therefore more familiar with the many nuances of the particular market in which they appraise.

What is included in the appraisal report?

For every appraisal report, the appraiser will make a note of all major property attributes including:

  • Age
  • Square footage
  • Number of bedrooms and bathrooms
  • Lot size
  • Location
  • View
  • Amenities such as a pool, a sport-court, or in-home gym

When inspecting the home, appraisers also sometimes look for condition or health and safety issues that include the following:

  • Chipped paint
  • Cracks in the walls/ceilings
  • Foundation cracks
  • Soiled or missing carpeting
  • Unusual odors
  • Broken windows
  • Leaky faucets
  • Water stains

What type of home appraisal do I need in California?

Your lender will order your appraisal on your behalf, and there are several basic types of appraisals including Desk, Exterior-Only, and Full Inspection.

Desk appraisals involve only an online analysis with no visit to the property at all. These are more common for conforming loans with strong borrowers from a credit perspective. Exterior-Only appraisals do not require appraisers to measure a property or to inspect the interior, but appraisers are required to view and photograph the front of the property and the comparable sales. A Full Inspection requires appraisers to measure the perimeter of the home to estimate square footage and to inspect and photograph the interior.

The type of appraisal report you will need depends on the type of property you are buying and the type of financing you are seeking. Below are a few examples of the specific appraisal report forms as required by Fannie Mae and Freddie Mac for various property types:

  • 1004 Single Family URAR
  • 1004 Single Family FHA
  • 1004C Manufactured Home
  • 1073 Condominium
  • 1025 Multi-Family
  • 1004D Appraisal Updates

When appraisers submit their appraisal reports for a conforming or FHA loan, the reports are automatically uploaded to Fannie Mae and Freddie Mac’s systems.  The reports are then cross-referenced within the Fannie and Freddie databases for accuracy against past appraisals and other nearby appraisals and recent sales in the area.

Every Fannie and Freddie appraisal is also given a score, known as Collateral Underwriting (CU), based on the “quality level” or accuracy of the report – with 5 being the worst score and 1 being the best.  Appraisals with high CU scores are sometimes not accepted by lenders, making it essential to only engage skilled and honest appraisers.

What Are Acceptable Comparable Sales?

Both Realtors are buyers alike are often confused about what comparable sales appraisers can and cannot use in an appraisal report. There are, however, very strict rules in regard to size, location, time of sale, and much else. We strongly encourage readers to read this blog, called Comparable Sales Appraisers Can and Cannot Use.

Are Appraised Values Always Market Value?

The answer unfortunately is no, particularly in hot markets. We explain why in this short blog.

Options When Appraisal Comes In Low?

This short blog called “5 Options When Appraisals Comes In Low” explains them all.

Appraisal Waivers

Appraisal Waivers or “Property Inspection Waivers (PIWs)” allow borrowers and lenders to skip the home appraisal process entirely in California when buying a home. There are, however, very strict criteria that must be met before a PIW is granted. In addition, only Fannie Mae and Freddie Mac currently grant PIWs for “conforming loans;” they are not available for Jumbo, FHA or Non-QM loans. They are also only granted by Fannie and Freddie’s algorithms and automated underwriting funding’s.

We discuss all of the PIW requirements in this short blog, but the basic requirements are below.

Appraisal Waiver Requirements:

  • No appraisal waiver will be granted unless a prior appraisal for the subject property can be found in Fannie’s and Freddie’s databases.
  • The prior appraisal must a “low CU” score (or no “overvaluation flag”), and it must be over 120 days old.

Borrower Requirements:

  • For refinances, to get an appraisal waiver, the borrower must be in the Fannie/Freddie databases. This is not the case for purchases.

Eligible Transactions:

  • Purchase up to 80% LTV for most primary residences
  • Refinances up to 90% LTV for most primary residences.
  • Refinances up to 75% LTV for investment properties.

Caveats:

  • Borrowers must have a very clean and strong profile from an underwriting perspective before appraisal waivers are granted.
  • Former appraisals and borrowers (for refinances) must be in the Fannie/ Freddie databases already, as mentioned above.
  • This one is important to note: Appraisal waivers sometimes disappear at the 11th hour if a borrower’s credit or income changes during the loan process.

Please contact us at jvmteam@jvmlending.com or (855) 855-4491 if you have any additional appraisal questions.

Jay Voorhees
Founder/Broker | JVM Lending
(855) 855-4491 | DRE# 01524255, NMLS# 335646