Know the Difference Between a Refinance Appraisal and a Purchase Appraisal

What is the difference between a refinance appraisal and purchase appraisal?

July 22, 2014 By Tom Horn 

Ocean City MD and DE Coastal Resort Beach Homes for Sale.  Susan Antigone - ShoreFun4U with Long & Foster Real Estate.  We'll help you connect the dots and understand the process so when you are ready to make your purchase decision, it will be seamless and effortless.  

This week I got a call from a person asking me what the difference between a refinance appraisal and purchase appraisal was because they wanted to use the refinance appraisal to help them sell their home. This was a very good question that I’ve been asked often over the years.

Different Use, Different Value?

Some people think that a refinance appraisal may have a higher value than a purchase appraisal, at least that is what some have expressed to me, but that is not always the case. Both types of appraisals provide the appraisers opinion of the market value (both use the same definition of market value) of the property in question and both types of appraisals use the same sales, listings, and such however there is one difference between the two and that is the contract for the purchase of the home that is the subject of the purchase appraisal. The refinance appraisal does not have this one additional value indicator.

Blind Appraisal

I ran across this term years ago after reading an article by a fellow appraiser. It describes an appraisal where there is no value estimate given to the the appraiser in the form of a sales contract or other source such as an owners estimate. There is no number target that the appraiser is “shooting” for. At first the thought of an appraiser “shooting” for a certain value may comes across as unethical, however it all depends on where that number came from. If a value estimate was given to the appraiser, as it was many years ago but rarely occurs now due to recent legislation, and that value estimate consisted of what the borrower owed on their first and second mortgage as well as the credit cards they wanted to pay off then that would be wrong. Market value is not determined by how much you want to consolidate into a loan but rather what the majority of the market is willing to pay for a property.

These days when a bank orders a refinance appraisal they are not allowed to include a value estimate because that could be interpreted as the lender trying to pressure the appraiser to come in at a certain value. So in this situation the appraiser is required to research and analyze the current market and estimate the value based on recent sales, listings, and pending contracts. By using sales that involve a “willing buyer” and “willing seller” the opinion of value will more accurately reflect what is occurring in the current real estate market.

Targeted Appraisal

If an appraisal where there is no value estimate given is a “blind appraisal” would that make an appraisal where an estimate IS given a “targeted appraisal”? A purchase appraisal has one very important piece of information that a refinance appraisal does not have and that is a fully executed sales contract. If the contract reflects a price that is not influenced by undue pressure on either side of the transaction then it provides a very important piece to the value puzzle. It gives the appraiser another value indicator in addition to the previously mentioned sales, listings, and pending contracts. The appraiser does not look at the contract amount as a number to shoot for and then find sales to support this amount but instead they study and analyze the current market and then see how the contract compares to that indication of value.

If market data indicates an adjusted valued range from $150,000 to $155,000 and the subject is under contract for $152,000, then that contract amount is supported by what other knowledgeable buyers and sellers are paying for similar homes in the subject’s general market area. If, on the other hand, the same property is under contract for $160,000 then the contract would not be supported by market data and it would indicate that the property is over priced because the majority of buyers and sellers are not willing to pay $160,000 for a property that they could buy for $150,000 to $155,000.

Conclusion

So as you can see there is a difference between a refinance appraisal and purchase appraisal because the purchase appraisal provides one additional value indicator that the refinance appraisal does not have, however that little nugget of information must be supported by the market. If a refinance appraisal was done recently it can give you a reliable value estimate to use in marketing your home, however keep in mind that a new appraisal conducted after you get a contract will also take into consideration all sales that occur between the effective date of the refinance appraisal and the contract date. If you have any thoughts on this topic please leave a comment below and I’ll be sure to respond.

Read more http://birminghamappraisalblog.com/appraisal/difference-refinance-appraisal-purchase-appraisal/