Relocation Appraisals vs. Mortgage Appraisals
You just had an appraisal performed on your home for a refinance and now your company is transferring you to another state. Why do you need another appraisal? Do you know the difference between a Relocation Appraisal and a Mortgage Appraisal? At the DW Slater Company we perform both types of appraisals but we find that not everyone knows the difference between the two.
1. Intended Use
-The intended use is to assist an employer with the transfer of an employee
- The intended use is to assist a lending institution in evaluating risk associated with a loan
The appraisal that you had performed for your refinance has a completely different intended use. It was for your lending institution for collateral risk evaluation. The relocation appraisal is for your employer to be assist with the selling of your home for the transfer.
2. Report Format
-The relocation appraisal is reported on the ERC Summary Appraisal Report form which is a seven-page report.
-The mortgage appraisal is typically reported on the FNMA 1004 form with is a two-page report.
There are many similar elements in both reports, however, the ERC report has additional market trends and analysis with additional narrative and commentary as pending sales and market trends are key factors in forecasting an anticipated sale price.
-The purpose of the appraisal is to develop an anticipated sales price
-The purpose of the appraisal is to develop an opinion of value
For a mortgage appraisal, the purpose is to determine an opinion of value of your property. The relocation appraisal purpose is to determine what the anticipated sale price will be within a limited marketing time. Typically, the anticipated marketing time for relocations are 120 days but are sometimes client restricted to less. This is why there may be a difference in the value determined for a mortgage appraisal compared to a relocation. If typical marketing times in your market is 180 days (6 months) but the relocation company requests a 90 day marketing time (3 months) then a negative forecasting adjustment might be necessary in order to determine the anticipated sale price in half the typical marketing time.
4. Definition of Value
The price at which a property is anticipated to sell in a competitive and open market, assuming an arms-length transaction whereby:
*The analysis reflects the subject property’s appearance “as is” (or instructed by the client) and is based on its present use as a residential dwelling;
*Both buyer and seller are typically motivated: both parties are well informed or well-advised and acting in what they consider their best interests;
*Payment is made in cash or its equivalent;
*An assignment marketing period, not to exceed 120 days (or instructed by the client) and commencing on the Date of Value Opinion, is allowed for exposure in the open market. The analysis assumes an adequate effort to market the subject property; and
*Forecasting must be applied to reflect the anticipated trend of market conditions and prices during the subject property’s prospective marketing period.”
“The most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller, each acting prudently, knowledgeable and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale of a specified date and the passing of title from seller to buyer under conditions whereby:
*Buyer and seller are typically motivated;
*Both parties are well-informed or well-advised, and each acting in what he considers his own best interest;
*A reasonable time is allowed for exposure to the open market;
*Payment is made in terms of cash in U.S. dollars or in terms of financial arrangements comparable thereto; and
*The price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions* granted by anyone associated with the sale.”
The definition of value for Relocations is from the ERC Summary Appraisal Report 2010 form and the definition of market value is from Fannie Mae. As you can see there are some similarities but for relocations value is a future forecasted value of anticipated sale price.
-The relocation appraisal is anticipating a sale price within a restrictive marketing time and uses a forecasting adjustment looking to the future.
-The mortgage appraisal is developing an opinion of value on a certain day and looks more at the past historical data.
Mortgage appraisals have a more historical perspective as they look at the most recent closed comparable sales as the opinion of value is typically the effective date or date of inspection. Relocation appraisals also look at the most recent closed but also take into consideration the active and pending listings as to determine the future anticipated sale of the property.
Relocation Appraisals FAQs- Worldwide ERC
Relocation Appraisals - Appraising WNC
Relocation appraisals are some of my favorite type of appraisals. I hope this helps in understanding the difference between the two different types of appraisals. What did I leave out? Do you have any more questions? Please feel to comment or contact us at www.dwslaterco.com.