Question

In: Finance

why do lenders hire appraisers

why do lenders hire appraisers

Solutions

Expert Solution

Lenders appraise properties in order to determine the current market value. They do this to ensure that they are not “over investing” with the loan, by putting up more money than the home is worth. They also want to know the potential resale value in case they have to foreclosure on, repossess, and resell the property later on.

Here’s another way to look at it. Lenders appraise home because they need to protect their investment. If you take out a loan for 20% of the purchase price, that means the lender is going to pay the remaining 80% of the purchase price. They are the majority shareholder, so to speak. So they want to make sure that, in the event of a default and foreclosure scenario, they don’t end up with a home that is worth less (in the current market) than the amount they have invested in it.

Appraisals are a prudent business practice and a requirement for nearly all mortgage loans these days.

Technically, Lenders Don’t Appraise Homes – They Hire an Appraiser

Let’s get specific here. Lenders don’t actually appraise homes before lending money to a buyer. They hire a licensed home appraiser to do the appraisal, once a purchase agreement has been signed by both the buyer and seller. The appraiser will then give a copy of the valuation report to the lender, so that they can make a financing and underwriting decision on both the property and loan.

If the property is valued at or above the mutually-agreed-upon purchase price, the deal will likely move forward. If the lender’s appraiser decides that the property is worth lessthan what you’ve agreed to pay for it, you have hit a snag. In the latter case, the loan might not move forward unless (A) the homeowner lowers the sale price, or (B) the buyer pays the difference. Scenario ‘A’ happens more often than scenario ‘B.’


Related Solutions

Explain why do lenders need to hold a debenture?.
Explain why do lenders need to hold a debenture?.
How and why do sinking funds enhance the safety of lenders?
How and why do sinking funds enhance the safety of lenders?
Why do you think lenders use the 5 C's of credit? Is it a fair guide...
Why do you think lenders use the 5 C's of credit? Is it a fair guide on whether to accept or reject a person for a loan? How is borrowing money with a SBA backed lender versus borrowing money backed from a conventional lender.
Finance & Real Estate Open Ended Question: Why do lenders approve of a waterfall in which...
Finance & Real Estate Open Ended Question: Why do lenders approve of a waterfall in which the equity investor receives most of the returns?
Why does Enterprise hire and promote the way that it does? What role do Enterprise's hiring...
Why does Enterprise hire and promote the way that it does? What role do Enterprise's hiring and promotion practices play in sustaining its competitive advantage?   (25 pts)
Why do sports federations around the world hire communications staff? What are some of the skills...
Why do sports federations around the world hire communications staff? What are some of the skills you think are necessary to succeed in such position?
Why do companies want to hire stars and raid stars from competitors? Does it hurt or...
Why do companies want to hire stars and raid stars from competitors? Does it hurt or help the company? Why? What are risks of hiring external stars? What can be done to eliminate those risks? What are some benefits of hiring external stars?
Why do U.S. wants to hire more foreign workers? How does this affect U.S. GDP, and...
Why do U.S. wants to hire more foreign workers? How does this affect U.S. GDP, and why does U.S government only offer Visa, but not citizenship or green card for the worker?(3-4 paragraphs)
What Can The U.S. Government Do To Pay Back Lenders?
What Can The U.S. Government Do To Pay Back Lenders?
Explain why deflation can be so troubling to borrowers and lenders.
Explain why deflation can be so troubling to borrowers and lenders.
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT