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Why Do Lenders Order Appraisals?

by Administrator on Dec 10, 2015 Selling 445 Views

Most appraisers will think that the answer to this question is somewhat obvious and they may even think that the question is bit funny, so I guess this article is directed toward appraisal clients who really want to know the why. 

As an appraiser I see the exterior and exterior of homes, often after someone has talked to me about the property.  What I find out about homes when I'm inside is sometimes dramatically different from than what I anticipated from my viewing of the property from the street.

How can there be so much of a difference between the outside and inside of a home or a commercial building?  You would be surprised.  A plain looking single-family residential home from the outside for example can be a rooming house inside within with 5 to 10 individual tenants each having a locked room and each sharing a kitchen and bathroom.  The home can be relatively well kept outside but within it can have worn-out carpeting, marked up paint and holes in some of the walls.

Many homes in Las Vegas have undergone some type of renovation or remodeling and there are some homes that were modified by the owner or the previous owner without a permit or permits being issued by the local jurisdiction (like the city or county) as required.  While the construction quality of the room, porch or addition may be good or even excellent the fact remains for appraisers and potential buyers of the property that no one inspected the improvements during the construction process so no one really knows how good or bad the improvements are.

Lenders who have appraisers or agents do "drive-by" inspections don't find out about these problems until much later, at times that is when they get the home back after a bankruptcy or abandonment.  As a home buyer you may discover that there are additions or modifications that don't show up on Assessor records.  It's important that a potential owner investigate problems like this, otherwise you are accepting them and problems will become your responsibility. 

Lenders often ask for an appraisal of a property when an owner wants to; get rid of their mortgage insurance premium, refinance their loan or if the owner wants to put a second loan on a property.  Some owners improve their property at every opportunity.  They put in upgraded flooring, they install new appliances, they put in shutters, covered patios, additions, garages and the list goes on.  Other owners do absolutely nothing.  When the carpeting wears through they pull out the remnants and leave the bare wood or concrete flooring from then on.

If you accepted a property with improvements made without a permit and then your appraiser identifies the additions or modifications when the property is appraised for some reason you may find that these "un-permitted" areas cause you a problem.  Lenders prefer to know that inspections have taken place on the buildings that they are making loans on. 

Insurance companies also have similar problems with homes that have construction quality problems created by owner modifications or additions especially when problems develop that cause damages.

Lenders have no idea what's going on in most homes.  Most do not care if payments are timely made, but they do pay attention when they figure out that they are getting back a home that is worth pennies on the dollar due to poor construction quality and they are generally not excited about taking a home as collateral when they discover that it has major construction problems.

Lenders need to know what the market value of a property is in order to make a lending decision.  Once an appraiser has concluded a value opinion then things like loan-to-value ratio and the income of the borrower can be gauged.  Lenders understand that it takes more than just an exterior photograph to know whether a home can reasonably be security for a loan.

So while appraisal inspections are not building inspections, a fact most appraisers will readily admit, they still often identify major structural problems, areas constructed without permits, and obvious modifications.  They provide a lender with the appraiser's opinion of effective age and his opinion of overall condition.

For more appraisal information contact Glenn J. Rigdon MA, MRICS, ASA is a Las Vegas / Henderson Nevada based appraiser who can be contacted via email or via his business website known as Appraiser Las Vegas  (, or you can also click on “Contact Us” on the home page of this website or visit my public profile at LinkedIn at

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