As we approach the busy spring real estate marketing season, it's prudent to touch base on some awareness around mortgage lending. I want to start the conversation by saying Fort St. John is home to some absolutely amazing mortgage brokers and mortgage specialists who are truly experts in their field. They are experts with integrity to be relied upon. They are industry leaders well worth the national and international recognition many of them have received. Congratulations to our local champions! They work hard at educating and supporting buyers to make sound financial choices when buying their homes. Our local mortgage brokers are business owners and operators. Revenue generated in our community stays in our community. Local brokers and specialists understand the lending requirements of our region.
Now, I'd like to venture into another world of mortgage brokers. Often in my world it becomes apparent that people don't realize that mortgage brokers are salespeople. They are paid a percentage of the mortgages they write. As the mortgage market becomes smaller, it's easy to assume the broker world has become tougher.
There are examples even in our community of not-so-prudent lending practices by out-of-town brokers. Not to cast a shadow on an entire industry, but out-of-town brokers don't spend their earnings in our community. Out-of-town brokers don't always understand the unique lending challenges in the north. Often I am questioned by reviewers unfamiliar with rural remote lending practices in the north.
Purpose and function are two key considerations from an appraiser's viewpoint. Typically, the purpose of an appraisal is to determine the market value of a property within a reasonable selling period. The function may be for asset valuation, mortgage financing, negotiating a sale, accounting, estate, disposition of assets, etc.
What happens when there's an overlap for the use of an appraisal? Boundaries become unclear. I had a purchaser call and ask for a copy of their appraisal that was completed for lending purposes. I was unable to supply them a copy of the appraisal. They were not my client. A lawsuit was eventually involved, and the purchaser tried to say that they bought the house based on my appraisal. They did not. The sale was negotiated long before an appraisal was requested. The lender lent on the appraisal, which is a different use. Within the appraisal report, the final value was subject to a satisfactory building inspection and that the value was subject to change. In this particular situation, a “friend” of the seller supplied the building inspection.
Here's a suggested scenario. Realtor includes in the offer subject to a satisfactory appraisal. In the case of a private sale, perhaps one or two appraisals will be used to negotiate the sale price. A home inspection should always be considered from a certified inspector. Often sale prices are renegotiated when an issue is discovered. The purpose of an appraisal is to negotiate a sale.
Lenders have specific requirements that include terms such as less than 90 days on market, maximum acreage size, no outbuildings, etc. The purpose of an appraisal here is for lender financing.
Sometimes the terms of references for lenders has an assumption that goes outside of the scope of the definition of market value. Do you see the challenges here? Buyer beware. You decide if it is worth it to save dollars now or incur unexpected costs later.
Edwina Nearhood is a lifelong resident of Fort St. John.