How to evaluate an apartment for a mortgage

Valuation of an apartment for a mortgage is a condition on the basis of which banks provide a loan. You won’t be able to evaluate an apartment for a mortgage on your own. To do this, you will have to contact an accredited agency. Where to look for it, on what basis to choose, is it possible to do without appraising an apartment and get a mortgage - read in our material.

Are you planning to take out a mortgage?

The question “how to evaluate an apartment for a mortgage” arises at the stage when the bank has already pre-approved you for a mortgage, and you have already chosen the apartment that you are definitely going to buy.

What does this mean:

You have decided which bank you will take out a mortgage loan from, you are satisfied with the proposed terms and interest rate. You have already submitted a 2-NDFL certificate from work, a copy of the Work Book. And the bank assessed you as a reliable payer and is ready to provide a mortgage loan.
Of all the options that you chose yourself, or with the help of a realtor, you left one - with specific indicators for area, number of floors, year and type of construction and, of course, price.

Now you need to evaluate the apartment for a mortgage. If you take the missing money from the bank, there is no way around this issue, and here's why. While you are paying off the mortgage loan, the apartment is a property with an encumbrance and is pledged to the bank. In other words, it does not completely belong to you until you return the money you borrowed from the bank. If this does not happen for various reasons, and due to circumstances you are unable to make payments, the bank will seize the apartment from you and sell it at auction to recover the invested funds.

Assessing an apartment for a mortgage will show how easy it will be to sell.

By the way, valuing an apartment for a mortgage also has its own benefits for you. Because Even on the shore, you will be able to understand whether the apartment is worth the money they are asking for it or not. If it is sold above/below market value, then this is a reason to think about it. Especially if it is below the market value - this situation may indicate that your seller is on the verge of bankruptcy, which in turn carries the risk of losing the apartment. Because the transaction in this case can be contested in court.

What to do if the appraised value of the apartment differs from the mortgage loan amount

Based on the value at which the apartment will be assessed, the bank will determine the size of the loan to be issued. If the appraised value is equal to or slightly higher than the price set by the seller, then the mortgage loan will cover all costs of purchasing a new home. But there are often cases when the appraised value is lower than the amount needed to purchase an apartment and, accordingly, the bank cannot provide a loan for an amount in excess of that indicated in the appraisal company’s report. What to do in this case?

First of all, you can order a re-evaluation from another specialist at your own expense. It is possible that the initial assessment did not take into account all the factors influencing correct pricing.

If, during the re-evaluation, the price is determined within the same limits, then it is possible to provide an additional mortgage for the missing amount.

Also, do not neglect the opportunity to ask for a discount from the seller. Perhaps, seeing a real buyer, he will make concessions.

If there is no additional property, and the seller does not agree to reduce the price significantly, you can take out a cash loan for the missing amount. True, the interest rate will be significantly higher than the mortgage rate.

Who evaluates an apartment for a mortgage?

Appraisers evaluate an apartment for a mortgage. You can see the list of agencies accredited by the bank where you take out a mortgage on the bank’s official website. Or a realtor will tell you this information if you buy an apartment and arrange everything through a real estate agency.

Let us remind you that appraising an apartment for a mortgage is an official matter; the “guy down the street” cannot conduct it. The activities of appraisers are regulated by the Federal Law “On Appraisal Activities in the Russian Federation,” which clearly defines the basic requirements for an appraiser. This could be a company or an individual entrepreneur. In any case, the person who will conduct the assessment must have:

specialized education,
membership in SRO,
insured liability.

An example of a report assessing an apartment for a mortgage

Documents required when conducting an appraisal for a mortgage

Regardless of whether the report is prepared by an expert accredited by the bank or an independent specialist, the borrower must collect the documents necessary to carry out the procedure. The list of documents required to evaluate an apartment with a mortgage usually includes:

document certifying ownership (sale and purchase agreement, registration certificate, etc.);
floor plan and explication of the apartment;
cadastral passport;
passport of a citizen of the Russian Federation.

How to choose a company to evaluate

If you select a company yourself, the following algorithm looks reasonable. From the many companies that are presented on the bank’s website (Sberbank, for example, has a list of about 90 companies), you select 10-20.
Then monitor their websites, the section on prices, terms and additional services.
If necessary, you can call and choose one.

When choosing, you can focus on the following indicators:

Estimator visit time: 1-2 days.
Report completion time: 3-5 days.
Price. May vary. In megacities it starts from 2-3 thousand rubles.

Who pays for the mortgage appraisal of the apartment, and who carries it out?

Who pays for the appraisal of an apartment with a mortgage? The client himself must decide the issue of appraising the apartment. He also pays all expenses associated with this procedure out of his own pocket. There will be no compensation from the bank, even if the mortgage is denied. For this reason, a credit institution often does an analysis of the object itself. If the cost of housing is acceptable and there is no reason to refuse the client, then the latter is obliged to pay the costs to the appraiser. In most cases, banks work with specific companies that are accredited. They accept reports from them without any complaints. Of course, according to the law, the client has the right to contact any other company. But then you should expect the bank to make comments about every letter and number in the report.

There are situations when the appraiser’s services are paid for by a credit institution. For example, if she sues a borrower who does not fulfill his obligations. In this case, you need to know exactly how much it costs to appraise an apartment for a mortgage. Since an unscrupulous client does not repay the loan debt, then you should not expect him to pay for the services of the appraiser.

An object can be assessed by persons who have a special certificate confirming their qualifications. Such a specialist can be found in a company that evaluates real estate, or you can enter into a separate employment contract with him. If we are talking about appraising an apartment for a mortgage, then you need to understand that there are independent and accredited appraisers.

Independent specialists. Such appraisal companies either did not want to receive bank accreditation or do not meet the requirements of the credit institution. Lack of accreditation is not a reason to assume that an independent appraiser is doing a poor job. However, the bank may reject the reports of such specialists for a variety of reasons. Therefore, it is better to order an apartment appraisal for a mortgage from a company that is accredited.

Specialists accredited by the bank. These are companies that are accredited by the bank because they meet its requirements. The credit institution recommends a list of accredited specialists to its clients. Such cooperation is beneficial to both parties. First, accredited appraisers become bank clients. And secondly, they provide reports in the form approved by the financial organization. Thanks to this interaction, appraisers receive a constant flow of customers. Sometimes, by agreement, the appraiser pays the bank an agency commission.

It is preferable to evaluate an apartment for a mortgage from companies that are accredited. Their list can be found on the website of any bank. Please note that a particular appraiser may not be accredited by all banks. This means that his report may not be accepted somewhere. This should be taken into account by those who do not yet know which bank will apply for a mortgage.

From the list of appraisers, choose the one whose services cost the least and who can complete the work on time. Price in this case is a more important indicator. The deadline most often does not matter; besides, appraisers usually prepare a report for no more than a week. In general, all such companies operate under the same conditions and provide the same services.

What requirements do credit institutions place on an appraiser?

He must be a member of an organization that is engaged in valuation activities. The organization must be registered in the Unified State Register of Legal Entities.
The appraiser must have a civil liability insurance policy in the amount of at least 300,000 rubles. Such security eliminates the risks associated with an error as a result of the apartment appraisal examination.
The appraiser must be a member of an SRO (self-regulatory organization) that deals with the activities of appraisers.

Keep in mind that in such cases, the lending institution is very scrupulous about checking the apartment appraisal report. Often documents are asked to be revised. Banks place greater trust in those companies with which they cooperate on an ongoing basis, and the results of their assessment are approved faster.

It is also convenient to choose an accredited organization because then the client does not need to check the papers confirming the appraiser’s qualifications. It is imperative to check the relevant qualifications if you contact a company that is not accredited by the bank. The financial institution will return the report if it was compiled by a person who is not authorized to engage in appraisal activities.

What is an apartment appraisal report?

Externally, the report assessing the apartment resembles a bound course paper. The assessment data is printed, numbered and stitched. We will talk about this at the end of the report. On the title side of the report, data on the apartment is displayed: the address at which it is located, the full name of the customer and the borrower (they may not match if you asked someone else to handle this report). The date of determining the cost and the date of drawing up the report are also indicated: this is important because the report is valid for six months from the date of its preparation. That's why, for example, when you are going to refinance your mortgage, the new bank will again ask you to do an appraisal of the apartment and bring a report.

What information is contained in the report:

Evaluation standards;
Information about the appraiser and the customer;
Description of the apartment and determination of the physical deterioration of the building;
Location and photographs of the object;
Review of the real estate market, analysis of apartments similar in quality and location to yours;
Determination of market value and liquidation value.

What is the cost

The appraisal of an apartment for a mortgage will include two types of value: market and liquidation.

Market price is the price that can be obtained for an apartment by selling it without haste or force majeure.
Liquidation - those funds that can be obtained for an apartment if it needs to be sold as quickly as possible. For example, buying and selling a one-room apartment will always happen faster than three-room apartments or an exclusive apartment with a terrace. And the one-room apartment, which is not on the first or last floor, will “go away” even better and faster.

To calculate both costs, the appraiser takes into account the condition of the apartment itself and the house in which it is located, and the price of apartments that are located in the area and are similar in size, layout, condition of the house, etc.

What exactly does the appraiser determine?

Different types of real estate values .
They come in four types: market, cadastral, investment and liquidation. Let's look at each of them. Market value

This is the price for which real estate can be sold in a free market. It is this type of value that buyers and sellers want to find out when turning to appraisers. The market value is determined depending on market conditions - similar objects are found and the average market price is calculated.

Cadastral value

This is the cost established as a result of the state cadastral assessment. It is determined using mass assessment methods, and if this is impossible, individually for each property. The appraiser determines the cadastral value, including for tax purposes.

Liquidation value

This is the price at which you can quickly sell a property. When calculating the liquidation value, an exposure period of 1–2 months is taken. The liquidation value of a real estate property is always less than the market value (usually 75–80% of the market price).

According to FCO No. 2, when determining the liquidation value, the influence of extraordinary circumstances that forced the seller to sell the object on conditions that do not comply is taken into account market soup.

Investment cost

This is the price for a specific person or group of people for certain investment purposes, that is, it is the cost for which you can buy a property in order to receive income from it. For example, you can find out the potential income of real estate when renting out.

The investment value is always greater than the market value. It takes into account the possible profit from the object in the future.

What is the market value of an apartment made up of?

Location. The appraisal of an apartment for a mortgage will always take into account the location where the apartment is located. What is important here is whether the house is in the central area or not. If not in the central area, then how good is the transport and social infrastructure there: are there schools, kindergartens, hospitals, etc. It also plays a role how favorable and well-groomed the area is overall. If a factory or industrial zone, military units, courts, pre-trial detention centers are located nearby, all this will affect the cost estimate.
Technical characteristics of the building. Here we mean the year and type of construction, how long ago major repairs were done, whether the building is in disrepair or not, the number of floors of the house and layout. When choosing a “Khrushchev” or “Brezhnevka”, check especially carefully whether the house is designated for demolition or reconstruction, whether sewer pipes or heating have been replaced.
Condition of the apartment. The main parameters here, of course, will be the number of floors, number of rooms, layout (if redevelopment was carried out, then confirmation that it was legalized). In addition, the presence of repairs (high-quality or done in a hurry), household appliances, furniture that will remain after the sale will be used as increasing or decreasing coefficients. This also includes the presence or absence of plastic double-glazed windows and balcony glazing.
Market position. A comparison is made of similar apartments: a one-room apartment in a monolithic building is compared with the same offers. Up to 5 objects are usually selected for comparison: this makes it easier to understand where prices are artificially high or low. Don't forget about force majeure circumstances. Now, for example, due to the coronavirus, the solvency of the population has also decreased. On the other hand, there is state support, through which you can purchase housing in a new building, which also reduces the demand for apartments on the secondary real estate market.

What affects real estate valuation?

In addition to the factors listed in the section on evaluation methods, the final cost is influenced by several other parameters that a competent expert takes into account:

The prestige of the area and the environmental condition are taken into account - if the apartment is near an industrial zone, the cost will be lower.
If there are many schools, kindergartens, clinics and other important social facilities near the apartment, the cost will increase.
It is important not only the condition of the apartment’s finishing, but also the condition of the entrance and common partitions. Roughly speaking, a renovated apartment in a dilapidated building will not be valued highly.
The presence of a yard is also taken into account - an area equipped for recreation is valued higher than a “patch” for ten cars.

Let us remind you that the apartment itself is valued according to:

Squares;
Number of rooms;
General condition – finishing, ceilings, layout;
The presence or absence of defects in the repair;
The first or last floor is cheaper.

What is the liquidation value of an apartment?

Liquidation value is calculated using a special formula. It is important for us to know that it is influenced by two basic factors:

Time value of money factor;
Factor of price elasticity of demand.

What is price elasticity of demand? This is the number of potential buyers and the degree of specialization of the object. The greater the number of potential buyers, the higher the elasticity of demand (and this is good). The higher the specialization of an object, the lower the price elasticity of demand for it (which is not good). In other words: if you buy a standard one-room apartment in a relatively new house, not on the first or last floor, with a standard layout, near the metro, then you will then sell it very quickly, because... A lot of people will want to buy it. If your apartment is a three- or four-room apartment with a designer renovation, or a townhouse outside the city, then you cannot count on a very quick subsequent sale

What is the time value of money?

You've probably heard that money gets cheaper over time. This is the time value of money: in a year, a thousand rubles, under the influence of inflation, will “worth” much less. Therefore, when it comes to selling an apartment, it is better to sell it within a reasonable time. Otherwise, relatively speaking, you will receive your desired 5 million for the apartment, but in a year. Accordingly, during this time they will have time to “get cheaper”.

When the apartment is sold at the liquidation price, the bank repays the remaining loan, and the borrower receives what remains after that. Therefore, it is to your advantage that the liquidation price is still quite high. By the way, for inexpensive standard apartments the difference between the liquidation value and the market value is small. Therefore, you can sell them quickly, as discussed above.

What does the evaluation album look like?

An assessment report is an official document that must be completed in accordance with the regulatory requirements of laws and state standards. Check if it contains the following data:

Information about the company that conducted the examination. Company contact details.
Information about the customer of the assessment - that is, about you.
Full characteristics of the apartment you are planning to buy. Check the address, area, layout, etc.
Analysis of the real estate market for your property - numerical indicators.
The amount of liquid value and market value of the apartment for purchase.
Attachments – photographs, copies of appraiser’s diplomas, etc.

The appraiser's report should have a concluding section - this is what loan officers read first. It contains information about the price of housing and how much the bank can get for this apartment at the moment - if the mortgage agreement is terminated.

There are no requirements for the appearance of the report. Usually this is a folder with at least 20 A4 sheets, usually much more. The documents are bound and numbered. The appraiser's signature is everywhere. There is a seal.

Please note that the report is only valid for 6 months. If the contract for the apartment was not concluded, or refinancing is planned, a new assessment will have to be made. The reason is constant changes in the real estate market.

Is it possible to influence the outcome of a mortgage appraisal?

The desire to influence the appraisal of an apartment for a mortgage is quite understandable: it depends on how much money the bank will ultimately issue for the purchase. Even if the owner of the apartment values it higher, and the quoted price is very different from the market price, the bank will still focus on the market price indicated in the report. You, of course, can talk to the appraiser and ask to take into account the freshness and quality of the repairs, replacement of communications, remaining equipment or furniture. They have their own coefficients that can increase the market value of the apartment.

However, you should not resort to fraudulent schemes. By doing this, you will only harm yourself: the bank will make a note in your credit history that you tried to mislead it. Other banks will also see this mark. So stick to honest methods and good luck with your purchase!

Text: Alena Skvortsova

Why are there such different prices for real estate in a new building?

The reality is that the cost of approximately identical apartments is different. This is due to the fact that the price of each object depends on many factors:

Location. If you plan to buy in the city center, then you need to be prepared for the fact that the cost of the apartment will be higher than housing on the outskirts. The higher “price tag” is explained by the fact that land for development is more expensive, the demand for real estate is higher, the cost of connecting to communications is higher, etc.
Transport accessibility. The cost is affected by the proximity of transport interchanges, train stops, and metro stations.
Availability of finishing. Practice shows that about 15% of apartments on the primary market are sold fully furnished. They are more expensive, but this difference is lower than the amount that owners would have to spend on renovating an apartment without finishing.
Square.
Stage of house construction. Housing in a house under construction costs less than in one that has already been built and put into operation.

We present only a few factors. Independent appraisers evaluating an apartment in a new building take into account dozens of criteria so that the result obtained - the market value of the property - is objective. In their work they use income, cost and comparative methods.