Appraisals

What are appraisals and why do I need to look at them?

An appraisal is a written document that shows an opinion of how much a property is worth. The appraisal gives you useful information about the property. It describes what makes it valuable and may show how it compares to other properties in the neighborhood. An appraisal helps assure you and your lender that the value of the property is based on facts, not just the seller’s opinion.

When you borrow money to buy or refinance a home, your lender may need to get a new appraisal and may require you to pay for it. Your lender may also use other ways to check the value of the home. For a typical home loan (that is, a loan secured by a first mortgage on your residential real estate), you are entitled to receive a copy of appraisals and opinions of value your lender gets. You should receive them soon after they are delivered to the lender in complete form – no later than three days before closing.

Note: You cannot be charged a fee for copies of an appraisal or other valuation. But you can be charged a reasonable fee for the lender’s cost of preparing the appraisal or other valuation.


Common Appraisal Questions:


  • Why get a Home Appraisal?

    Why get a Home Appraisal?


    An appraisal is a necessary step in the home purchase or home refinance process.  Most lenders will not lend on a property without an appraisal.  Below are a few more reasons why an appraisal might be necessary:


    • To determine a value when selling a home
    • To contest high property taxes
    • To finalize and settle a divorce
    • To settle an estate
    • To use as a negotiation tool when selling.
    • To establish the replacement cost (insurance purposes)
    • To protect your rights in an eminent domain case
    • To refinance
  • What Does a Home Appraisal Cost? Who Pays for It?

    What Does a Home Appraisal Cost? Who Pays for It?


    While your lender will typically arrange for an appraisal, the buyer is ultimately responsible for the cost. Generally, appraisal fees range between $450 and $750, depending on the size and location of your property.


    Don’t let this cost stop you from making offers: The home appraisal will only occur after your offer has been accepted by the seller and you have begun to work with a lender to finance your new home.


    You do not need to complete appraisals on every house you choose to bid on.

  • What Factors Determine a Home’s Value?

    What Factors Determine a Home’s Value?


    There are several steps taken by an appraiser to determine a property’s value, which include visiting the property in-person and reviewing recently-completed sales of comparable homes. The data gathered by the appraiser during this process is combined and presented to you in a final report of value.


    Viewing the Property:

    The in-person part of an appraisal often takes over an hour, depending on your home size. The appraiser will measure the property's square footage, check the number of bedrooms and bathrooms in your home and compare the findings with housing data provided by local county records to ensure accuracy.


    The appraiser also will check the status of the major systems and structure of the house. During a viewing, appraisals usually answer questions such as:


    • Is the furnace in decent shape?
    • Does the plumbing leak?
    • Is there water, termite or mold damage?
    • Will any major systems or structures need replacement, such as the roof?

    For example: a new roof will be desirable to nearly any buyer, but the costs and upkeep of a swimming pool may not be. It’s advisable to put in some research before you begin a home remodeling project to ensure your investment is worthwhile.


    Appraisers will account for many home improvements and upgrades as well. This is perhaps the most confusing area for new buyers and sellers, due to the fact that remodeling and other home upgrades may not have universal value.

  • What are Home Appraisal Methods?

    What are Home Appraisal Methods?


    Appraisers use three common approaches when establishing the value of a given property:


    1) Sales Comparison Approach: In this approach the appraiser identifies 3-4 comparable properties in the neighborhood which have recently been sold.  Ideally, the properties are close in vicinity (within a ½-mile radius of the subject property) and have sold within the last 180 days.  These homes will be of a similar nature in size, rooms, and layout.  The appraiser then compares the sold properties to the subject property. The factors used in the comparison include square footage, number of bedrooms and bathrooms, property age, lot size, view, and the condition of the property.  This is the most common approach used in appraising residential or home properties.


    2) Cost Approach: In this approach the following formula is used to arrive at the property value: Value of the land (vacant), added to the cost to reconstruct the appraised building as new on the date of value, less accrued depreciation the building suffers in comparison with a new building.  This is typically used with income or commercial properties.


    3) Income Approach: In this approach the potential net income of the property is capitalized to arrive at a property value.  This approach is suited to income-producing properties and is usually used in conjunction with other valuation methods.  The process of converting a future income stream into a present value is known as capitalization. This is typically used with income or commercial properties.


    After thorough exercise of the three approaches, a final estimate or opinion of value is arrived upon based on the underlying data.  When evaluating single-family, owner-occupied properties, the sales comparison home appraisal approach is most heavily used by an appraiser.


    Comparables - Evaluation of Similar Home Sales


    The next step is for the appraiser to look at comparables, also often referred to as “comps.” Comparables are similar homes that have recently sold in the general area or even that specific neighborhood or subdivision. Appraisers look for houses that share similar characteristics with the subject property, such as size, age and architectural style. Comps typically only include homes listed and sold within the past three to six months.


    The Final Report of Value:

    The last step in the home appraisal process is preparing a final report of value. This report will provide you and your lender with a complete property analysis. It will also outline how the appraiser calculated your home's worth. Typically, the final report of value will cover the following items:


    • Size and condition of the house
    • Comments about serious structural problems, like cracked foundations, wet basements, windows that need replacement and roofing that needs repair
    • Permanent fixtures, such as lights, ceiling fans and plumbing, including faucets
    • Details about any home renovations such as updated kitchens, bathrooms or new flooring
    • Comments about the surrounding area, including positive and negative local features
    • Maps, photographs and sketches of the property, both inside and out
    • A detailed current market analysis, including recent sales of comparable homes.
  • Who owns the Home Appraisal?

    Who owns the Home Appraisal?


    Even though the borrower pays for the home appraisal, the mortgage company is the owner. This is counter-intuitive and can be frustrating for borrowers that are dealing with a mortgage company they have decided not to work with.  This is because the mortgage company orders the home appraisal on the borrower’s behalf, and the appraiser than names that mortgage company on the home appraisal.  The borrower does have a right to receive a copy of the real estate appraisal, however.  It is at the mortgage company’s discretion whether or not to give the borrower the original home appraisal.

  • Can I use Another Mortgage Company Even After the Home Appraisal has been Completed?

    Can I use Another Mortgage Company Even After the Home Appraisal has been Completed?


    Sometimes.  In some cases, changing your mortgage company does not mean you will have to pay for another appraisal. The appraisal report can be transferred to the new mortgage company.

  • How Can You Improve Your Home Appraisal Process?

    How Can You Improve Your Home Appraisal Process?


    As a buyer, you can make sure that the home appraisal process protects you by taking a careful look at the Final Report of Value. If there are portions of it that you do not agree with, such as findings that differ from your inspection report, or inaccurate comps, be sure to speak up.


    If there is a significant difference between the agreed selling price and the appraised value of the home, your bank may choose not to fund the mortgage and the deal could fall through. Buyers can typically solve this problem by bringing additional “cash to close,” which is essentially increasing your down payment by the difference between the sales price and the appraisal value or negotiating the sales price.


    As a home seller, you will also want to be ready for the appraisal process. Itemize any recent improvements that you have made to the home and complete any planned DYI (do it yourself) projects before the appraisal. Don’t be afraid to highlight the upgrades and positive features of your home to the appraiser.

Protect Your Investment with an Appraisal

When you are working your way through the complex process of buying a new home, an appraisal can seem like just one more unnecessary hoop for you and the sellers to jump through. However, an accurate appraisal offers information that can help guide you safely through one of the biggest financial decisions in your life.