Your Appraisal Questions
Over the years, we have had conversations with many homeowners, lenders, and attorneys regarding the appraisal process. Let’s unpack some of the questions we hear most often.
1.Why do I need an appraisal when purchasing or refinancing my home?
If you are refinancing, or financing your home by taking out a mortgage, your lender will require an appraisal. The bank wants to make sure that, if you default on your loan, they will be able to sell the home for approximately the loan value. If, however, you are purchasing a home with cash, an appraisal is not required.
2. What is the role of the appraiser?
The role of the appraiser is to provide objective, impartial and unbiased opinions about the value of real property — providing assistance to those who own, manage, sell, invest in and/or lend money on the security of real estate.
3. How is a home’s value determined by an appraiser?
Property value is determined in a number of ways, depending upon the property type and other factors. For a single family residential home or condominium unit, the Sales Comparison Approach is most commonly utilized. The most common factors considered in this approach are: the condition of the home, improvements, location and neighborhood, and housing market trends. Appraisers seek out the most similar, recently closed comparable sales in close proximity to the subject property.
For multi-family properties, the Income Approach is used due to the potential for income flowing from the property as an important factor in the market value of the property.
4. How long does an appraisal inspection take? How long until the appraisal is completed?
The physical inspection can take between 15 minute to over an hour, depending upon the size and complexity of the property. After the initial inspection the appraiser spends time researching the neighborhood, then returns to the office for further research, looking for similar sales to the property being appraised, and creating a report of up to 40 pages in length.
The final report is normally completed within 4 to 7 days after the inspection, again depending on the complexity involved.
5. How much does an appraisal cost?
The cost of the appraisal varies, based upon the complexity of the property. For example, a property that is non-typical due to its exceptional size, view amenity, and location can require more time and research, due to the increased challenge in finding similar properties. Therefore, a higher fee is required. The typical fee for a single family, standard home is between $475 – 550.
6. Will the appraiser send me a copy of the completed appraisal?
If the appraisal was ordered by your lender, the law requires that the appraisal may only be provided to them, however, the lender can provide a copy of the appraisal report to you upon request. If you ordered the appraisal directly with the appraisal company, such as in the case of a non-lender related situation such as a divorce or estate settlement, the appraisal will be provided to you.
7. What does the appraiser look for during the inspection?
An appraiser will require access to each room in the home, as well as the basement, sheds, garages, and other structures. She will make note of the overall condition of the property, finish items such as the types of floor covering, special features (such as fireplaces), the number of bedrooms and bathrooms, and she will note updates and improvements as well as the overall quality of construction. The appraiser will take photographs of the rooms, the exterior of the dwelling and other structures on the property.
The appraiser estimates the square footage (GLA-gross living area) through measurements taken physically with a tape measure, or with laser-based software. She will produce a floorpan of the home. Non-living areas such as garages, sheds or rooms below grade such as finished basements are not included in the total Gross Living Area (GLA), however are considered in the valuation separately.
The appraiser will normally consider only permanent fixtures. Items such as above ground pools, or small movable sheds are not permanent structures and are therefore not considered in value.
8. What improvements add the most value?
Just how much any particular individual improvement might add to your home’s market value can vary from market to market. Typically, updated kitchens and bathrooms add the most value, however, you may not necessarily see a full return on investment, meaning if you spend $100,000 remodeling your kitchen and bath it would not necessarily translate to an increase in value of $100,000.
9. What is the difference between an appraisal and a broker’s price opinion?
A certified appraisal is a formal, impartial estimate or opinion of value, as of a specific date, and supported by the research and analysis of relevant data. It is prepared for reliance by identified parties, and for which the appraiser accepts responsibility.
A market analysis or broker price opinion is an informal estimate of market value, based on comparable properties sold or currently on the market in the neighborhood provided by a real estate agent or broker.
10.Is an appraisal inspection the same as a home inspection?
The appraiser and the home inspector provide different services and fulfill different functions in the home buying process. The function of the appraiser is to determine the market value of the home based upon historical market information, in order to protect the lender’s interests. The appraiser’s inspection is to view the home’s overall condition and upgrades based on what he/she can see with the naked eye.
A licensed home inspector has a different task: the inspector is hired to look for deficiencies or concerns regarding the home’s structure and systems in preparation for the seller’s investment in the property. He has the tools and expertise to look much deeper into the condition of the foundation, roof, the electrical, plumbing, and heating systems, condition of appliances, and other items not readily visible to the appraiser.
11. What qualifications must appraisers have?
States require appraisers to be state licensed or certified in order to provide appraisals to federally regulated lenders. However, appraisers who become Designated members of the Appraisal Institute typically surpass the minimum state requirements. They fulfill rigorous educational and experience requirements and must adhere to strict standards and a code of professional ethics.
Do you have any other questions not covered here? The answers are a phone call or an email away; we would love to chat with you and help to guide you through the appraisal process.
