An appraisal provides the lender, who is
processing a loan application for the purpose of purchasing or refinancing a
home, a comprehensive report written according to the Uniform Standards of
Professional Appraisal Practices and containing a licensed appraiser's expert
opinion of current market value of the home that will be used for collateral.
Appraisal is an
expert opinion, not an exact science. It is date specific and does not provide
a value guarantee. While the appraiser may observe and factor visible
structural problems into the opinion of value, an appraisal is not a home
inspection. You are encouraged to seek the advice of applicably licensed
experts if you have questions about the structural or mechanical aspects of a
home.
How does the appraisal process work?
The appraisal includes: preliminary research, site visit at the home,
external viewing of comparable sales, additional research and analysis,
reconciliation of value indications and the final estimate of market value. The
appraiser is charged with calling the property contact within one business day
of receiving the assignment to set up the home visit. Typical property
conditions and ready access to the home result in appraisal completion in about
five business days. A copy of the appraisal is sent to you by the lender
following the lender's underwriting review of the appraisal content. In the
event of an update to the appraisal, a revised appraisal report is sent to you
by the lender.
How long does a
site visit at the home take?
The length of time physically viewing the home being appraised varies
depending upon the size and complexity of the property. The time required at
the home is typically twenty to thirty minutes but can be as much as two hours
for very large or complex homes. The visit includes an interior walk-through of
all levels, an exterior walk around the property, interior, exterior and street
photos, and measurements of the home's exterior.
Following the home visit, the appraiser drives through the neighborhood.
The purpose of the neighborhood drive is to assess neighborhood factors that
impact value, and to locate and photograph selected comparable homes that have
recently sold. The appraiser typically completes the report in a couple of
business days after the site visit and submits it to the lender, who is the
appraiser's client.
Why do I have two
appraisers calling to set up a home visit?
Many lending transactions require two appraisals. However, if your
mortgage lender who is processing the loan has not advised of a need for two
appraisals, you should contact the mortgage lender to find out whether there is
an inadvertent double assignment of appraisers or an oversight in telling you
of the second appraisal requirement.
Does the home have
to be spotlessly clean when the appraiser visits?
No. Housekeeping practices are not considered when an appraiser is
valuing a home. However, if the appraiser is not able to access any portion of
the home or determine the condition of interior surfaces, a return trip may be
required to obtain necessary information to complete the report.
What is the appraiser
looking for when they make the site visit to the home?
The appraiser documents the general condition of the interior and
exterior of the property. This includes but is not limited to the floor plan,
any recent updates/remodeling, and the overall quality of construction. The
appraiser will calculate the gross living area (GLA) of the home by measuring
the square footage of the exterior. Non-living areas, such as garages and
covered porches, are not included in GLA, but are considered and reconciled in
the value estimate. Below grade/ground square footage is not included unless it
contains a finished basement. Finished basement GLA is calculated separately
from the above grade/ground GLA. Local market analysis will dictate the
contributory value of the finished basement area, which is typically determined
by the level of finish and the utility of the area. Only permanent fixtures and
land are addressed in an appraisal.
How can I assist
the appraiser completing the appraisal?
You may provide pertinent information regarding the home such as a
survey of the house and land, a copy of the original plans and specifications,
or a list of recent improvements, date(s) of improvement and their costs.
What is market
value?
Market value is the most probable price that a property would sell for
in a competitive and open market under all conditions requisite to a fair sale,
the buyer and seller, each acting prudently, knowledgeably and assuming the
price is not affected by undue stimulus. Implicit in this definition is the
consummation of a sale as of a specified date and the passing of title from
seller to buyer under conditions whereby: (1) buyer and seller are typically
motivated; (2) both parties are well informed or well advised; (3) a reasonable
time is allowed for exposure to the open market; (4) payment is made in terms
of cash in U.S. dollars or in terms of financial arrangements comparable
thereto; and (5) the price represents the normal consideration for the property
sold unaffected by special or creative financing or sales concessions granted
by anyone associated with the sale.
What is the market
comparison approach to value?
The market or direct sales comparison approach to an estimate of value
compares market data, prices paid for similar properties, prices asked by
owners and offers made by prospective purchasers. These sales are listed in the
comparison grid on page 2 of the 1004 Single Family Uniform Residential
Appraisal Report (URAR). Adjustments are made to each of the comparable sales
used for major differences between the comparable and the subject property.
These adjustments may address such items as location, gross living area, lot
size, condition, age, market conditions, degree of updating, construction
quality and significant amenities, i.e.: fireplace, deck, patio, porch In the
market approach, the appraiser must gauge and reflect the anticipated reaction
by a typical buyer to differences between the subject property and the
comparable sales.
What is a
comparable sale?
A comparable sale is a home that is similar to the home that is being
financed, in terms of location within the defined neighborhood, recently sold
in an arm’s length transaction, age, condition, square footage (GLA-gross
living area) and amenities. Selecting appropriate comparable sales in most
residential appraisals is the single most important factor in establishing
value. It is the appraiser's responsibility to fully research and analyze the
local real estate market and determine which comparable sales best represent
the value characteristics of the home that is being financed.
What is an arm’s
length transaction?
An arm’s length transaction is one in which both seller and buyer act
completely independently of each other and have no connection or relationship
to each other.
Where does an
appraiser get all of the information to complete an appraisal?
There is a wide variety of information or data sources available to
appraisers. This includes, but is not limited to, the local Real Estate
Multiple Listing Service, local tax assessor's records, local real estate
professionals, county courthouse records, third party public record data
vendors and the appraiser's own personal knowledge or files from previous
appraisals. An appraiser is required to utilize the data they deem to be the
most reliable as it relates to the property they are appraising.
If the lender’s
appraisal comes out higher than the tax assessed value, could the real estate
taxes go up?
No, at least not related to the appraiser establishing a market value.
The appraiser is required to maintain confidentiality with his client, the
lender. Because the tax assessed value has no relationship to an appraiser's
market value, the taxable value may be higher or lower than an appraised value.
These two values are established using entirely different methods at different
points in time. For example, an assessor's value may use public records that
treat all square feet the same such as the finished basement area that is not
applicable in an appraisal as part of the gross living area.
What improvements
add value to the home?
The impact on value of a home improvement or update varies widely from
market to market depending on each market's perception of the value of the work
completed.
Generally, routine upkeep such as replacing the roof on a thirty year
old home is expected with no increase in the market value; while an updated
kitchen or bath is more likely to add value.
Can I ask the
appraiser questions about the appraisal once it’s completed?
The appraiser is legally bound by client confidentiality to the lender
and cannot discuss specifics of the report with you, the borrower. If you have
questions not addressed here, you may bring them to your mortgage lender for
assistance.
