Appraisals   

The Official definition:  An opinion of the value of property based on factual analysis, made by a qualified licensed professional called an "appraiser."  That does not shed much light on the subject, so we will go into a little more detail. 
An appraisal is the estimation of value the lender uses to decide if the property can support the requested loan amount.  We need to be sure that we are not lending more than the property is worth.  An appraisal is not an arbitrary estimation made quickly.  It is a fairly reliable assessment made and supported through comparison to other similar properties, and application of cost factors.
Here is how it works.

The appraiser visits the property to be financed, while there the appraiser does several things:

  • Measurements to determine and verify the square footage are taken
  • Notes of room count, and amenities are made
  • Any glaring defects are identified
  • Photographs are taken for the lender

Then the appraiser will collect the same information on 3 or 4 comparable homes in the same general area.  These homes will be visited and photographed, but generally are not entered or measured.  (Much of the information about the comparables is derived from the public record held by the county, or recent sales information from the real estate community.) 

After collecting all of the information the appraiser will make a line item "sales comparison analysis" between your home and the comparable sales.  Some of the items considered are:

  • Location
  • Site (desirability of the lot)
  • View
  • Design and appeal factors
  • Quality of construction
  • Age
  • General condition
  • Size, and room count
  • Functionality issues
  • Heating and cooling systems
  • Energy efficiency
  • Garages, and carports
  • Porches, patios, and decks
  • Exterior improvements such as a fence or pool

In general if the home being appraised has a feature the comparable homes do not, it increases the value of the subject property, and if the comparables have a feature the subject property does not it decreases the value of the property.
A second estimation know as the "cost approach" is also calculated.  The appraiser determines what it would cost to build the subject property today, then subtracts a reasonable depreciation.
The final step is to reconcile the two estimations into one appraisal report with a final valuation.  The appraiser then provides the report to the lender with photographs, maps and any other supporting documentation.
This is a simplification of the process for the purpose of illustration.  Be sure to ask for a copy of your appraisal and review it for yourself.

Other Books In the Library

Main Library Page <> Down Payment Stratagies <> Chart of Interest Rates <> Questions To Ask A Lender <> What Are Lenders Looking For? <> Why Buy A Home <> VA Loans <> FHA Loans <> Settlement Cost Handbook <> 3 Things To Avoid <> How To Get Out Of Debt <> Understanding How To Use Credit <> Credit Repair <> Appraisals <> Title Insurance <> Credit Scores <> Automated Underwriting <>