1) | What is an appraisal?
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. |
2) | 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. |
3) | 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. |
4) | 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 a inadvertent double assignment of appraisers or an
oversight in telling you of the second appraisal requirement. |
5) | 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. |
6) | 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. |
7) | How can I assist the appraiser in 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. |
8) | 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. |
9) | 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. |
10) | 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 arms 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. |
11) | What is an arms length transaction?
An arms 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. |
12) | 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. |
13) | 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. |
14) | 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. |
15) | 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 can not discuss specifics of the report with you, the borrower. If
you have questions not addressed in these Frequently Asked Questions about
Appraisals, you may bring them to your mortgage lender for assistance. |
