Home Update Newsletter

Real Estate Appraisals 101

Much of the wealth of corporations, institutions and individuals is connected to real estate, which is why it’s so important that it be valued in a way that’s fair and reliable. Professional, state-licensed appraisers offer the expertise, training and experience to provide unbiased information on property values. Whether you’re an individual buying your first home, a bank lending money to a buyer, or an institution investing in a large tract of land, an appraisal provides you with an invaluable reality check.

Appraised value vs. market value

The appraised value of a property is what a bank thinks it’s worth, and that amount is determined by a professional, third-party appraiser. The appraiser’s valuation is based on a combination of comparative market sales and an inspection of the property.

Market value, on the other hand, is what a buyer is willing to pay for a home or what homes of comparable value are selling for. A home’s appraised value and its market value are typically not the same. In fact, sometimes the appraised value is very different.

If you’re in the process of setting the price of your home, you can gain some peace of mind by consulting an independent appraiser. Show him comparative values for your neighborhood, relevant documents (see our “Tips” section for specifics), and give him a tour of your home, just as you’d show it to a prospective buyer.

What if an appraisal is too low?

If your appraisal comes in too low it can be a problem. Usually the seller’s and the buyer’s real estate agents respond by looking for recent and pending sales of comparable homes. Sometimes this can influence the appraisal. If the final appraisal is well below what you have agreed to pay, you can renegotiate the contract or cancel it.

What information goes into an appraisal?

Professional appraisers consult a range of information sources, including multiple listing services, county tax assessor records, county courthouse records and appraisal data records, in addition to talking to local real estate professionals.

They also conduct an inspection. Typically an appraiser’s inspection focuses on:

the condition of the property and home, inside and out
its layout and features
any updates that have been made
the overall quality of construction
an estimate of the home’s square footage (the gross living area or “GLA”; garages are estimated separately, as are basements)
any permanent fixtures (for example, in-ground pools, as opposed to above-ground pools)

After considering all such information, the appraiser arrives at three different dollar amounts—one for the value of the land, one for the value of the structure, and one for their combined value. In most cases, the land will be worth more than the structure.

One thing to bear in mind is that an appraisal is no substitute for a home inspection. An appraiser does a cursory assessment of a house and property. For a more detailed inspection, consult with a home inspector and/or a specialist in the area of concern.

Who pays and how long does it take?

The buyer usually pays for the appraisal unless they’ve negotiated otherwise. Depending on the lender, the appraisal may be paid in advance or incorporated into the application fee; some are due on delivery and some are billed at closing. Typical costs range from $275–$600, but this can vary from region to region.

Home Pricing Guide

An inspection usually takes anywhere from 15 minutes to several hours, depending upon the size and complexity of your property. In addition, the appraiser spends time pulling up county records for values of the houses around you. A full report comes to your loan officer, real estate agent or lender within about a week.

If you’re the seller, you won’t get a copy of an appraisal ordered by a buyer. Under the Equal Credit Opportunity Act, however, the buyer has the right to get a copy of the appraisal, but must request it. Typically the requested appraisal is provided at closing.

Where do you find a qualified appraiser?

Actually, your bank or lending institution does the hiring; Federal regulatory guidelines do not allow borrowers to order and provide an appraisal to a bank for lending purposes. Of course, if you want an appraisal for your own personal reasons, and not to secure a mortgage or buy a homeowner’s insurance policy, you can do the hiring yourself. Some options for finding a qualified appraiser are: contact your lending institution and ask them for 3 appraisers in your area; access your state appraisal licensing website; or ask your real estate agent for referrals. Once you have the name of the appraiser, you can verify his or her status on the Federal Appraisal Subcommittee website: https://www.asc.gov/National-Registry/FindAnAppraiser.aspx

For more information about appraisals, call your agent today.

Tips
For a hassle-free appraisal

What can you do to make the appraisal process as smooth and efficient as possible? Make sure you provide your appraiser with the information he or she needs to get the job done. Get out your important documents and start checking off a list that includes the following:

A brief explanation of why you’re getting an appraisal
The date you’d like your appraisal to be completed
A copy of your deed, survey, purchase agreement or other papers that pertain to the property
If you have a mortgage, your lender, the year you got your mortgage, the amount, the type of mortgage (FHA, VA, etc.), your interest rate, and any additional financing you have
A copy of your current real estate tax bill, statement of special assessments, balance owing and on what (for example, sewer, water)
Tell your appraiser if your property is listed for sale and if so, your asking price and listing agency
Any personal property that’s included
If you’re selling an income-producing property, a breakdown of income and expenses for the last year or two and a copy of leases
A copy of the original house plans and specifications
A list of recent improvements and their costs
Any other information you feel might be relevant

By doing your homework, compiling the information your appraiser needs and providing it at the beginning of the process, you can minimize unnecessary phone calls and delays.

Real estate appraisal: What’s in it for you?

Real estate appraisals protect lending institutions and insurance providers because they help determine the actual value of a property. This ensures that lending institutions don’t make loans greater than a property’s value and that insurance companies don’t insure it for more than it’s worth. But how do you benefit from getting an appraisal?

Practically speaking, you need an appraisal to move forward with either a home sale or purchase because you can’t get a mortgage or homeowner’s insurance without it. But it’s also important to get a real estate appraisal for your own peace of mind. It gives you a fairly accurate idea of the value of the property you own, want to buy or are in the process of buying.

For a homebuyer, it’s a resource and a reality check. An appraisal provides you with the backup you need to negotiate the best deal on a property you want to buy. Even if you fall in love with a particular house or property and are willing to pay anything for it, you may want to sell it one day. If you’ve paid far more than it’s actually worth, you could lose money. When you’re selling a home, an appraisal is news you can use.

It will provide the information you need to get full value for your property.

Either way, always ask for a copy of your appraisal and keep it in your files. Should you sell your property in the future, you’ll have it as evidence of its value at the time of appraisal.

Direct Phone: 360-961-2588 Email: mrhea@windermere.com