A home appraisal is an unbiased estimate of the true (or fair market) value of what a home is worth. All lenders order an appraisal during the mortgage loan process so that there is an objective way to assess the home’s market value and ensure that the amount of money requested by the borrower is appropriate.
The appraisal can include recent sales information for similar properties, the current condition of the property, and the location of the property, i.e., insight as to how the neighborhood impacts the property’s value.
Appraisers do not do provide residential property inspections and are not home inspectors. A 3rd-party home inspector will investigate the structure of the home, from the top to the foundation.
Usually, a home inspection report will explain the amenities and the requirements of the property: air conditioning (weather permitting), electrical services, the condition of the heating system, the plumbing; then the structural integrity of the home such as the attic, visible insulation, walls, floors, ceilings, windows, then the foundation, basement and visible structures.
Appraisals are conducted by highly-trained professionals who are licensed and/or certified to determine the value of a home fairly, objectively and without bias in the state where the property is located.
While no appraiser is infallible, his or her opinion of the value of your home is informed by rigorous training, numerous tests, several years of on-the-job experience and required continuing education.
They are also required to substantiate every finding in their reports that could influence a home’s value. Appraisers and their employers (often appraisal management companies) are heavily regulated. Consequences of issuing deliberately misleading or biased reports can be severe, so appraisers work hard to remain impartial and keep personal value judgments and prejudices out of their work.
Property value is determined by a number of factors, including location, condition, improvements, amenities, and market trends.
Remember this: appraisers are looking at the condition of what’s permanently part of or attached to the house. They’re not evaluating the décor or furniture or anything that’s not affixed to the property; what’s most important are your home’s physical characteristics (age, square footage, the number of bedrooms and baths, lot size, location, view) as well as their observable condition.
The Appraiser has no vested interest in the outcome of the appraisal and should render services with independence, objectivity and impartiality.
Appraisers make a detailed analysis of all factors pertaining to the value of a home including its location, condition, size, proximity to facilities and recent sale prices of comparable properties in the subject market area.
Market value or fair market value is the most probable price that a property should bring (will 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.
While many states support the concept that assessed value approximates estimated market value, this often is not the case. Examples include when interior remodeling has occurred and the assessor is unaware of the improvements, or when properties in the vicinity have not been reassessed for an extended period.
Market value is based on what a willing buyer would likely pay a willing seller for a particular property, with neither being under pressure to buy or sell. Replacement cost is the dollar amount required to reconstruct a property in-kind.
Appraisers are required to be competent in the geographic area where they are working. Some appraisers work in cities and counties beyond their residence, but are knowledgeable about those specific areas. If you suspect that an appraiser is not competent to appraise in your area, you may contact the lender who is the appraiser’s client.
Yes. The Equal Credit Opportunity Act (ECOA) requires creditors to automatically send a free copy of home appraisals and all other written valuations on the property after they are completed, regardless of whether credit is extended, denied, incomplete, or withdrawn.
If the appraisal process is complete & your appraisal comes in lower than you expected, first you should read the report thoroughly to be sure there aren’t any errors like wrong number of bedrooms/bathrooms or incorrect square footage.
Also double check the comparable properties to make sure they truly are comparable to yours. Appraisers are human and make mistakes, too.
However, if you cannot find any glaring errors in the home appraisal report, you may wish to appeal your appraisal or even pay for a new one.
(PMI) Private Mortgage Insurance insures a lender against loss on homes purchased with a down-payment of less than 20%. Once equity in the home reaches 20% you can eliminate the PMI and start saving immediately.
The answer to this is different depending upon the location of the home. Different markets value amenities differently. Adding a central air conditioner in Houston, Texas may add significant value, while putting one in a home located in Buffalo, New York might not have much impact.
As a rule, the most value returned from renovating a home comes in the kitchen. According to one national survey, kitchen remodels returned an average of 88% of the investment. In other words, a $10,000 kitchen remodeling project would add approximately $8,800 to the value of the home. Bathrooms were second, returning 85%.
The costs of appraisals are deductible expenses on estate tax returns and sometimes in estate planning (e.g., family limited partnerships).