Must-Have Information for Buyers, Sellers, Agents, and Industry Professionals.
Whether you're purchasing a home, refinancing your current property, listing a home, or are just curious of your homes value, a residential real estate appraisal is a key component of this process. This blog will outline the specifics of what an appraisal is and how an appraiser determines your homes value. This post is written by appraisers who have vast experience in the industry with the upmost knowledge and expertise of the appraisal process including all variations of financing: VA, FHA, CONVENTIONAL, USDA, CASH, ETC....
What is a home appraisal?
An appraisal is an unbiased professional opinion of a home's value by a Certified/Licensed real estate appraiser in your area. This is used for the majority of purchase, HELOC, and refinance transactions. In purchase transactions the bank/lender needs to determine that the contract price is supported where as a refinance transaction is done to make sure the bank/lender is not loaning the borrow more money than the home is worth. Lenders want to make sure homeowners are not overborrowing as the home is considered collateral for the mortgage and the appraisal is a level of protection for the lender.
Appraisal Process:
Appraiser Receives an Order: Typically the appraiser will receive an appraisal order from your lending institution to complete an assignment for a specific purpose (eg. Refinance, Heloc, Purchase, Etc...)
Appraiser Schedules the Appraisal Appointment: The appraiser or a staff member will schedule an appointment to go and see the property.
Appraiser Selects Comparable Sales: The appraiser will select comparable sales for your property that have sold in the prior 12-months in your market that are deemed most similar in overall features and thus are considered to be "substitutes" for your property. This is done before the appraisal inspection and after depending on what additional information is gathered during the appraisal appointment.
Appraisal Appointment: For standard homes that are typical for the market the appraisal appointment takes anywhere from 15-45 minutes. This is the data gathering phase where the appraisal will take measurements of the home as well as photos of every room, exterior amenities (sheds, porches, decks, pools, etc...), the exterior of the home, mechanical systems (heater, HVAC, hot water heater, etc...), and the attic/crawl space. The appraiser when available will ask questions to the homeowner or other individuals present about updates and various other aspects of their home. Just before or after the appraisal appointment the appraiser will gather comparable photos of the selected comparables in the previous step which most lenders require.
Data-Entry: The appraiser will take all the data gathered including the appraisal appointment, comparable photos, public record data, lender provided information, etc.... and enter this information onto the designated software that the appraiser utilizes to perform residential appraisals. This also includes maps of the aerial view of the property, a map of the property and comparables utilized, a plat map, and other documentation required in residential appraisals. Most appraisals typically range between 25-40 pages in length.
Reconciliation: After all data entry tasks are complete the appraiser will apply appropriate adjustments on the sales grid within the appraisal report. Adjustments are made if a comparable has a superior or inferior aspect versus the subject property. Example: The subject has a 2-car garage where a comparable utilized has a 1-car garage. The appraiser would apply a positive upward adjustment on the comparable for its inferior feature which will increase the sale price of the comp. The appraiser after completing this step will reconcile the comparables by weighting each comparable to define which were the best substitutes for the subject and which were most indicative of the current market value of your property.
Final Review: The appraiser will complete a final review of the appraisal report before submission to the lender.
Submission to The Lender: After completing the above steps the appraisal will be submitted to the lender who then conducts their own reviews and delivers a copy of the appraisal to the borrower.
Different Types of Appraisals:
Standard Full Appraisal: A standard full appraisal is outlined in the steps above and is the most in-depth option available.
Drive-By Appraisal: This type of appraisal has similar steps to a full appraisal except the appraiser is only completing an exterior drive-by from their car of the exterior of your home.
Desktop Appraisal: This appraisal is completed using a third-party who is NOT the appraiser who will go out and conduct either a drive-by of your home or a full interior inspection of your property including measurements. The appraiser will utilize the information provided by the third-party to complete the appraisal. This is sometimes done on a more compact form that is not 25-40 pages in length.
Private Appraisal: Private appraisals can be done a variety of ways including a drive-by, full inspection, or just information provided by the borrower. These vary based on each individual clients needs. The purpose of a private appraisal can vary greatly but includes Divorce, Estate, For-Sale By Owner, Pre-Listing, etc...
How long does the a residential appraisal take?
The appraisal process can take anywhere from 2-10 business days from the time an appraisal is ordered by the lender which varies depending on a variety of factors which include but are not limited to the complexity of your home, your distance from the appraiser, whether or not your home is in a suburban/rural/urban location, and the overall availability of the appraiser. Most appraisals at Alternative Valuation Partners, LLC are completed within 5 business days.
How much does an appraisal cost?
Home appraisals typically cost between $400 to $600 for a standard appraisal from your lender but can vary based on the complexities of your property and where your home is located. Private appraisals typically range within the same amount when ordering directly from an appraiser.
What affects a home appraisal?
The overall improvements of your property play a large role of your homes value in addition to the land that your home/improvements are situated on. Primary components that have the most bearing on your homes value are location, lot size/configuration, size, bed/bath count, condition, and updates over time. Having miscellaneous repairs and/or issues taken care of before an appraisal takes place is important as well as general upkeep and having your home clean when the appraiser is at the appointment.
To Sum It Up
An appraisal may seem scary at first, it really is just another process during the purchase or refinancing process. However, if an appraisal does not meet your lenders requirements it can cancel or delay a transaction. A basic understanding of the entire process is helpful to make the most informed decisions you can.
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