What is a property appraisal?

A real estate appraisal answers that intriguing question: What is this property worth? Now.

A real estate appraisal is an unbiased estimate of the true value of a property. It is best conducted by a licensed, certified professional.

If you are selling your home, a professional appraisal can help you determine the current market value to set a fair price. If you're buying a property, an appraisal can confirm whether the property is worth the amount you are paying.

Do lenders choose the property appraiser?

Most lenders require a professional appraisal to determine the current market value of a property before they approve a mortgage loan. Since the property you are financing is collateral for the loan, the bank or other lender won't want to loan more than that property is worth.

Usually, the lender will commission the appraisal, which you are entitled to see. Keep in mind that lenders and broker's agents are not allowed to "up charge" for third party services.

What does an appraiser do?

A state-licensed or certified appraiser has been trained to give an independent estimate of the value of a property based on location, amenities and recent sales of similar properties in the same neighborhood.

An inspection often includes a walk-through to determine the general condition of the property and note any amenities that may add (or detract) value in that area. Often, the appraiser will photograph or sketch the property's layout. If there are any health or safety code violations, the appraiser will list them so they can be corrected before the lender approves a loan.

An appraisal is not a home inspection [1] in which a licensed home inspector or contractor evaluates the structure and mechanical systems (heating, plumbing, air-conditioning, etc.) of a house, from foundation to rooftop.

The appraiser is typically more interested in sales prices (within the past six months) of comparable homes in the neighborhood, the exterior presentation of the property and amenities that enhance the value in that market.

If you are refinancing and the property has been appraised within the past three years, some lenders will be satisfied with a "drive-by" appraisal as an addendum to the original report.

Turn around time for an appraisal should be within 3-7 business days.

How much does it cost?

Lenders are required to charge the fee they are charged by the appraiser. Average rates, range from $350 to $600 depending on the size and value of the property. Prices vary depending on region, type of appraisal report requested and the amount of effort required to complete the report.

Drive-by appraisals and updates to existing reports are usually under $275. Lenders are not likely to approve a loan based solely on a drive-by appraisal.

Who pays?

While an appraisal is usually ordered by the lender, the buyer pays the fee as part of his total closing costs [2]. If you are a motivated seller, you could order and pay for a professional appraisal to support the price you are asking and reduce the buyer's closing costs. Again, be sure to hire an appraiser that has a broad range of lender relationships.

Smart Tips

• Your real estate agent can provide a general Comparable Market Analysis (CMA) for a particular neighborhood as a baseline, but be sure that the amounts listed are for final sales within the last six months and for properties that are similar to the property you are interested in, in age, square footage, number of rooms.
• If this is a For Sale By Owner (FSBO) transaction, an appraiser, who has no vested interest in the sale, can do the "comp" research for you, along with information about any easements, restrictions, encumbrances, leases, ordinances, etc. and provide a report that is acceptable to your lender.
• In some cases, it's wise for a seller to commission a "pre-listing" appraisal to get an accurate description of the property's features and determine the property's current market value. It can help sellers avoid any last-minute problems or repairs that could delay or prevent a sale. A pre-listing appraisal can facilitate a sale by providing potential buyers with written proof of the condition of a property.
• If you are the buyer, be sure to include a contingency clause in the purchase agreement that allows you to renegotiate or withdraw from the deal if the appraisal value is much lower than the selling price and your bank will not agree to a higher mortgage.

Replies

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Posted on: Thu, 09/04/2008 - 17:44 #1 [4]

Pat Sullivan SRA [5]

Fort Lauderdale, FL

Pat Sullivan SRA “Get your home ready for the appraiser” Most of us worry about getting ready for the real estate appraiser to make their visit to our home. We have worked so hard to secure a buyer and now is the time for the banks appraiser to take a look at the property. Now, first of all lets take time to relax and know that a little preparation will go a long way in helping with the appraisal process. Most qualified real estate agents will recommend that you stage your home when you are getting ready to sell. The same applies to the real estate appraiser. Eventhough they are trained to look at the bricks and motar a clean and tidy home will always enhance the appraisal report. Most lenders now require interior photos, so lets get the drapes open and lights on. This will really help to enhance any pictures of your livingroom, kitchen and especially the bathrooms. Have the yard mowed and your patio furniture arranged nicely. Helping the appraiser is always useful. Have the most recent copy of your survey and a list of recent repairs or upgrades available. Eventhough most appraisers will probably be familiar with your neighborhood, I recommend a list of recent sales in your area for their reference. Some appraisers may think you are trying to influence their opinion of value but it helps to demonstrate that you are also informed as to current market values. A skilled veteran in the appraisal industry includes all available data in their analysis, only those unsure of themselves might take offense. When the appraiser arrives at the door be polite and professional. Request a business card and ask them if they are familiar with the neighborhood. These are reasonable requests and a professional appraiser will always comply. I recommend you review the card to determine if they are licensed or certified to perfom appraisals in your state. Once again don’t spend to much time worrying about the appraisal inspection. Your home will speak for itself. Once you take these few quick steps you can be assured that you have done what you can in this important part of the home sale. Pat Sullivan SRA is a member of the Appraisal Institute. He has appraised residential real estate in south Florida for the past 25 years. His certification number for the State of Florida is “St.Cert.Res.REA308”. Feel free to contact him with any further questions.

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