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FREQUENTLY ASKED QUESTIONS: RESIDENTIAL APPRAISALS
- What is an appraisal?
- What an appraisal is not:
- Who is an appraiser?
- How does the appraisal process work?
- How long does a site visit at the home take?
- Why do I have two appraisers calling to set up a home visit?
- Does the home have to be spotlessly clean when the appraiser visits?
- What is the appraiser looking for when they make the site visit to the home?
- How can I assist the appraiser in completing the appraisal?
- What is market value?
- What is the market comparison approach to value?
- What is a comparable sale?
- What is an arms length transaction?
- Where does an appraiser get all of the information to complete an appraisal?
- If the lender's appraisal comes out higher than the tax assessed value, could the real estate taxes go up?
- What improvements add value to the home?
- Can I ask the appraiser questions about the appraisal once it's completed?
1. What is an appraisal?
An appraisal is a supportable/defensible opinion of value that indicates how much a property is worth. This written valuation is completed by a licensed/certified appraiser according to the Uniform Standards of Professional Appraisal Practices. The report is prepared exclusively for the lender for the sole purpose of assisting them with their underwriting decision. It is date specific.
2. What an appraisal is not:
An appraisal is not an exact science, it is an opinion. An appraisal is not completed for the borrower's benefit, as the lender is the sole client and intended user of the report. The appraisal is not a value guarantee, nor does it provide an indication of a future value. Additionally, the value represented in the appraisal has no relationship with other values such as a tax assessed value.
An appraisal is also not a home inspection, and it does not provide any guarantee regarding the physical soundness of the home. While the appraiser may note and factor visible structural problems into the value opinion, an appraiser only comments on items that are readily apparent and would be observed by a typical purchaser. Lenders or borrowers interested in obtaining assurances regarding the physical soundness of the home are encouraged to seek the advice of applicably licensed experts.
3. Who is an appraiser?
After fulfilling appraisal training, experience, and licensing requirements of the state in which the license is issued, an appraiser is an individual authorized to produce appraisals. An appraiser acts as an impartial third party in the lending process and their work is governed by the Uniform Standards of Professional Appraisal Practices to provide consistency across the appraisal industry.
4. 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.
5. 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.
6. 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 your Mortgage Lender to ask for a clarification.
7. 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.
8. 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 and room counts are considered, but are included separately from the above grade/ground GLA and room counts. Only permanent fixtures and land are addressed in an appraisal.
9. 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.
10. 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.
11. 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.
12. 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.
13. 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.
14. 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.
15. 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.
16. 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.
17. 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 cannot 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.