Appraisals

What Is an Appraisal?

An appraisal is a professional opinion of a home's market value. It's done by a licensed or certified appraiser who is independent from you, the seller and the real estate agents. The appraiser visits the property, looks at its size, condition and features, and compares it with similar homes that recently sold nearby.

An appraisal is different from a home inspection. An inspection looks for problems you should know about. An appraisal focuses on value.

Most appraisals take a few days to a couple of weeks to complete, depending on how busy appraisers are in your area. The visit itself usually takes under an hour for a typical home. The final report includes photos, a floor sketch, the comparable sales used and the appraiser's reasoning.

Why Get an Appraisal?

The home is the lender's security for the loan, so the lender needs to be sure it's worth enough. The appraisal also protects you from overpaying. If the appraisal comes in below the purchase price, you may be able to renegotiate the price, pay the difference in cash, challenge the value with better comparable sales or, depending on your contract, walk away.

In some cases, a lender may waive the appraisal for certain conventional loans with strong equity and data on the property. This can save you time and money. Whether a waiver is available is decided by automated underwriting, and I'll let you know if your loan qualifies.

Appraisal Methods

Appraisers can use three approaches:

• Sales comparison approach: Compares the home with similar recently sold homes and adjusts for differences. This is the main method for most homes.
• Cost approach: Estimates what it would cost to rebuild the home, subtracts wear and tear, and adds the land value. Useful for new or unique homes.
• Income approach: Values the property based on the rent it can produce. Used for rental and multi-unit properties.

Who Owns the Appraisal?

The lender orders the appraisal and is the appraiser's client, even though you usually pay for it. By law, you have the right to receive a free copy of the appraisal promptly, and at least three business days before closing (you can waive the timing). Keep it for your records.

Using Another Lender After an Appraisal

If you switch lenders, the new lender usually can't simply use your old appraisal. Some lenders will accept a transferred appraisal if it meets their guidelines and the original lender releases it, but many will order a new one. Government loans like FHA have their own transfer rules. Ask before switching so you know whether you'll pay for another appraisal.

Who Determines Market Value?

In the end, buyers and sellers set market value by what they agree to pay. The appraiser's job is to measure that value using real sales data. It isn't set by the listing price, the tax assessment or online estimates, though those can give clues. Lenders base your loan on the lower of the purchase price or the appraised value.

How to Help Your Appraiser

• Make sure every room, the attic, crawl space and utilities are easy to get to
• Provide a list of upgrades and when they were done, with costs if you have them
• Share details on recent nearby sales you know about
• Tidy up and fix small items like leaky faucets or missing smoke detectors
• Have permits for additions or finished basements ready

Remember, appraisers must stay independent. You can share facts, but no one can pressure an appraiser toward a certain number.