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The Appraisal Foundation - USPAP
(Uniform Standards of Professional
Appraisal Practice) defines an appraisal
as "The act or process of developing an
opinion of value." This valuation is a
determination of your property's market
value - what it will likely sell for on
the open market. So how is this
"valuation" determined? Why does the
idea of getting an "opinion of value"
create so much apprehension about the
process? What can you do to make your
home appraise better, if anything? What
do you do if your home doesn't appraise
well? Below are commonly asked questions
that hopefully will give some clarity
about home appraisals.
What is a home appraisal?
A home appraisal is a survey of a home
by a professional for their opinion of
the property market value. In most cases
an appraisal is done for a bank when a
home is being approved for a loan for
the home buyer. The home appraisal is a
detailed report that looks at such items
as the condition of the home, the
neighborhood, what similar homes are
selling for, and how quickly similar
homes sell (to name a few). The
appraisal may be a sales comparison or a
cost/replacement opinion of value. There
is also an income appraisal, but this is
done primarily with commercial
properties. The sales comparison will
look at other properties in your
neighborhood and what they are selling
for and then figure how they compare to
your home. With a cost/replacement
opinion of value the appraiser is
looking at what it would cost to replace
the home if destroyed; this is more
commonly used for new homes.
Important Note: An appraisal is not
a home inspection! Appraisers only look
for major concerns, they do not examine
the home's full condition (i.e. examine
the roof, appliances, etc.). For this
reason a home inspection should still be
requested by the home buyer before
purchasing the home.
Who is an appraiser?
Appraisers are licensed by individual
states and are held to strict ethical
standards. Appraisers are the third
party whose purpose is to give their
opinion of the market value of a home.
Ideally the appraiser should not be
connected with anyone involved with the
home transaction.
Who picks the appraiser?
When an offer is made on the house the
appraiser will normally be determined by
the lender. The lender may have their
own appraiser or contract with an
independent party. Sometimes the bank
will allow the seller to choose an
appraiser, but only when that appraiser
is already well known to them.
Can the seller get their own
appraisal done?
Yes. The home seller may commission
their own appraisal before selling the
property to determine cost. However,
this will cost anywhere from $300-500
and the bank most likely will not accept
this appraisal but request another to be
done by their own contact.
If not by appraisal, how do I
set the price for my home?
Home sellers can set the price of their
home with the help of a REALTOR(r) using
a comparative market analysis (CMA); the
CMA is not a substitute for an appraisal
but will give a good idea on setting an
asking price (usually 5-10% more than
the market price for your area).
How can you prepare your home
for appraisal?
Prepare for your home appraisal like you
would for a home sale. You are in
essence re-selling your home. Make sure
all the maintenance you can do is done;
this includes clearing and trimming the
yard to painting the house - hopefully
most of this was already done for the
sale and should at most need only a
minor touch up. Be polite to the
appraiser and give them full access to
your home; work with them not against.
Inform the appraiser of your home
improvements. Let them know about the
new windows, new floors, the finished
basement, etc. And finally, don't be
caught off guard. Do your homework! Know
what similar homes are selling for in
your neighborhood. This is something
that should be done before setting your
selling price. But in case your home has
been on the market for a month or two,
keep your research current. Let the
appraiser know about similar homes and
what they have sold for, especially if
you know why a particular home that is
like yours sold for less, let them know
why your house is different.
What if the appraisal is low?
An appraisal that comes in lower then
the asking price can jeopardize the loan
and ultimately the sale. The lender will
generally only loan up to 80% of the
appraisers opinion of the home's value.
The most common result is that the
seller can lower their asking price. Or
the seller and buyer can negotiate and
meet at a price in-between. If the buyer
still wants the home badly enough, they
may put more money down; but this may
still not guarantee their loan as the
lender will still view it as negative
equity. The final option is to dispute
the appraisal. Before disputing with an
appraisal, do your homework. Look at the
homes in your community that have sold
in the last 6 months and see what the
differences are that may make your home
more valuable. Perhaps there is a sale
that the appraiser missed, perhaps other
homes do not have the renovations and
improvements you have done, perhaps the
appraiser is not familiar with your type
of home or neighborhood, etc. Building
this case may be a good idea even before
the appraisal. This will prevent you
from getting rushed by the timeline
after the appraisal is done. This is
something you can ask for your REALTOR(r)
to help with as they usually have a vast
knowledge of your market area. Once you
have the case, present it to the lender.
They will likely get a new appraiser or
request the same appraiser to reconsider
it. If you do not want the same
appraiser, make sure to specify this and
ask for a second opinion.
What other aspects of the
appraisal can hurt the loan?
By in far, the appraisers opinion of the
home's value being lower than the asking
price is the most detrimental. However,
other factors may cause the lender to
refuse the loan or require further
contract negotiations. These concerns
would result from property conditions
that may require the home buyer to do
more investing in the property to keep
it valuable, such as upkeep on a private
road. Your REALTOR(r) can help you with
these types of objections and altering
the contract to meet the lenders
concerns.
The above is an introduction to
answer some basic questions about the
appraisal process. Please look at the
links to the left for more detailed
information. Now, if you are interested
in what your home may be worth, check
out Zillow for fun! This online program
uses Google Maps to show what homes in
your neighborhood are selling for or may
be worth. Of course, I would suggest
caution as the opinion of value given
for most homes is rather high:
http://zillow.com/ Happy appraising!
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