Buying a home? Securing a mortgage? You’ll likely encounter an appraisal. This unbiased assessment determines a property’s fair market value. Let’s delve into the process, from scheduling the visit to the final report.

The Property Inspection

Exterior Assessment

Landscaping:

• Overall appearance: The appraiser will assess the general upkeep and maintenance of the landscaping, including overgrown weeds, dead plants, or unkempt flower beds.
• Hardscaping: They will observe the condition of walkways, patios, driveways, retaining walls, and any potential cracks, uneven surfaces, or signs of water damage.
• Fencing: The appraiser will note the type of fencing (wood, vinyl, etc.), its condition, and whether it complements the overall aesthetic of the property.
• Drainage: They will look for signs of poor drainage, such as pooling water near the foundation or uneven lawn surfaces, as these can indicate potential structural issues.

Foundation:

• Material and condition: The appraiser will identify the foundation material (concrete, block, etc.) and look for cracks, crumbling, or signs of uneven settling.
• Waterproofing: They will check for evidence of water damage around the foundation, such as cracks, peeling paint, or efflorescence (white, powdery deposits).
• Drainage around the foundation: They will assess the grading of the ground around the foundation to ensure proper water drainage away from the house.

Roof:

• Material and condition: The appraiser will identify the roofing material (shingles, metal, etc.) and assess its age, condition, and presence of any missing, damaged, or loose shingles.
• Flashing: They will check the flashing around chimneys, vents, and skylights for any signs of rust, deterioration, or improper installation.
• Gutters and downspouts: They will observe the condition of gutters and downspouts, looking for rust, clogs, leaks, or improper drainage away from the foundation.

Overall Curb Appeal:

• First impression: The appraiser will consider the overall impression of the property from the street, factoring in factors like the landscaping, paint condition, and overall upkeep.
• Consistency and cohesiveness: They will assess whether the exterior elements like siding, trim, and shutters coordinate well and create a visually pleasing composition.
• Street presence: They will consider how the property compares to surrounding houses in terms of its exterior presentation and overall aesthetic.

Interior Inspection

General Condition:

• Overall maintenance: The appraiser will assess the general upkeep and maintenance of the interior, looking for signs of neglect, damage, or deferred maintenance.
• Cleanliness and order: They will consider the overall cleanliness and tidiness of the property, as a cluttered or messy space can negatively impact the perceived value.
• Lighting and ventilation: They will evaluate the adequacy of natural and artificial lighting throughout the house, and ensure proper ventilation is present in bathrooms and kitchens.

Room Count and Square Footage:

• Number of rooms: The appraiser will verify the number of bedrooms, bathrooms, living areas, and other functional spaces, as advertised or listed.
• Square footage: They will measure the living space of each room and confirm the total square footage of the property, which is crucial for valuation.
• Layout and functionality: The appraiser will assess the flow and functionality of the floor plan, considering how different rooms connect and whether the layout is adaptable to different uses.

Specific Features and Amenities:

• Kitchen: The appraiser will document the type and quality of cabinetry, countertops, appliances, and overall functionality of the kitchen space.
• Bathrooms: They will assess the condition of fixtures (sinks, toilets, bathtubs/showers), ventilation, and any unique features like whirlpool tubs or separate showers.
• Living areas: The appraiser will note the size, location, and any special features of living areas like fireplaces, built-in bookshelves, or unique architectural elements.
• Finished basement or attic: They will assess the finished square footage of a finished basement or attic, as these areas can contribute value to the property.

Additional Observations:

• Major systems: The appraiser will inquire about the age and condition of major systems like heating, air conditioning, electrical wiring, and plumbing, as these can significantly impact the property’s value.
• Renovations and upgrades: The appraiser will document any recent renovations or upgrades, such as updated kitchens, bathrooms, or finished basements, which can increase the property’s value.
• Unique features: They will note any unique features that may not be readily apparent, such as smart home technology, energy-efficient upgrades, or historical significance.

Taking Measurements and Photos:

Measuring Techniques:

• Exterior measurements: The appraiser typically uses a laser measuring device or a measuring tape to measure the perimeter of the building, including the length and width of each exterior wall. They may also measure the height of the building, the dimensions of decks, patios, garages, and any other relevant outdoor structures.
• Interior measurements: The appraiser measures each room individually, recording the length and width. They may also measure ceiling heights, doorways, and specific features like built-in shelves or fireplaces. Additionally, they may measure hallways, staircases, and any other relevant interior spaces.
• Sketching the floor plan: The appraiser may sketch a basic floor plan of the property, indicating the dimensions of each room and their relative positions. This provides a visual representation of the property’s layout.

Photographic Documentation:

• Exterior photographs: The appraiser captures photos of all four sides of the property, capturing the overall condition, architectural style, and curb appeal. They may also photograph specific exterior features like roofing materials, exterior finishes, landscaping elements, and any unique features like swimming pools or outbuildings.
• Interior photographs: The appraiser photographs each room, capturing the overall condition, layout, finishes (flooring, walls, cabinetry), and any unique features like built-in appliances, high ceilings, or renovated bathrooms. They may also photograph specific features like fireplaces, built-in bookshelves, or any potential concerns like water damage or structural issues.
• Photo labeling and organization: The appraiser ensures each photo is labeled with relevant information, such as the room it depicts or a specific feature being shown. They organize the photos systematically for easy reference during the appraisal report writing process.

Gathering Additional Information:

Inquiry about renovations and upgrades:

• The appraiser may ask about the date and nature of any recent renovations or upgrades completed on the property. This information helps them understand the property’s overall condition and potential value increase due to these improvements. Examples of potential inquiries include:
  • When was the kitchen or bathroom last remodeled?
  • What materials were used in the renovation?
  • Were any permits obtained for the work?
  • Do you have any documentation related to the renovations, such as receipts or invoices?

Identifying unique features:

• The appraiser may inquire about any unique features of the property that may not be readily apparent during the inspection. These features could potentially impact the value of the property and should be documented for accurate appraisal. Examples of potential inquiries include:
  • Does the property have any historical significance or architectural features?
  • Are there any energy-efficient upgrades like solar panels or geothermal heating?
  • Is there any special landscaping or hardscaping that adds value to the property?
  • Does the property have any legal easements or restrictions that may affect its use?

Verifying information:

• The appraiser may ask the homeowner to verify information they gathered from other sources, such as public records or listing information. This helps ensure the accuracy of the data used in the appraisal report.

Additional documentation:

• The appraiser may request copies of relevant documentation to support the information gathered during the inspection and interview. This might include:
  • Building permits for renovations
  • Warranties for major appliances
  • Homeowners’ association (HOA) rules and fees (if applicable)

By gathering this information, the appraiser gains a more comprehensive understanding of the property, allowing them to provide a more accurate and fair market value assessment in the final report.

In addition, meticulously examining the exterior and interior of the property, the appraiser gathers crucial information to form an informed opinion of the property’s value, considering both its physical condition and functional aspects.

Setting Up the Appraisal

Who Orders the Appraisal?

In most real estate transactions involving financing, the lender is the party that typically initiates and pays for the appraisal. This is because the lender needs an unbiased professional opinion of the property’s value before they can approve a mortgage for the amount requested by the buyer. It helps them determine the risk involved in lending the money and protects them from situations where the property might be overvalued.

However, there are other scenarios where an appraisal might be initiated by different parties:

• Buyer: A buyer might choose to order an independent appraisal, especially if they have concerns about the asking price or want to verify the value before negotiating an offer. This additional cost can give them peace of mind and potentially leverage in the negotiation process.
• Seller: In a competitive market, a seller might pre-emptively order an appraisal to showcase the property’s true value and attract stronger offers from potential buyers. This can also be beneficial when listing the property at a more competitive price based on the accurate valuation.
• Estate Settlement: When settling an estate, an appraisal might be necessary to determine the fair market value of a property for tax purposes or to distribute assets fairly among beneficiaries.

Understanding the Costs:

The cost of an appraisal varies depending on several factors, including:

• Location: Appraisals in high-cost areas typically cost more than those in rural or less populated regions.
• Complexity of the Property: Unique features, large estates, or properties requiring more research due to limited comparable properties can incur higher fees.
• Appraiser’s Experience and Qualifications: More experienced or highly specialized appraisers might command a higher hourly or flat fee.

Typical Fee Ranges:

While the exact cost varies, expect appraisal fees to generally fall within a typical range for a standard single-family home. However, it’s important to note that this is just a baseline estimate.

Who Pays the Appraisal Fee?

As mentioned earlier, the lender usually pays for the appraisal in a traditional mortgage scenario. However, the specific party responsible for the cost depends on the situation and the agreement between the involved parties. It’s crucial to clarify who will bear the cost upfront, whether it be the buyer, seller, lender, or a combination, to avoid any misunderstandings or financial surprises later in the process.

Additional Considerations:

• Some lenders might offer bundled appraisal packages along with other loan origination fees.
• Buyers and sellers can shop around for appraisers to compare fees and qualifications before making a decision.
• It’s recommended to get quotes in writing from different appraisers to ensure transparency and avoid hidden charges.

Choosing the Appraiser: Ensuring Qualifications and Ethical Standards

Licensing and Certification:

• State Requirements: Every state in the US mandates appraisers to be licensed by their respective real estate regulatory agency. This ensures they meet minimum education, experience, and examination requirements to perform appraisals.
• Designation Levels: Appraisers can further pursue professional designations like Certified Residential Appraiser (CRA) or Certified General Appraiser (CGA) through recognized organizations like The Appraisal Foundation. These designations signify additional education, experience, and expertise in specific property types or valuation methodologies.
• Verifying Credentials: Utilize online resources provided by state licensing boards or appraisal organizations to confirm the appraiser’s license status, designations, and any disciplinary history.

Selection Process:

• Lender Recommendations: Lenders might offer a pre-selected list of appraisers who meet their criteria and have experience in the local market. However, you are not obligated to choose from this list and can independently research appraisers.
• Independent Research: Utilize online directories maintained by appraisal organizations or real estate websites to search for appraisers in your area. Filter results based on location, property type expertise, and client reviews.
• Interviewing Appraisers: Contacting shortlisted appraisers helps assess their experience, communication style, and understanding of the local market. Ask about their experience with similar properties, their approach to the appraisal process, and their fees.

Ethical Standards:

• Uniform Standards of Professional Appraisal Practice (USPAP): This internationally recognized set of ethical and professional conduct guidelines governs appraisers to ensure unbiased and objective valuations.
• Conflict of Interest: Appraisers must disclose any potential conflicts of interest that could influence their judgment, such as personal relationships with the buyer, seller, or lender.
• Independence: The appraiser must work independently of any party involved in the transaction and avoid undue pressure to influence the valuation.

Preparing for the Appraisal: Maximizing Your Property’s Potential

Interior Presentation:

• Declutter and Clean: Create a spacious and inviting environment by removing clutter from countertops, floors, and furniture. Thoroughly clean the entire property, including bathrooms and kitchens, to leave a positive first impression.
• Minor Repairs: Address any minor cosmetic issues like chipped paint, leaky faucets, or broken cabinet knobs. These small improvements demonstrate your commitment to maintaining the property.
• Neutralize Decorations: While personalizing your space adds charm, consider removing overly personal items or decor with strong color schemes. Aim for a neutral and uncluttered environment allowing the appraiser to focus on the property’s features.
• Natural Light: Maximize natural light by opening curtains and blinds during the appraiser’s visit. A brighter space feels more open and inviting.

Exterior Maintenance:

• Curb Appeal: Enhance the property’s first impression by maintaining the landscaping, mowing the lawn, and trimming overgrown bushes. Repair any broken walkways or cracks in the driveway.
• Exterior Condition: Address any visible exterior issues like peeling paint, loose siding, or damaged gutters. Ensuring a well-maintained exterior reflects positively on the property’s overall condition.
• Accessibility: Ensure the appraiser has unobstructed access to the entire property, including the attic, basement, and any outbuildings. Clear any pathways and unlock any doors requiring access.

Additional Considerations:

• Gather Documentation: Having readily available documents like property tax records, recent renovations, and improvement permits can expedite the appraisal process and provide the appraiser with valuable information.
• Be Present (Optional): While not mandatory, being present during the appraisal allows you to answer any questions the appraiser may have about the property or its unique features. However, it is crucial to avoid influencing the appraiser’s opinion by engaging in discussions about your desired value or expectations.
• Maintain Professionalism: Treat the appraiser with courtesy and respect throughout the process. Avoid criticizing the property or neighboring properties, as this can negatively impact your experience.

Scheduling the Visit: A Detailed Look

The scheduling process for an appraisal plays a crucial role in ensuring a smooth and efficient experience. Here’s a breakdown of the key steps involved:

Initial Communication:

• Initiation: The appraisal is typically initiated by the lender, who contacts the chosen appraiser and provides details about the property and the purpose of the appraisal.
• Appraiser Contact: The appraiser reaches out to the homeowner directly, usually by phone or email, to initiate communication and schedule the visit.
• Availability Discussion: The appraiser discusses their availability and inquiries about the homeowner’s preferred date and time for the visit. They may offer multiple slots to accommodate the homeowner’s schedule as much as possible.

Confirmation and Logistics:

• Confirmation: Once a mutually agreeable date and time are chosen, the appraiser sends a confirmation email or letter to the homeowner outlining the appointment details, including the date, time, and expected duration of the visit.
• Access Arrangements: The appraiser clarifies access arrangements for the property. This could involve:
  • Homeowner Presence: In some cases, the homeowner may be present during the inspection to answer any questions the appraiser might have about the property or address specific features.
  • Alternative Access: If the homeowner cannot be present, alternative arrangements like providing a lockbox code or coordinating access with a neighbor or property manager might be necessary.
  • Tenant-Occupied Property: If the property is tenant-occupied, the appraiser may require the homeowner to obtain written permission from the tenant to access the property for the inspection.
• Pre-visit Communication: The appraiser might request any relevant documents from the homeowner beforehand, such as property tax records, recent renovation receipts, or homeowners’ association information. This helps them gather additional context and prepare for the visit.

Flexibility and Rescheduling:

• Unexpected Situations: Both the homeowner and the appraiser should be prepared for unexpected situations that might necessitate rescheduling. This could include inclement weather, unforeseen repairs, or scheduling conflicts.
• Communication is Key: In case of needing to reschedule, prompt and clear communication is crucial. The homeowner or the appraiser should inform the other party as soon as possible, allowing time to find a suitable alternative slot.
• Understanding the Costs: While rescheduling due to the appraiser’s unavailability is typically covered within their fee, repeated rescheduling due to the homeowner’s side might incur additional charges. It’s important to communicate any potential delays proactively to avoid unnecessary costs.

By understanding these details, homeowners can contribute to a smooth scheduling process for the appraisal, ensuring a timely and efficient evaluation of their property.

By following these steps and understanding the appraiser selection process, you can ensure a smooth and professional appraisal experience while potentially maximizing your property’s perceived value.

By understanding who typically initiates an appraisal, the associated costs, and the factors influencing the fee structure, individuals involved in real estate transactions can make informed decisions and navigate the appraisal process smoothly.

Market Analysis and Valuation

Comparable Sales Analysis (Comps): The Cornerstone of Valuation

Comps are the foundation of an appraisal. They represent recently sold properties considered most similar to the subject property in terms of:

• Location: Ideally, comps should be situated in the same neighborhood or a comparable one with similar demographics and amenities.
• Size and Features: Square footage, number of bedrooms and bathrooms, presence of a garage, pool, or other significant features should closely resemble the subject property.
• Age and Condition: The appraiser considers the general condition of the comps and compares them to the subject property’s overall state of repair and maintenance.
• Sale Date: Comps should have sold within a specific timeframe, typically within the last 6-12 months, to reflect current market trends.

Adjustments and Adjustments Grid: Accounting for Differences

The appraiser acknowledges that no two properties are identical. They utilize an adjustments grid to account for the differences between the subject property and the comps. This grid typically includes:

• Positive Adjustments: Enhancements that increase the value of the subject property compared to the comps, such as a recent renovation, upgraded finishes, or a desirable lot size. The appraiser assigns a dollar value to each positive adjustment based on market data.
• Negative Adjustments: Features that detract from the value of the subject property compared to the comps, such as outdated features, proximity to undesirable amenities, or a smaller lot size. Similar to positive adjustments, the appraiser assigns a dollar value to each negative adjustment.

Market Research and Trends: Capturing the Bigger Picture

Comps provide valuable data points, but they don’t exist in a vacuum. The appraiser incorporates broader market research and trends to refine the valuation:

• Supply and Demand: A healthy market typically has a balanced inventory of available homes and buyer demand. An overabundance of listings or a surge in buyer activity can influence the appraised value.
• Recent Market Activity: The appraiser considers recent sales data beyond the chosen comps to understand the overall direction of the market, whether values are rising, falling, or remaining stable.
• Local Economic Factors: Economic conditions in the area can impact property values. The appraiser may consider factors like employment rates, local income levels, and anticipated development projects.

Reaching a Fair Market Value: Informed Judgment

By analyzing the property inspection, comps data with adjustments, and broader market factors, the appraiser forms an informed opinion of value (IOV). This IOV represents what a willing buyer would likely pay to a willing seller in an arm’s length transaction, considering all relevant factors and not influenced by undue pressure.It’s crucial to remember that the appraisal is an objective estimate, not a guaranteed sale price. The final selling price of a property can be influenced by various factors beyond the appraised value, such as negotiation strategies, buyer motivation, and market fluctuations.

Conclusion

The journey to fair value:

Each step in the appraisal process plays a crucial role in reaching this objective. Scheduling the visit ensures timely completion and allows the appraiser to gather necessary information. The meticulous inspection reveals the property’s condition, features, and functionality. Analyzing data, particularly comparable sales and market trends, provides context and helps the appraiser adjust for any unique features or market fluctuations.