- Interviewing the buyer/seller and the most knowledgeable people about the home.
- An inspection of the home and the surrounding area.
- Assessment of the useability and functionality of the home, as well as determining any undesirable aspects of the
- A determination of the recent actual selling prices of similar homes inyour area
- Preparation of a detailed report, the appraisal, containing the required information for submission.
A copy of your survey showing the size and dimensions of your lot. When you purchased the home and what you paid for it. A copy of your most recent property tax bill. A copy of the deed or title report containing the legal description of your property. The floor plan of your home, preferably including any additions or modifications made since the home was originally built. A list of all personal property which is to be sold with the house, assuming of course that you are selling it. A list if improvements you have made which moght increase the homes value. Any other information you may have about your home which may influence the value.
The appraisal process begins with a telephone or in-person interview with you about your home, as well as thorough preliminary research of recent home sales and listings in your neighborhood. In appraisal language, these sales and listings are called 'comps', short for comparable properties, and your home is referred to as the 'subject'. If the appraiser knows in advance that there is something unique about your home, such as a finished basement area or an unusually large living area, additional research will have been done to find homes displaying that characteristic, however far one has to go to find them.
Let's look at that ten minute walk-through. Home inspections include both exterior measurement and observation as well as interior so that, even if the appraiser is only inside your home for ten minutes, he or she may have spent five to twenty minutes outside. In fact most home inspections last from thirty minutes to an hour. The experienced appraiser may have inspected homes with your type of floor plan on numerous occasions and, along with a few precise measurements, can quickly gather enough information to provide an accurate scale drawing of your home, complete with placement of interior walls. At the same time, the home's condition, the quantity and quality of ongoing maintenance, and any functional or external inadequacies are obvious to the practiced eye. Functional inadequacy results from such things as an out-of-date kitchen, a bedroom or man bathroom accessible only through another bedroom, or an over-improvement, such as an in-ground swimming pool or a second family room. Location close to a noisy freeway is an example of an external inadequacy.
A lot has been added to that ten minute walk-through! Having made a sketch of your home, computed its size and noted its striking characteristics, the appraiser is now in a position to select an appropriate supply of comps from the data already collected. If, during the inspection, the appraiser learns of something that would affect the value of your home, he may return to the office to do more research. The appraiser drives by all possible comps for the purpose of exterior inspection, making notes on condition and location and photographing them. Returning to the office, he may make phone calls to agents and other parties involved to confirm observations or to gather further information about the properties and/or financial aspects of the transactions. Often property information from several sources is in conflict, and it is the appraiser's task to determine the true state of affairs by means of research, experience and good judgement.
Next, the appraiser writes a detailed report with several addenda, including copies of parcel and neighborhood maps as well as photographs of your home and the best comps available (at least three and usually four or five are required for a well-supported argument in favor of the appraised value). Every effort is made to substantiate the appraiser's opinion of market value.
This value conclusion is not based in any way on the personal or architectural preferences of the appraiser. Rather it is a carefully reasoned value based on recent real estate activity of properties similar to yours. If homes like yours are selling well at good values, you should have a relatively high appraised value. If not, the market is saying something else to you. A good appraisal is an unbiased report by a disinterested professional of how current and recent buyers and sellers would value your home were you to place it on the market.
The completed appraisal is packaged and transmitted to the mortgage agent with three sets of photographs and takes on a life of its own. (It must be admitted that there are a complete range of skill levels among appraisers and it is always wise to personally read the appraisal report when it becomes available.)
During its life, which is typically three months, the appraisal report may be subjected to minute and hostile examination by any one of several lenders and their staff reviewers. The sole purpose of the reviewer may be to uncover inflated appraised amounts. For this period of time, the appraiser may have to answer inquiries from several lenders about any aspect of the report. These answers may be by telephone but are usually required in writing and can be quite extensive. These challenges may contain erroneous information. The only way to deal with them properly is to spend the time and effort required to research and disprove the data point by point in a lengthy letter, thereby ensuring the borrower the best chance of securing the requested loan. A concerned and well-informed appraiser can often be the difference between a perfectly good loan being granted or denied. This is especially true during periods of sudden fluctuation in financial markets which may prompt lenders to peruse loan applications with extreme niceness in response to short term financial restrictions. For the appraiser with professional pride and a commitment to customer service, the time spent fielding these requests during the loan process is just as much a part and cost of doing business as the appraisal process itself.
It should be noted that the appraiser can only adequately defend an appraisal that has been properly researched and reasoned in the first place. A value that starts out too high cannot be defended and in most cases will not result in a loan.
Appraisers have several overhead costs which may not be obvious to the typical homeowner. First, state licensing and ongoing education requirements require continual expenditures of time and money. Errors and Omissions insurance to deal with legal suits brought by both borrowers and lenders is also a must. Further fees are required for both on-line and in-house information such as Multiple Listing Service for current market data, and express services for parcels, census tract information, and sales confirmation. Other printed or CD-ROM material for special purposes such as 2- 4 unit income properties are also required for the maintenance of a full range of customer products. Occasional trips to local building departments to check for permits can be very time consuming but are also part of the job.
Looking at the appraisal process as a whole, it is clear that it takes many hours and can extend over several months with the appraiser as the defender of his opinion of value and sometimes the champion of the borrower. In the end, a good appraiser wants to work with the borrower to ensure the accurate description of all factors which may contribute to value. It may be well to think of the appraiser as an unbiased professional who can be of great benefit to you in obtaining a well-secured loan. In the everyday world, we all have a natural economic self- interest and sentimental attachments which can make it impossible to see the present value of our own home. The appraisal can provide us with accurate information on the current value of our property which may be of great benefit in future financial planning.