WHO, WHAT, WHY, and HOW to Understand a Real Estate Appraisal
By Charles Hopkins
Published 09/20/2007 | Real Estate
WHAT is an appraisal?
An appraisal is a process to determine value regulated by the Government.
In real estate a person needs to get a value (an appraisal) for their home because:
1. They want to borrow money.
2. They want to buy or sell a house or business.
3. They need to determine a value for a family situation.
The person who goes thru the process to determine the value is an
appraiser; state licensed and regulated, trained, and experience in
real estate where the home is located.
There is a big difference in appraisers, based on their training,
experience, and attention to detail. The opinion of value in an
appraisal report is an estimated fair market value; the price a normal
buyer would pay a normal seller for the home if it were for sale. The
appraiser uses local market information to arrive at this opinion of
Why does someone need an appraisal?
If a loan is involved, a Lender (the guy with the money) wants to
be sure they get their money back. The lender hires an appraiser to
determine the home's value in case the Lender has to sell the home to
get their money back.
The client of the appraiser is whoever orders the appraisal,
usually a bank or mortgage company. Only the Client has the right to
the information they request, no matter who pays for it. This is to
protect the privacy of the information in the appraisal report.
However, the Government also says that when a person pays for an
appraisal, they are entitled to an entire copy (all the pages) from the
client (i.e. lender). The appraiser can only share information with the
How is the value of a home determined?
1ST, the appraiser visits the home to see what it is like-it's
size, age, condition, etc. The Appraiser takes pictures to show the
Lender (a picture is worth 1000 words). The pictures are NOT taken to
see if a person is a good housekeeper. Instead, the pictures tell about
the materials the home is made from, and if there are amenities, like a
fireplace, a custom kitchen, a vaulted ceiling, or other structural
items that increase a home's value.
2ND, the appraiser drives around the neighborhood and gathers
information about the neighborhood that may affect value, like distance
to schools, maintenance of nearby homes, type of home styles, distances
to shopping and businesses, etc.
3RD, the appraiser verifies public records at the courthouse to be
sure who owns the home, and obtains information about the piece of land
the home is on, taxes, etc.
4TH, the appraiser confirms information about other recent home
sales similar to the subject home (comparable sales or comps) from real
estate professionals and public records.
5TH, the appraiser puts the information into a report the client wants (there are over 30 different types of reports.)
Government rules for Appraisers (USPAP-The Uniform Standards of
Professional Appraisal Practice) require that appraisers consider
recent sales of homes in the local market (Sales Comparison Approach),
the cost to build the home today minus depreciation for the home's age
(Cost Approach), and income from home rental if it is rented (Income
Lenders are mainly interested in what a home may sell for (Sales
Comparison Approach) in case they have to sell it to get their money
Look for additional articles regarding reasons why a seller may
want an appraisal instead of a competitive market analysis (CMA) or a
broker's opinion of value (BPO), why an estate needs an appraisal, how
to find a good appraiser and why experience is THE most important
quality in an appraiser.