What is an Appraisal?

An appraisal is an opinion of value that can apply to real property, such as land, houses, and buildings. A standard residential appraisal does not take personal property such as cars, jewelry, boats, etc. into consideration. For lending transactions, typically a state licensed or certified real estate appraiser completes the inspection report. The appraiser uses information such as the age of the home, number of rooms and amenities to determine the market value of the home. The appraiser also takes into consideration sales information from similar homes in the area to help in determining the value.

What is the Market Value?

The market value is the major focus of most real estate appraisal assignments. The market value can be defined as the most probable price the property should sell for in an open and competitive market.

What is the appraisal used for?

Appraisals can be used in many different circumstances, including when a property is sold, taxed, insured and financed, but it is almost always used to attach a value to the property. If the subject property is being used as collateral in a loan transaction, the lending institution may require an appraisal as an appropriate determination of value in order to justify the loan amount being requested.

What does the appraiser consider in determining the value of the subject?

For most residential valuations the appraiser is required to measure the house from the outside to determine square footage. This external measurement is standard throughout the industry for full appraisals. Typically no interior measurements are required. The appraiser will take notes throughout the inspection concerning the features of your house such as room layout, number of bedrooms, baths, etc. The appraiser also makes a determination of the general condition, appeal, and functional layout of your house. All of these items are taken into consideration in the appraisal report. The physical inspection of a typical property usually takes between five and fifteen minutes. Sometimes the inspection can take longer if the house is difficult to measure or has some unique features that require additional investigation by the appraiser. After the initial inspection of the property, the appraiser spends time touring through the neighborhood or area. The purpose of this tour is to search for other properties that are similar to your property that have sold within the last year. The appraiser must correlate sales information in your home's neighborhood with the relevant information associated with your home in order to determine market value. As such the appraiser cannot provide you with an opinion of value during the inspection of your home. When the field work is finished, the appraiser completes the report at his office. The report is usually about ten pages long and has taken over four hours to complete.

Does the appraiser do a whole house inspection?

No, an appraiser is not a home inspector, engineer, architect, electrician, plumber, H.V.A.C technician or contractor. The appraiser briefly walks through the house to get an idea of the general condition and room count, and if looking for obvious items, not hidden defects, for example hidden structural, or other concerns. An appraisal is never a guarantee of condition.

Will I be able to learn the value from the appraiser while he is there?

It is common for the owner to ask the appraiser how much the property is worth as soon as the inspection is completed. The truth is at this time the appraiser does not have enough information available to ethically indicate an opinion of value. In fact, it would be a violation of state licensing laws for the appraiser to simply indicate a value without completing all the research steps necessary after the inspection. When the appraiser completes the physical inspection of the home, his work is just beginning. He will then compile data about local market conditions from public record and evaluate which sales appear to be the most similar indicators of value in your home's marketing area. The appraiser takes all of this information into consideration and uses it to come to a reasonable value conclusion of the property. As such, the appraiser will have no opinion of value to give you at the time he is at your house.

If the appraiser is not from my area, how can he properly value my property?

The appraiser assigned to value a property should always be familiar with the specifics of an area or neighborhood. A common misconception is that only someone who lives close by would know the area. Many appraisers cover multiple counties as they are able to maintain comprehensive data on all areas that they appraise. Please remember that it is the appraisers job to know the area that he is working in and to do as much research as necessary to complete the job correctly.