If you are looking at purchasing a home – or refinancing your current home – you have likely had your lender talk about getting an appraisal. What is an appraisal, and how is it completed?
A home appraisal is performed by a licensed person that has been trained (quite extensively) in valuation of real property. The lender will hire this person to look closely at the home and the local market to give a value of the property on the day of the inspection.
The lender will order the appraisal to verify that the value of the property is at or above the sale price (or refinance loan value) of the property.
From the homeowner’s point of view, the appraiser will call them or their agent to schedule a time to visit the property. They will visit the property, take photos inside and outside, and measure the outside of the house and any outbuildings. They will ask questions about the property, if any improvements have been made, if there are any issues with the property, etc. I always encourage the homeowner to take the time to make a list of improvements that have been made to the property, and to prepare the property as though listing photos are being taken.
The appraiser will spend some time researching the property and local market and find similar, or comparable, properties. They will compare several aspects of the comparable properties to the subject property, giving these aspects a value that will contribute to a final opinion of value for the subject property.
An appraiser is NOT a home inspector. While an appraiser will look for health and safety items, they do not inspect everything that a home inspector will. Depending on the loan product, they will look for things like peeling paint, damaged shingles, loose carpeting, etc. They will note items like broken windows, loose steps, cracks, etc. to make the lender aware of potential issues with the home.
The appraiser will ask about improvements that have been made, and will use that information when comparing the property to comparable properties. For example, if your home has not had any updates, but a very similar house that sold last month 3 doors down has been fully updated, a typical buyer would not be willing to pay the same amount for both homes. It does not simply come down to square footage. Number of bedrooms and bathrooms, updates, finishes, landscaping, and deferred maintenance will all play a factor in valuing the property.
If you have any questions about appraisals, please reach out! I am currently working towards certification as an appraiser in Colorado, and would love to chat.
This is part of my Real Estate 101 series, designed to help answer your real estate questions!