My Appraisal

To determine the value of the property you are purchasing, an appraisal will be required. An appraisal report is a written description and estimate of the value of the property. The appraised value is an opinion of value reached by an appraiser based upon knowledge, experience, and a study of pertinent data. National standards govern not only the format for the appraisal; they also specify the appraiser's qualifications and credentials. In addition, most states now have licensing requirements for appraisers evaluating properties located within their states. Appraisal requirements will vary based on selected financing option. The appraiser will create a written report for us and you'll be given a copy of your appraisal report no less than 5 days prior to your settlement date. Typically the appraiser will inspect both the interior and exterior of the home. However, in some cases, only an exterior inspection will be necessary based the location of the home and the specific requirements of the financing product.

After the appraiser inspects the property, they will compare the qualities of your home with other homes that have sold recently in the same neighborhood. These homes are called "comparables" and play a significant role in the appraisal process. Using industry guidelines, the appraiser will try to weigh the major components of these properties (i.e., design, square footage, number of rooms, lot size, age, etc.) to the components of your home to come up with an estimated value of your home. The appraiser adjusts the price of each comparable sale (up or down) depending on how it compares (better or worse) with your property.

As an additional check on the value of the property, the appraiser also estimates the replacement cost for the property. Replacement cost is determined by valuing an empty lot and estimating the cost to build a house of similar size and construction. Finally, the appraiser reduces this cost by an age factor to compensate for depreciation and deterioration. If your home is for investment purposes, or is a multi-unit home, the appraiser will also consider the rental income that will be generated by the property to help determine the value. Using these three different methods, an appraiser will frequently come up with slightly different values for the property. The appraiser uses judgment and experience to reconcile these differences and then assigns a final appraised value. The comparable sales approach is the most important valuation method in the appraisal because a property is worth only what a buyer is willing to pay and a seller is willing to accept.

It is not uncommon for the appraised value of a property to be exactly the same as the amount stated on your sales contract. This is not a coincidence, nor does it question the competence of the appraiser. Your purchase contract is the most valid sales transaction there is. It represents what a buyer is willing to offer for the property and what the seller is willing to accept. Only when the comparable sales differ greatly from your sales contract will the appraised value be very different.