The Why and How of Real Estate Appraisals Explained

There are many situations in today's market that call for an appraisal of a piece of property or parcel of land.

Some of the most common reasons for appraisals are as follows:

Purchase of a home
Refinance
Home equity loan
PMI removal
Divorce settlement
Estate liquidation
Relocation
Home improvements
Selling a home

An appraisal is ordered by a lender, a homeowner, an attorney or any other person authorized in certain transactions.

Once an appraisal has been ordered, the appraisal company will, in most cases, contact the borrower or homeowner to schedule an inspection. A majority of appraisals consist of the appraiser gaining access to the interior and exterior of the entire property. Prior to the inspection, the appraiser or appraiser's assistant will do some basic research using public records to find sales history and approximate square footage as well as any other unique features of the property (on a lake, golf course, etc.) as well as locating properties that sold recently that are similar or comparable in terms of living square footage, lot size, frontage, etc.

During the inspection, the appraiser will measure the house to determine a precise calculation of living square footage. They will also take pictures of the interior and exterior of the property and make notes of any special features, damage or anything else that may assist in the accurate valuation of your home.

Once the appraiser has inspected the property and has selected a few comparable sales in close proximity, they will begin to determine the value of the subject property. Comparing each sale with the subject property side by side does this. Adjustments are made to reflect slight difference between each property. For example, if one comparable sale is 200 square feet larger than the subject property, an adjustment will be made to reflect as such. Other differences include age of the property, difference in building materials (shingle roof vs. barrel tile roofs, concrete block vs. frame, etc.), property view, heating/cooling system, energy efficient items, garage/carport, and porch/patio/deck.

Once each comparable sale has been compared to the subject property, the appraiser is able to determine a value using the sales comparison approach.

The appraiser will compile the completed report, making note of all findings, positive and negative. All pictures taken at the time of the inspection will be added to the report and the report will be signed by the appraiser and sent off to the lender, bank or homeowner.