THE APPRAISAL PROCESS

An estimate of value is required before the lender will make a loan on a property.  It is common for lenders to require that appraisals conform to the Uniform Standards of Professional Appraisal Practice.  This is done so that consistent, detailed information is provided on all appraisals allowing protection for both the bank's and the buyer's investments.  The appraisal provides an estimate of the value of the property.  The information in the appraisal is necessary to evaluate whether or not the property is adequate security for the loan.  An appraisal is a report made by a qualified person setting forth an opinion or estimate of value.  An independent appraiser inspects the property, neighborhood,and at least three other properties of comparable size and style.

Appraisers are licensed by the state in which they work. These individuals undergo an apprenticeship generally for two years. The apprentice appraiser will minimally work under the supervision of an experienced licensed appraiser.  The final opinion of value is based primarily on the experience and logic of the particular appraiser who completes the report.

You are entitled to a copy of the appraisal simply because you paid for it.  As a convenience to my clients, I will provide a copy of the appraisal report once I receive it from the appraiser. I will analyze the report and discuss any matters of concern with you.

The lender will order an appraisal of the property immediately after your loan application is completed and submitted.  Once the order for the appraisal is received by the appraiser, it will generally be completed within seven to ten days.  The appraisal report is then submitted with the loan package for review by the underwriter.

An appraisal is simply a supported estimate of value.  There are three approaches to estimating market value of a property:  the Cost Approach, the Income Approach, and the Sales Comparison Approach.  

The Cost Approach measures the value of a house from what it would cost to reproduce it.  

The Income Approach relies on the analysis of income generated by the property to determine value.  This approach is not generally used for assessing the value of single-family homes because these homes are not typically used for generating income.  

The approach which tends to be weighted most heavily is the Sales Comparison Approach.  This approach identifies what similar properties have sold for in the same market place over the last two to eight months, and then adjusts the values of the comparable to make them "more like" the subject property -- the property you are seeking to purchase.  

F.R.E.D NOTE:  When I prepare a mortgage for my clients it is always important to me that the appraiser has included the appropriate comparable properties in the data that comprise the appraisal report.  

This article is written by 

Frederick W. Ford

Insurance, Mortgage, and Real Estate Advisor

NMLS# 640619

Direct: (888) 410.8853 

This article is intended for informational purposes only and is not an advertisement nor solicitation.